FEDERAL COURT OF AUSTRALIA

Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50

THE COURT ORDERS THAT:

1.    Appeal dismissed with costs.

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

THE COURT ORDERS THAT:

1.    Appeal allowed.

2.    Declarations 1 and 2, and order 3 made by the Court on 13 February 2014 be set aside.

3.    Order 6 made by the Court on 13 February 2014 be set aside, and in lieu thereof it be ordered that, for the purpose of s 33ZB of the Federal Court of Australia Act 1976 (Cth), orders 4 and 5 made by the Court on 13 February 2014 bind the parties and group members, other than those who opted out of the proceeding.

4.    The order of the Court made on 19 March 2014 be set aside, and in lieu thereof it be ordered that the applicants pay the respondent's costs of the proceeding at first instance (other than costs, if any, specifically ordered in interlocutory proceedings), subject to any variation that may be made pursuant to application by Mr Paciocco and Speedy Development Group for such variation to be file and served together with any supporting material on or before 4 pm Monday 13 April 2015.

5.    The respondents pay the appellant's costs of the appeal.

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

REASONS FOR JUDGMENT

ALLSOP CJ

1    These are two appeals from orders of the Court made on 13 February and 19 March 2014 consequent upon reasons delivered by the primary judge (Gordon J) on 5 February 2014, following a five day hearing in December 2013. (See Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35.)

2    Though I have reached a different conclusion to the primary judge on a number of matters in the Australia New Zealand Banking Group Limited (ANZ) appeal (VID 149 of 2014), I wish to pay tribute to the meticulous detail and clarity that mark her Honour's reasons in respect of a large and factually and legally complex commercial case.

3    The organisation of these reasons is as follows:

The nature of the proceeding

4    The proceeding brought by Mr Lucio Paciocco and a company controlled by him, Speedy Development Group Pty Ltd (SDG), was a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth) in which they sought to set aside bank fees charged by Australia and New Zealand Banking Group Limited (ANZ) on various bases. The fees were referred to in the primary judgment as Exception Fees; and the contractual provisions justifying them were referred to as Exception Fee Provisions.

5    The attack on the fees was made on the basis that they were either penalties at common law or equity; or were the product of unconscionable conduct by ANZ within the meaning of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), ss 12CB and 12CC, or the Fair Trading Act 1999 (Vic) (the FT Act), ss 8 and 8A; or were unjust under the National Credit Code in Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth); or as unfair contract terms under the FT Act, s 32W and the ASIC Act, s 12BG.

6    For the following reasons ANZ's appeal should be allowed and that of Mr Paciocco and SDG dismissed.

7    It is appropriate to say at the outset that the case was run by Mr Paciocco and SDG, both below and on appeal, for the benefit not only of themselves but also of those in the group. No aspect of the penalties case was limited to them as applicants. In relation to the statutory claims, some aspects of facts attended the consideration of Mr Paciocco's claims, but he propounded those claims on his own behalf, as well as on behalf of the group.

The accounts and fees in question

8    The proceeding concerned three accounts held by Mr Paciocco – a consumer deposit account and two consumer credit card accounts, and one account held by SDG – a business deposit account. Using abbreviations to maintain the privacy of Mr Paciocco and SDG, the accounts were as follows and as referred to by the primary judge:

(1)    Mr Paciocco's consumer deposit account being an Access Advantage Account, called Savings Account 156;

(2)    Mr Paciocco's first consumer credit card account being a Low Rate MasterCard account, called Card Account 9522;

(3)    Mr Paciocco's second consumer credit card account being another Low Rate MasterCard account, called Card Account 9629; and

(4)    SDG's business deposit account being a Business Classic Account, called Business Account 58555.

9    Savings Account 156 was opened in June 1997 and from June 2009 had an overdraft facility with a limit of $500.

10    Card Account 9522 was opened in June 2006 with a credit limit of $15,000 that was increased to $18,000 in November 2009.

11    Card Account 9629 was opened in July 2009 with a credit limit of $4,000.

12    Business Account 58555 was opened in December 2008 and from April 2011 had an overdraft of $10,000 that was increased to $49,999 in November 2011.

13    The fees that were charged were of five kinds. For Mr Paciocco's accounts, they were honour fees, dishonour fees, non-payment fees, late payment fees and overlimit fees; and for SDG's account, they were honour fees, dishonour fees and non-payment fees. The terms of these fees were not in dispute and will be described later. The primary judge found the late payment fees to be penalties and the balance of the fees not to be penalties; and her Honour found that none of the statutory provisions applied to impugn ANZ's conduct or the fees.

14    The trial was limited to a determination of the claims in relation to the fees: (a) in the case of Savings Accounts, from May 2004 to 14 December 2009; (b) in the case of Card Accounts, after March 2004; and (c) in the case of Business Accounts, after August 2004. To the extent that the period after December 2009 was relevant (for Card Accounts and Business Accounts) the relevant terms were different before and after December 2009.

15    Before December 2009, the following were the contractual terms of the fees:

(a)    Late Payment Fee: the terms of Card Account 9522 were set out in [53]-[57] of her Honour's reasons, as follows:

53    The relevant contractual documents comprised a Letter of Offer dated 16 June 2006 (para 4 of Annexure 2), 'ANZ Credit Card Conditions of Use' dated September 2006 (para 5 of Annexure 2) (September 2006 Conditions of Use) and 'ANZ Personal Banking Account Fees and Charges' dated August 2006 (August 2006 Fees and Charges Booklet) (para 6 of Annexure 2).

54    The Letter of Offer dated 16 June 2006, under the heading "Minimum Repayment", stated:

Each month you are required to pay [the amount] by the Due Date shown on [the] statement of account.

55    The September 2006 Conditions of Use similarly stated:

The account holder must make the 'Minimum Monthly Payment' shown on each statement of account by the 'DUE DATE' shown on that statement of account.

56    Under the heading "Credit Fees and Charges", the Letter of Offer went on to state:

Late Payment Fee: A fee of $35 will be charged to your credit card account if the "Monthly Payment" plus any "Amount Due Immediately" shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement.

57    The Late Payment Fee was imposed by the August 2006 Fees and Charges Booklet:

Late Payment Fee                            $35

Charged to ANZ Low Rate MasterCard … if the "Monthly Payment" plus any "Amount Due Immediately" shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement.

Thus, the fee was charged 28 days from the end of the Statement Period if the minimum monthly repayment was not made by that date. The terms and conditions required that the minimum monthly payment be paid by the Due Date, which was 14 or 25 days from the end of the Statement Period. Thus there was a 14 day or 3 day period between the Due Date and the date on which a fee was charged if payment was not made – in effect, a grace period of 14 or 3 days.

(b)    Overlimit Fee: the terms of Card Account 9629 and Card Account 9522 were set out in [59]-[62] of the reasons, as follows:

59    For the Overlimit Fee on Card Account 9629 and the Overlimit Fee on Card Account 9522, the contractual documents comprised:

1.    in relation to the Exception Fee on 12 August 2009 on Card Account 9629 (Exception Fee 12), a Letter of Offer dated 24 July 2009 (para 7 of Annexure 2); and

2.    in relation to the Exception Fee on 6 September 2009 on Card Account 9522 (Exception Fee 13), the Letter of Offer dated 16 June 2006 (para 4 of Annexure 2);

3.     in relation to both Exception Fees:

(a)    'ANZ Credit Cards Conditions of Use' dated July 2009 (July 2009 Conditions of Use) (para 8 of Annexure 2); and

(b)    'ANZ Personal Banking Account Fees and Charges' dated July 2009 (July 2009 Fees and Charges Booklet) (para 9 of Annexure 2).

60    The July 2009 Conditions of Use stated in cl 2:

The Credit Limit

(a)    Your credit limit is set out in the Letter of Offer and is for the credit card account. If ANZ issues more than one credit card for use on your credit card account no separate limit applies for each credit card. The account holder can ask ANZ to increase or decrease the credit limit at any time. ANZ is not required to agree to any request to increase the credit limit. ANZ is not required to agree to any request to decrease the credit limit if the decrease would result in the outstanding balance exceeding the credit limit.

(b)    You must not exceed the credit limit unless ANZ has consented in writing or ANZ otherwise authorises the transaction which results in the account holder's outstanding balance exceeding the credit limit. By authorising a transaction which results in the account holder's outstanding balance exceeding the credit limit, ANZ is not increasing the account holder's credit limit. If you exceed your credit limit, you must pay the amount by which the outstanding balance exceeds the credit limit immediately.

(c)    Any withdrawal, transfer or payment from the credit card account will be made firstly from any positive (Cr) balance and secondly from any available credit in the credit card account.

(Emphasis added.)

61    Both Letters of Offer, under the heading "Credit Fees and Charges", stated:

Overlimit Fee: A fee of $35 will be charged to your credit card account at the end of the "Statement Period" shown on the statement of account if the balance of the account exceeds the "Credit Limit" during that statement period. Charged at a maximum of once per statement period.

[Note that the Letter of Offer dated 24 July 2009 stated that "A fee of $35* will be charged…" and "… account exceeds the "Credit Limit"# during that statement period…". Neither party contended that the matters referred to in the "*" or "#" had any substantive relevance to this case.]

62    The July 2009 Fees and Charges Booklet imposed the fee:

Overlimit Fee                                $35

•    Charged at the end of the "Statement Period" shown on the statement of account if the balance of the account exceeds the "Credit Limit" during that statement period …

•    Charged at a maximum of once per "Statement Period"

Thus, the fee was charged at the end of the Statement Period if the account balance exceeded the Credit Limit at any time during the Statement Period. It was charged once irrespective of the number of transactions that brought about the exceeding of the limit. The terms and conditions provided that a customer must not overdraw the account unless ANZ has consented in writing or otherwise authorises the transaction.

(c)    Honour Fee: the terms of Savings Account 156 were set out in [63] and [65]-[66] of the reasons, as follows:

63    Mr Paciocco was charged three Exception Fees on Saving Account 156 – a Saving Honour Fee on 15 September 2008 (Exception Fee 1), a Non-Payment Fee on 26 September 2008 (Exception Fee 2) and a Non-Payment Fee on 27 January 2009 (Exception Fee 3). All three Exception Fees were charged pursuant to the same contractual documents: A Signature Card for opening Saving Account 156 dated 10 June 1997 (para 1 of Annexure 2), 'ANZ Saving & Transaction Products – Terms and Conditions dated August 2008' (August 2008 Terms and Conditions) (para 2 of Annexure 2) and 'ANZ Personal Banking Account Fees and Charges' dated August 2008 (August 2008 Fees and Charges Booklet) (para 3 of Annexure 2).

…

65    Clause 2.12 of the August 2008 Terms and Conditions for Saving Account 156 provided:

Provision of Credit

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

…

If a debit would overdraw your account, ANZ may, in its discretion, allow the debit on the following terms:

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

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

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

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

…

(Emphasis added.)

66    The imposition of the Honour Fee was also addressed in the August 2008 Fees and Charges Booklet:

Honour Fee

•    Payable on each occasion that ANZ honours a drawing where sufficient cleared funds are not available in the account or when the credit limit on your account is exceeded.                         $35

…

The Honour Fee is payable on the date of the excess and drawings include those made at a branch, by cheque, or electronic banking. Electronic banking includes Internet, Phone, EFTPOS, Periodical Payments, Direct Debits and ATMs.

The fee was charged once per day, irrespective of the number of transactions where ANZ honoured a drawing when insufficient cleared funds were available or a credit limit was exceeded.

(d)    Non-Payment or Dishonour Fee: the terms of Savings Account 156 were set out in [67]-[68] of the reasons:

67    Clause 2.7 of the August 2008 Terms and Conditions provided:

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

68    The imposition of the Non-Payment Fee was also addressed in the August 2008 Fees and Charges Booklet. For "Periodical Payments", it stated that the "Non-payment fee" was $35.

16    After December 2009, the following were the contractual terms of the fees:

(a)    Late Payment Fee: the terms of Card Account 9629 – were set out in [72]-[75] of the reasons as follows:

72    For the Late Payment Fee on 12 January 2010 on Card Account 9629 (Exception Fee 14), the contractual documents comprised the Letter of Offer dated 24 July 2009 (para 10 of Annexure 2), 'ANZ Credit Cards Conditions of Use' dated December 2009 (December 2009 Conditions of Use) (para 11 of Annexure 2) and 'ANZ Personal Banking Account Fees and Charges' dated December 2009 (December 2009 Fees and Charges Booklet) (para 12 of Annexure 2).

73    The 24 July 2009 Letter of Offer, under the heading "Credit Fees and Charges", stated:

Late Payment Fee

A fee of $35* will be charged to your credit card account if the "Monthly Payment" plus any "Amount Due Immediately" shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement.

[Note that the material referred to in the asterisk had no substantive relevance to this case.]

74    The fee level was set in the December 2009 Fees and Charges Booklet:

Late Payment Fee                            $20

•    Charged to your credit card account if the "Minimum Monthly Payment" plus any amount "Payable Immediately" shown on the statement of account is not paid by the "Due Date" shown on that statement.

75    The other Late Payment Fees charged on the Card Accounts after December 2009 were charged pursuant to different contractual documents. There is no dispute that the terms in those documents were not materially or substantively different from those applicable to Exception Fee 14.

Thus, the Late Payment Fees on the card accounts after December 2009 were substantially the same. The fee was charged if the minimum monthly payment plus any amount payable immediately was not paid by the Due Date.

(b)    Overlimit Fee: the Terms of these fees in the Card Accounts were various and set out at [76]-[81] of the reasons, as follows:

76    For the Overlimit Fee charged on 12 May 2010 on Card Account 9629 (Exception Fee 15), the contractual documents comprised the Letter of Offer dated 24 July 2009 (para 10 of Annexure 2), 'ANZ Credit Cards Conditions of Use' dated March 2010 (March 2010 Conditions of Use) (para 13 of Annexure 2) and the December 2009 Fees and Charges Booklet (para 12 of Annexure 2).

77    Clause 2 of the March 2010 Conditions of Use stated:

The Credit Limit

(a)    Your credit limit is set out in the Letter of Offer and is for the credit card account. If ANZ issues more than one credit card for use on your credit card account no separate limit applies for each credit card. The account holder can ask ANZ to increase or decrease the credit limit at any time. ANZ is not required to agree to any request to increase the credit limit. ANZ is not required to agree to any request to decrease the credit limit if the decrease would result in the outstanding balance exceeding the credit limit.

(b)    From time to time, there may be a debit made to your credit card account which, if processed, would temporarily result in the outstanding balance exceeding your credit limit. ANZ has an Informal Overlimit service to help you in these circumstances.

(c)    When a debit is initiated which, if processed, would result in the outstanding balance temporarily exceeding your credit limit, you make a request for an Informal Overlimit amount. ANZ will consider your request for an Informal Overlimit amount and, if both the debit and the account holder satisfy ANZ's credit criteria for Informal Overlimit amounts, ANZ will allow the debit to be processed as an Informal Overlimit amount, on the following terms:

•    interest will be charged on the Informal Overlimit amount at the applicable interest rate for purchases, cash advances and other payments (see Condition (19));

•    an Overlimit Fee will be charged (refer to the Letter of Offer for details);

•    the Informal Overlimit amount, any interest on that amount and any Overlimit Fees will be debited to your credit card account; and

•    you must repay the Informal Overlimit amount on the earlier of:

-    the time shown for payment of 'Overdue/Overlimit' amount on the next statement of account after the Informal Overlimit amount is debited to your credit card account; and

-    the day that is 60 days after the day on which the Informal Overlimit amount is debited to your credit card account.

(d)    By processing a debit as an Informal Overlimit amount, ANZ is not increasing the account holder's credit limit.

(e)    Any withdrawal, transfer or payment from the credit card account will be made firstly from any positive (Cr) balance and secondly from any available credit in the credit card account. An Informal Overlimit amount will only be provided if there is no available credit in the credit card account and both the debit and the account holder satisfy ANZ's criteria for Informal Overlimit amounts.

(f)    If you want to avoid exceeding your credit limit, you should ask ANZ:

-    how to have ANZ decline transactions you initiate that will take you over your credit limit – please note that this service is not available for all transaction types (for example, it is not available for a transaction that is not electronically authorised such as a purchase that is manually debited to your credit card account if EFTPOS is not available). Please ask for our Overlimit Credit Card Opt Out Form;

-    about ways in which you can monitor the balance of your credit card account; or

-    if you have longer-term, ongoing borrowing needs, how to apply for an increase to the account holder's credit limit or for information about other products that may suit your needs.

(Emphasis added.)

78    The 'ANZ Personal Banking Account Fees and Charges' dated November 2011 (November 2011 Fees and Charges Booklet) set the fee for Overlimit Fees 19-22 and 24-26. There was no dispute that the relevant Exception Fee Provisions in the December 2009 Fees and Charges Booklet and the November 2011 Fees and Charges Booklet were not materially or substantively different. They provided:

Overlimit Fee                                $20

•    Charged to your credit card account at the end of the "Statement Period" shown on the statement of account if we agree to provide an Informal Overlimit amount during that statement period. The Overlimit Fee is charged at a maximum of once per statement period.

79    The other Overlimit Fees charged on the Card Accounts in this period were charged pursuant to different contractual documents. Some of the provisions were redrafted. In the 'ANZ Credit Cards Conditions of Use' dated June 2010 (para 14 of Annexure 2) (and in all subsequent versions) a preamble was added to the document under the heading "Important things to know about using your ANZ credit card", which included the following:

Fees

We tell you which fees can apply to your credit card account in the Letter of Offer that we sent to you, and you can also find these in the ANZ Personal Banking Account Fees and Charges booklet which is available on anz.com or at any ANZ branch.

Some of the key fees you need to know are below:

…

Fees that apply when you do something, or request us to do something for you

We provide you with services on your credit card account and sometimes there are fees for doing so. The most common service fees are:

…

•    Late Payment Fee

•    Overlimit Fee (not applicable to ANZ Visa PAYCARD and ANZ Rewards Visa PAYCARD accounts, or if you hold an ANZ Access Basic Account)

You can avoid some of these fees:

You can avoid a Late Payment Fee by paying the Minimum Monthly Payment shown on your statement by the due date

•    We have convenient services available to you that make it easy to make your minimum payment on time such as CardPay Direct – please ask us for details.

You can avoid an Overlimit Fee by staying within your approved credit limit

•    We tell you what your credit limit is on your Letter of Offer that we sent you, and it's also shown on your monthly account statement

•    Sometimes you might have a transaction that temporarily causes you to exceed your credit limit. In this situation, we want to help you avoid embarrassing moments such as being declined while purchasing your groceries. Where you and the transaction which would exceed your credit limit satisfy our criteria, we will provide you with a convenient service to cover your payment needs – we call this service an Informal Overlimit facility. An Overlimit Fee will be charged for this service.

•    You can also ask us to decline certain transactions so that you don't exceed your credit limit. Please see clause 2 in this booklet for further information.

80    For some of the Overlimit Fees (Exception Fees 29, 30, 32, 33 and 35), the Fees and Charges Booklet was amended with effect from June 2012 (para 15 of Annexure 2) as follows:

Overlimit Fee                                $20

A.    Charged to your credit card account at the end of the "Statement Period" shown on the statement of account where:

•    any type of debit is initiated on your credit card account that would cause you to exceed your credit limit during the Statement Period; and

•    we agree to provide you with an Informal Overlimit amount to allow this debit to be charged to your credit card account.

81    For Exception Fees 39, 40, 43 and 44, the Fees and Charges Booklet was amended with effect from March 2013 and for the balance of the Overlimit Fees (Exception Fees 48 and 50), the Fees and Charges Booklet was amended with effect from July 2013. No party suggested that there was any material or substantive difference between the documents.

In substance, in December 2009, the terms and conditions were redrafted so that it was clearly stated that the initiation of a debit which would take the account outside its limits was a request for an informal overdraft to be considered by the ANZ; there was no express obligation that the customer must not overdraw the account.

(c)    Honour Fees: the terms of Business Account 58555 were set out at [83]-[88] of the reasons, as follows:

83    For the Business Honour Fees charged on 4 March 2010 and 9 July 2010 (Exception Fees 51 and 52), the contractual documents comprised a Signature Card regarding the opening of Business Account 58555 dated 15 December 2008 (para 16 of Annexure 2), a Company/Formal Trust Account Authority for the account dated 15 December 2008 (para 17 of Annexure 2), 'Business Transaction Accounts Terms and Conditions – ANZ Business Banking' dated December 2009 (December 2009 Terms and Conditions) (para 18 of Annexure 2) and 'Transaction Accounts Fees and Charges – ANZ Business Banking' dated December 2009 (December 2009 Business Fees and Charges Booklet) (para 19 of Annexure 2).

84    One of the applicable provisions in the December 2009 Business Terms and Conditions provided:

If you satisfy ANZ's credit criteria for an Informal Overdraft facility, ANZ will agree to your request by allowing the debit to be processed as an Informal Overdraft, on the following terms:

•    If the balance of your Informal Overdraft facility exceeds $50 at the time of your request, or will exceed $50 once the debit requested is processed, you will be charged an Informal Overdraft Assessment Fee on the day on which the debit is processed (or if that day is not a business day, on the next business day). The Informal Overdraft Assessment Fee (referred to in your bank statements and in the 'ANZ Business Banking Transaction Accounts Fees and Charges' booklet as an 'Honour Fee') is payable immediately.

85    The Honour Fee was set by the December 2009 Business Fees and Charges Booklet as follows:

Honour Fee                            $37.70

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

(b)    Other Honour Fees (Exception Fees 53-61 and 72)

86    For Exception Fees 53-61 and 72, the contractual documents comprised the documents at [83] above (or materially and substantively the same documents) as well as 'Finance Conditions of Use – ANZ Business Banking' dated August 2011 (para 22 of Annexure 2) (or a later version which was materially and substantively the same) and 'Finance Fees and Charges – ANZ Business Banking' dated December 2009 (or a later version which was materially and substantively the same).

87    For Exception Fees 53 and 54, the applicable provisions included the two provisions extracted at [84]-[85] above as well as the terms of an Overdraft Facility Letter of Offer for $10,000 dated 28 April 2011 (para 20 of Annexure 2) which stated:

A fee is charged if the balance of your Overdraft facility exceeds $50 or will exceed $50 after a requested debit has been processed. This fee is for considering a request for an Informal Overdraft where you satisfy ANZ's credit criteria.

88    For Exception Fees 55-61 and 72, the applicable provisions again included the two provisions extracted at [84]-[85] above. The Overdraft increased to $49,999 pursuant to an Overdraft Facility Letter of Offer dated 29 November 2011 (para 21 of Annexure 2). The relevant provision from that Letter of Offer provided that "[a]n Honour Fee of $37.70 is payable if ANZ pays drawings on your account in excess of the Facility Limit. This fee is payable on the date of the excess drawing".

Thus, the fee was expressed to be charged for considering a request for an informal overdraft, but would be charged once per day irrespective of the number of transactions.

(d)    Dishonour Fees: the terms of Business Account 58555 were set out at [89]-[91] of the reasons, as follows:

(c)    Dishonour Fees (Exception Fees 62-71)

89    For Exception Fees 62-71, the contractual documents comprised the documents at [86] above (or materially and substantively the same documents) as well as the Overdraft Facility Letter of Offer dated 29 November 2011 at [88] above.

90    The parties accepted that the contractual documents were materially and substantively similar to the December 2009 Terms and Conditions and the December 2009 Business Fees and Charges Booklet: see [83] above. The December 2009 Terms and Conditions provided:

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

•    there are insufficient funds in the account of the drawer;

…

ANZ may charge a dishonour fee.

…

If you do not satisfy ANZ's credit criteria for an Informal Overdraft, ANZ will decline your request and will not allow the debit to be processed. You will be charged an Informal Overdraft Assessment Fee (referred to in your bank statements and in the 'ANZ Business Banking Transaction Accounts Fees and Charges' booklet as an 'Outward Dishonour Fee') and this fee is payable immediately.

91    The December 2009 Business Fees and Charges Booklet provided:

Outward Dishonour Fee    $37.70 per dishonour

Charged for considering a request for an Informal Overdraft where you do not satisfy ANZ's credit criteria for an Informal Overdraft.

The fee was thus expressed to be charged per transaction for considering a request for an informal overdraft where the ANZ's credit criteria were not satisfied.

Penalties

17    It is convenient to deal with the question of penalties first. Mr Paciocco and SDG, as well as ANZ, appeal against the primary judge's conclusions.

18    It is convenient first to identify the approach of the primary judge and then consider the challenges to her Honour's reasoning and approach leading to her conclusion.

The approach of the primary judge

General principles

19    From [13]-[48] of the reasons, the primary judge set out the relevant principles in the light of the High Court's decision in Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; 247 CLR 205 (Andrews (HC)). As her Honour pointed out, the principal operative conclusion from Andrews (HC) was that the doctrine of penalties in Equity had not been subsumed in the common law leading to the necessity to consider the question at common law and in Equity.

20    Prior to her discussion of the principles at common law and Equity, the primary judge set out at [15] of the reasons a structure of analysis which she employed as follows:

15    To assist in understanding the form and substance of the following analysis, a particular stipulation may (not must) be considered by reference to the following steps:

1.    Identify the terms and inherent circumstances of the contract, judged at the time of the making of the contract: Dunlop at 86-87 and AMEV-UDC Finance Limited v Austin (1986) 162 CLR 170.

2.    Identify the event or transaction which gives rise to the imposition of the stipulation: Dunlop at 86-87 and Andrews High Court at [12].

3.    Identify if the stipulation is payable on breach of a term of the contract (a necessary element at law but not in equity). This necessarily involves consideration of the substance of the term, including whether the term is security for, and in terrorem of, the satisfaction of the term.

4.    Identify if the stipulation, as a matter of substance, is collateral (or accessory) to a primary stipulation in favour of one contracting party and the collateral stipulation, upon failure of the primary stipulation, imposes upon the other contracting party an additional detriment in the nature of a security for, and in terrorem of, the satisfaction of the primary stipulation.

5.    If the answer to either question 3 or 4 is yes, then further questions arise (at law and in equity: see Andrews High Court at [77]) including:

5.1    Is the sum stipulated a genuine pre-estimate of damage?

5.2    Is the sum stipulated extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved?

5.3    Is the stipulation payable on the occurrence of one or more or all of several events of varying seriousness?

These questions are necessarily interrelated.

6.    If the answer to question 5 is that the sum stipulated is not a genuine pre-estimate of damage and is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have been sustained by the breach, or the failure of the primary stipulation upon which the stipulation was conditioned, then the stipulation is unenforceable to the extent that the stipulation exceeded that amount. Put another way, the party harmed by the breach or the failure of the primary stipulation may only enforce the stipulation to the extent of that party's proved loss: Andrews High Court at [10].

21    A number of points relevant to the arguments on appeal need to be noted at this point. First, at [21] of the reasons, her Honour emphasised that whether a provision is a penalty at law is a question of construction that must be determined as a matter of substance viewing the contract as a whole; and the provision is judged at the time the contract is made.

22    Secondly, at [14] of the reasons, her Honour noted that although the circumstances that enliven the doctrine at common law and in Equity are different (breach of contract at law, and a collateral or accessory stipulation in Equity) common to both is that the provision will not be a penalty (at law or in Equity) unless it is "extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved." This point was the subject of some elaboration at [39]-[45] of the reasons. Importantly, at [39] of the reasons, the primary judge noted the essential element (at law or in Equity) of the sum being extravagant, exorbitant and unconscionable, referring to Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited [1914] UKHL 1; [1915] AC 79 at 86-87; Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; 224 CLR 656 at 669 [31]-[32]; Clydebank Engineering and Shipbuilding Company v Don Jose Ramos Yzquierdo Y Castaneda [1905] AC 6 at 10 and 17; AMEV-UDC Finance Ltd v Austin [1986] HCA 63; 162 CLR 170 at 197 and 201; and Story J, Commentaries on Equity Jurisprudence, as Administered in England and America (13th Ed, Boston: Little, Brown and Co, 1886) Vol 2.

23    In dealing with the position at law, the primary judge referred to Dunlop at 86-87, 97 and 101-102. In discussing the position in Equity, the primary judge noted the essential question identified by the High Court in Andrews HC at [10]: whether, as a matter of substance, the collateral or accessory stipulation operates in the nature of a security for, and in terrorem of, the satisfaction of the primary stipulation, in the sense that the collateral stipulation, upon the failure of the primary stipulation, imposes an additional detriment on the first party to the benefit of the second party. The identification of the existence of such a collateral stipulation involves recognising the "operative distinction" (Andrews (HC) at [80]-[82]) between such a stipulation and one giving rise consensually to an additional obligation in exchange for an additional benefit: Metro-Goldwyn-Mayer Pty Ltd v Greenham [1966] 2 NSWR 717 at 723-724 and 727.

24    In relation to this distinction, the High Court in Andrews (HC) at [80] quoted from French v Macale (1842) 2 Drury and Warren 269 at 275-276, in which passage Lord St Leonards said that the distinction was to be drawn "according to the true construction of the contract".

25    The primary judge further noted in this discussion of the position in Equity that the distinction between a penalty and a genuine pre-estimate of damages made by Lord Dunedin in Dunlop at 86 was a product of Equity jurisprudence: Andrews (HC) at [15]. It was the availability of compensation which generated the equity upon which the court intervenes: Andrews (HC) at [11]. Her Honour elaborated upon this critical distinction in an important section of her reasons at [40]-[42]. Though her Honour did not deal with the matter quite in the following terms in those paragraphs, the following can be seen to be the approach she was describing. Even if it be wrong to attribute the following to her Honour in these paragraphs, the following, nevertheless, represents an approach that is relevant to the resolution of this appeal and an approach that is, for the reasons later discussed, correct. The requirement for extravagance and unconscionability and its distinction from a genuine pre-estimate of damage must require the latter concept to be a broad objective one, not limited to a clause expressly said to be a genuine pre-estimate of damage or containing a sum actually fixed in amount by reference to contemporaneous considerations concerned with such. Rather, if extravagance and unconscionability, on the one hand, and a genuine pre-estimate, on the other, are to operate as the relevant universe of discourse, the latter must be a descriptive phrase used to explain a sum paid upon breach of a term or pursuant to a collateral stipulation upon the failure of the primary stipulation that is not extravagant and not out of all proportion to the compensation for the breach or failure of the stipulation. The penal character of the provision is derived from the extravagance of the relationship between the payment and the possible loss capable of compensation. If there is no such extravagance present, the provision failure of which (by breach or not) admits of compensation is taken to be a genuine pre-estimate of damage, and not penal in character. This is so, even if the parties do not express the clause to be an agreed pre-estimate of damage and even if the parties did not negotiate or set the amount payable by reference to an estimate of damage.

26    The legitimacy of the above approach is central to dealing with ANZ's appeal and its argument that the primary judge failed to address the question of extravagance and exorbitance prospectively, that is ex ante, in the manner that she said was necessary in [43]-[45] of the reasons, as follows:

43    How then does equity and the common law distinguish between provisions that are penal rather than compensatory? In AMEV, after acknowledging that equity and the common law have long maintained a supervisory jurisdiction not to rewrite contracts imprudently made but to relieve against provisions which are so unconscionable or oppressive that their nature is penal rather than compensatory, the High Court stated that the test to be applied in drawing that distinction (at 193):

is one of degree and will depend on a number of circumstances, including (1) the degree of disproportion between the stipulated sum and the loss likely to be suffered by the plaintiff, a factor relevant to the oppressiveness of the term to the defendant, and (2) the nature of the relationship between the contracting parties, a factor relevant to the unconscionability of the plaintiff's conduct in seeking to enforce the term.

That test was subject to an important qualification that "[t]he courts should not, however, be too ready to find the requisite degree of disproportion lest they impinge on the parties' freedom to settle for themselves the rights and liabilities following a breach of contract": at 193-194.

44    In assessing whether the stipulated sum is extravagant and unconscionable in amount in comparison to the maximum loss that might be suffered from the breach (or failure of the primary stipulation), the Court may receive evidence addressing the quantum of loss that may have been suffered, assessed as at the date of contract: Elberg v Fraval [2012] VSC 342 at [99]ff citing Robophone Facilities v Blank [1966] 1 WLR 1428.

45    That task is simply stated but not necessarily straightforward. It is for the Applicants to prove that the stipulated sum was extravagant and unconscionable but, as ANZ sought to do here, that does not prevent ANZ from seeking to establish that the stipulated sum was not extravagant and unconscionable: Clydebank at 16 and Ringrow at [27]. A calculation of the maximum loss that might be suffered from the non-performance of a primary stipulation involves a forward-looking or hypothetical assessment.

27    At [46]-[48] of the reasons, the primary judge discussed the correct approach in Equity once a provision is found to be penal: to relieve the burdened party of the penal effect of the provision by restricting the party with its benefit to compensation for loss actually suffered by it from the failure of the provision. This assessment is made ex post. So, the provision is unenforceable only to the extent that the amount stipulated exceeded the quantum of loss or damage proved to have been sustained by the breach or failure: see Andrews (HC) at [10] resolving the apparent discordance in AMEV-UDC Finance Ltd v Austin between the approach of Mason and Wilson JJ at 192-193 (favouring the unenforceability or voidness of penal provisions) and the approach of Deane J at 199-203 (limiting the unenforceability to that which exceeds the true damnification), in favour of the views of Deane J. At [48] of the reasons, her Honour said the following:

…Equity assesses the quantum of loss or compensation based on what is just and equitable, or fair and reasonable, in all the circumstances. …

28    It will be necessary to consider the scope of this compensation and its relationship to the ex ante assessment of what is extravagant or exorbitant. In this regard, it is to be borne in mind that the approach of Equity was, as Mason and Wilson JJ said in AMEV-UDC at 190, that the actual damage suffered was assessed in an action at common law such as in an action of covenant, or upon a special issue quantum damnificatus which could be joined in an action on the case. On the other hand, the ex ante assessment of extravagance or exorbitance can be seen to be infused by notions of disproportion to, and unconscionable excess over, the legitimate interests of the covenantee represented by "the greatest loss that could conceivably be proved to have followed from the breach": Dunlop at 87 (para 4(a)).

The wider framework in which to consider the provisions

29    After identifying the relevant contractual provisions at [49]-[91] of the reasons (as to which, see above) the primary judge considered the wider framework of the contractual provisions in question. The requirement for the proper context for the examination of the provision was derived from the requirement, as Lord Dunedin said in Dunlop at 86-87, of examining the provision in the "inherent circumstances" of each particular contract.

30    At [92]-[102] of the reasons, the primary judge referred to three bodies of context that were relevant: (a) the applicable regulatory framework that was described by her Honour in Andrews v ANZ [2011] FCA 1376; 211 FCR 53 at [87]-[134]; (b) the established principles concerning the banker and customer relationship summarised by her Honour in Andrews 211 FCR 53 at [81]-[82]; and (c) various "inherent circumstances" of each contract relied on by Mr Paciocco and SDG.

31    It is unnecessary to say anything about the regulatory framework at this stage. Neither side referred to her Honour's discussion of this in Andrews 211 FCR 53, nor indicated any error in that regard.

32    As to the principles concerning the relationship of banker and customer, the primary judge rejected the submission of Mr Paciocco and SDG that they were merely historical, saying that they were to be seen as inherent in the arrangement. In particular, the core banking law principles inherent in the arrangement included the following set out at [93] of the reasons and taken from Andrews 211 FCR 53 at [82]:

1.    A savings or deposit account is in law a loan to the banker: Pearce v Creswick (1843) 2 Hare 286; Dixon v Bank of New South Wales (1896) 17 LR (NSW) Eq 355; Khan v Singh [1936] 2 All ER 545. The bank borrows the money and proceeds from the customer and undertakes to repay them on demand. The bank's undertaking includes a promise to pay any part of the amount due against the written order of the customer addressed to the branch of the bank where the account is kept: Joachimson at [127]. Conversely, the bank will not pay any part of the amount due to the customer without such an order or some other compulsion or entitlement recognised by law;

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

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

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

33    At [95] of the reasons, the primary judge noted the four main "inherent circumstances" relied on by Mr Paciocco and SDG: (a) the lack of negotiation of the terms and their unilateral provision by ANZ; (b) the charging by other banks of similar fees; (c) the right of ANZ unilaterally to vary the terms and conditions; and (d) the determination of the quantum of the fees by ANZ and the fact that it did not do so by reference to any amount that would have been recovered in damages.

34    These considerations were accepted by ANZ; but it relied on a number of other considerations which were identified at [96]-[102] of the reasons. The first was the size of ANZ's business which included six million retail depositors, two million consumer credit card accounts and over half a million business accounts. These considerations dictated the nature and manner in which the contracts were offered, entered into and administered.

35    Secondly, the standard terms, offer letters and other documentation were all available to customers, at the time of opening accounts, in leaflets with statements, and in letters when honour fees were invoked. The accounts could be terminated at will; and it was up to the customer whether to engage in transactions.

36    Thirdly, customers had it within their power to avoid the fees. Apart from monitoring their own behaviour, they could "switch off" or opt out of the ability, except in certain circumstances, to overdraw their accounts and so avoid fees. Further, they could close accounts which did not permit or limit the right to overdraw.

Whether the provisions were penalties

37    With this background, her Honour then turned, in Part 6 of the judgment, to the analysis as to whether the different exception fees were penalties.

38    This analysis was done by reference to the two periods (pre and post-December 2009) and by reference to late payment fees and fees other than late payment fees.

Late Payment Fee – pre December 2009

39    The primary judge said that ANZ only maintained a formal submission, in relation to both periods, that the fee was not payable upon breach of contract. Her Honour proceeded to deal with the relevant provisions from [113] and from [180] of the reasons.

40    At [114] and [181] of the reasons, the primary judge rejected the submission of ANZ (that was renewed on appeal) that the fees were payable upon a further period of credit necessarily extended by it to the customer because of an absence of timely payment. Her Honour concluded at [114] of the reasons, referring to the provisions at [53]-[57] of the reasons (see [15(a)] above), as follows:

… A plain reading of the contractual documents and the applicable Exception Fee Provisions leads to the conclusion that the Late Payment Fee was payable upon breach by the customer of his contractual obligation to make payment by a stated date: see [53]-[57] above. Contrary to the submission of ANZ, the stipulation was not a fee payable upon a further period of credit necessarily extended by the bank to the customer because of the absence of timely payment. The credit had already been extended. It was the repayment of the credit, or at least part of the credit, already extended that ANZ was seeking. Put another way, no further credit was extended.

See also [181].

41    At [115] and [182] of the reasons, the primary judge said that if not payable upon breach, the late payment fee provision was collateral to the primary stipulation to pay by the due date.

42    At [116] and [182] of the reasons, the primary judge concluded that at law and in Equity the collateral stipulation was, as a matter of substance, to be viewed, as security for or in terrorem of, the satisfaction of the primary stipulation. This conclusion flowed from the express language, the subject matter of the stipulation (from not paying money), and from the fact that the payment was not for further credit.

43    It will be important, in due course, when dealing with the complaints of ANZ on its appeal to appreciate that her Honour can be taken to have incorporated her reasoning in Andrews 211 FCR 53 where she dealt in detail (at [239]-[251]) with the argument of ANZ, which was formally maintained and repeated. Thus, the expression used by the primary judge at [114]-[116] of the reasons, should be understood in the light of the more detailed treatment of the argument in Andrews 211 FCR 53 at [239]-[251].

44    These conclusions at [114], [115], [116], [181] and [182] are challenged on appeal. For the reasons expressed later, that challenge fails.

45    The primary judge then returned to extravagance, exorbitance and unconscionability with which she dealt at [117]-[169]. It is to be recalled that, on a number of occasions ([14], [15 (5.2)], [39] and [45] of the reasons), the primary judge referred to the essentiality of the party impugning the provision as penal to demonstrate (whether at law or in Equity) that the provision is extravagant or exorbitant and unconscionable in amount. ANZ contends that, in this section, the primary judge made a fundamental error by failing to deal with this question, either at all, or on the correct basis of a forward looking, ex ante analysis.

46    The primary judge began the analysis at [117] of the reasons by stating once again the further "and essential" element of a penalty (at law or in Equity) that the stipulated sum be extravagant, exorbitant and unconscionable. ANZ points out that, at this point in the reasons as supporting material, her Honour referred to the earlier parts of her reasons dealing not only with "Extravagant, Exorbitant and Unconscionable" (Part 4E), but also that dealing with "Loss and Damage" (Part 4F). The latter is the ex post calculation of loss in fact, once a provision has been characterised as penal.

47    The primary judge then, at [119], examined three categories of factual consideration that were said to be relevant to the question of extravagance and unconscionability. The first category were some features of the late payment fee. One feature was that the same fee was payable regardless of whether the late payment was of a short or long period or of a trifling or large amount. At [119], her Honour said, the test in para 4(c) in Dunlop was engaged – the so-called third rule of construction because there was a presumption (but no more) that the stipulation was a penalty because a single sum was payable by way of compensation on the occurrence of one or more or all of several events, some of which may occasion serious, and others trifling damage. The primary judge then continued at [119] of the reasons:

… As a result, there necessarily was a degree of disproportion between the stipulated sum and the loss likely to have been suffered by ANZ…

48    The primary judge continued at [120]-[121] of the reasons:

120    That degree of disproportion cannot be considered in isolation. Other contractual terms must be considered. In particular, it must be recalled that, in addition to the late payment fee, the same contractual documents entitled ANZ, amongst other things, to charge (which it did) annual interest of 12.24% on the specific outstanding amount.

121    That leads to the second rule of construction referred to by Lord Dunedin in Dunlop and described by him as conclusive: see [18(4)(b)] above. The first part of that rule of construction was applicable to the Late Payment Exception Fees – the breach (or failure of the stipulation) consisted only in not paying a sum of money. 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. Before turning to that aspect, it is necessary to consider the other categories of facts and matters identified by the Applicants.

49    Thus, at this point of the reasons, her Honour's approach was that, given the circumstances here were that the breach or failure was the failure to pay a sum of money (which could be $0.01, late by one day, or a large sum, late by weeks), the question of the "degree of disproportion" and the question whether the provision was penal fell to be considered by reference to whether or not no more was paid by the fee as the stipulated sum than the sum which ought to have been paid.

50    That exercise was dealt with by her Honour at [131]-[176] being the "quantitative assessment" by reference to the expert evidence of Mr Inglis and Mr Regan. Central to her Honour's approach was her conclusion, drawn from para 4(c) of Dunlop and Lord Elphinstone v Monkland Iron and Coal Co (1886) 11 AC 332 (see [119] of the reasons) that the provision was prima facie a penalty; and her conclusion as to the relevance of para 4(b) of Dunlop that given the fee was payable for the non-payment of a sum of money, the question was whether the sum was greater than the sum which ought to have been paid: Dunlop at 87 (see [121] of the reasons). The rebuttal of that presumption arising from para 4(a) of Dunlop and the enquiry required by para 4(b) of Dunlop was, her Honour said at [139], to be executed by undertaking an enquiry as:

… to what extent (if any) did the amount stipulated to be paid exceed the quantum of the relevant loss or damage which can be proved to have been sustained by the breach, or the failure of the primary stipulation, upon which the stipulation was conditioned: see [48] and [126]-[130] above.

51    By this expression of the matter, the primary judge did not consider it necessary to undertake a forward looking, ex ante, analysis in part because of the relevance and application of the third and second tests in paras 4(c) and (b) of Dunlop, respectively. The relevance and application of the third test (4(c)) reflects the acceptance by the primary judge that some breaches would lead to trifling damage. The second test (4(b)) is one that depends upon a comparison between the sum in the stipulation and the sum "which ought to have been paid". Given this was a nominal money sum, any argument by ANZ that some greater amount was payable (in damages for the breach or failure) was taken by her Honour to be an ex post calculation, not the forward looking, ex ante, calculation of the "greatest loss that could conceivably be proved to have followed from the breach" (for the purposes of para 4 (a) in Dunlop). One aspect of that conclusion was what her Honour described as ANZ's admission that the late payment fee was not a genuine pre-estimate of damage. At [129] of the reasons, the primary judge said the following in relation to her rejection of the utility of examining certain ANZ documents said to show the bank's intention:

That documentation does not assist in the resolution of the question to be answered in this case. Having determined that the Exception Fee Provisions relating to Late Payment 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 stipulated to be paid exceed the quantum of the relevant loss or damage which can be proved to have been sustained by the breach, or the failure of the primary stipulation, upon which the stipulation was conditioned: see [48] above. Again, none of those matters identified answered or assisted in answering that question.

52    That analysis (as well as the conclusion in [139]) was the subject of complaint by ANZ on appeal. Its central submission was that the primary judge, wrongly substituted without justification in all the circumstances an ex post calculation of actual damage from the breaches by Mr Paciocco and SDG for the correct ex ante enquiry of the greatest loss that could be proved to have followed from a breach. For the reasons that follow, that central submission should be accepted.

53    The clarity of the primary judge's language that the question left to be determined was an ex post analysis of the damage caused by the breaches in question (by Mr Paciocco and SDG) is to be noted. There was an attempt in submissions on appeal by Mr Paciocco and SDG to construct from some of the language used elsewhere in the reasons an argument that the primary judge did engage in a forward looking analysis of the greatest conceivable damages that might flow from such a breach. For reasons to which I will come, that argument must fail: principally because, as at this point in the reasons, the primary judge did not say that she was undertaking that task.

54    Before turning to the calculation of the sums, her Honour dealt at [122]-[130] of the reasons, with various other matters raised by Mr Paciocco and SDG as relevant. The inherent circumstances that her Honour had considered at [92]-[102] of the reasons (and discussed at [30]-[36] above) were also relevant to her conclusion as to the penal character of the provision and fees. At [123] of the reasons, her Honour said:

However, taken as a whole, these circumstances provide further support for the conclusion that, at least on its face, the late payment provision and fee is penal. ANZ was able to impose these fees because of the inequality of bargaining power between the Bank and its customer (here Mr Paciocco). The terms were contained in printed forms, which the customer had no opportunity to negotiate. There was no agreement between "people contracting on equal terms": English Hop Growers v Dering [1928] 2 KB 174 at 181.

55    The primary judge refused, however, to give any weight to certain business records of ANZ which Mr Paciocco and SDG said were relevant. These were records that were said to demonstrate ANZ's state of mind and commercial intention in levying the fees. The primary judge rejected these documents for a number of reasons: their selectivity (see [128] of the reasons); that the enquiry as to extravagance was objective not subjective (see [126] of the reasons); and the importance of what her Honour took to be ANZ's admission that the late payment fee was not a genuine pre-estimate of damage (see [129] of the reasons).

56    Given the nature of the subject matter, it is convenient to deal with the detail of her Honour's ex post quantitative analysis when dealing with ANZ's arguments on appeal. At [173] of the reasons, the primary judge concluded that ANZ suffered some loss or damage by each late payment exception fee event of no more than $3, though, for some fees, the damage was $0.50. This was comprised of operational collection costs (to the extent they existed) rounded up. The balance over this was penal and recoverable.

Late Payment Fee – post December 2009

57    The same approach applied to the late payment fees after December 2009. The loss in respect of each event was calculated at $0.50: see [234]-[242] of the reasons.

The other fees – Honour, Overlimit and Non-Payment Fees: pre-December 2009

58    The primary judge dealt with the position before December 2009, in respect of the honour fee in Savings Account 156 at [188]-[212] of the reasons, with the overlimit fees on the Card Accounts at [213]-[229] of the reasons, and with non-payment fees at [230]-[233].

The Savings Account Honour Fee

59    The terms of the provision were set out at [63] and [65]-[66] of the reasons: see [15(c)] above. Her Honour referred to as relevant the other circumstances discussed at [117]-[130] of the reasons: see [46]-[48] and [54]-[55] above. Her Honour then referred to what were the uncontentious "exception fee events": see [190]-[195] of the reasons.

60    At [196]-[204] of the reasons, the primary judge construed the honour fee as not payable on breach of contract. Mr Paciocco and SDG focused in their submissions upon the statement by ANZ in its terms and conditions that it was a required condition of all accounts that the customer must not overdraw an account without prior arrangements being made and agreed with ANZ. The primary judge rejected that focus as too narrow, noting that the relevant term (cl 2.12 of the August 2008 Terms and Conditions: ([65] of the reasons and [15(c)] above) deals with the discretion of ANZ to deal with a debit that would overdraw the account. This discretionary conduct by ANZ was, her Honour said, to be placed into the framework of the banker and customer relationship, with the consequence that it was to be viewed as set out at [198] of the reasons:

198    …

1.    A withdrawal or payment instruction given by a customer that would have the effect of overdrawing the customer's account or exceeding the account credit limit is to be construed as a request from the customer for an advance or loan from ANZ. ANZ may approve or decline the request in its discretion: Andrews Trial at [82], [177], [279], [306] and [322].

2.    The overdrawing of a customer account (whether a deposit account or a credit card account) was not a unilateral action by the customer, but was an action that required the consensual conduct of ANZ and the customer: for example, see [191] above. For the transaction to proceed, ANZ had to agree to and approve or authorise the transaction: Andrews Trial at [182], [280], [291], [307] and [323].

3.    Overdrawing the account could not constitute a breach by the customer of a contractual obligation. Such transactions fell within the express provisions of the applicable contractual terms which stated that ANZ may allow or authorise such transactions, or were outside the contractual terms because ANZ approved the transaction: Andrews Trial at [182], [280], [291], [307] and [323].

4.    It was not a breach of contract for ANZ's customers to give a withdrawal or payment instruction to ANZ that would have the effect, if honoured, of overdrawing the customer's account or exceeding the account credit limit. The relevant provisions of the customer contracts did not impose a contractual obligation not to give such an instruction. In fact, the relevant provisions stated expressly that ANZ may allow or authorise such a transaction: Andrews Trial at [185], [186], [208], [214], [328] and [331].

5.    Honour and overlimit fees (as will become relevant later) were charged by ANZ as a consequence of a customer issuing a withdrawal or payment instruction to ANZ that would have the effect, if honoured, of overdrawing the customer's account or exceeding the account credit limit and ANZ approving or authorising the instruction. The fees were charged in respect of ANZ's decision concerning the request for additional borrowing: Andrews Trial at [182], [183], [187], [279], [280], [291], [306], [307] and [328]. The honour fee in respect of consumer accounts was charged once per day, regardless of how many transactions that occurred on that day overdrew the account (Andrews Trial at [187]) and the overlimit fee in respect of card accounts was charged once per month, at the end of a statement period, if the balance of the account exceeded the credit limit during the statement period: Andrews Trial at [277]. Honour and overlimit fees were not charged by ANZ upon a breach of contract by the customer.

This analysis is equally applicable to the Exception Fee Provisions in this case: see [65]-[66] above in relation to Exception Fee 1, and in respect of other Honour and Overlimit Fees to be discussed later in these reasons, see [60]-[62] (Overlimit Fee), [77]-[79] (Overlimit Fee), [84]-[88] (Business Honour Fee) and [248] (Overlimit Fee); see also Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm) at [76]-[80].

61    Thus, there was no breach.

62    Mr Paciocco and SDG attacked this approach on appeal. For the reasons later set out, that attack fails.

63    The primary judge then (from [200] of the reasons) examined whether the fee was collateral or accessory to a primary stipulation. The primary judge rejected the submission that from all the circumstances it was clear that the event ANZ was seeking to discourage was exceeding the limit. The rejection (at [202] of the reasons) was because the fee was not payable upon the failure of a stipulation – ANZ was not bound to meet the request. Her Honour said at [202]:

Those contentions are rejected. They are rejected because the Honour Fee is not payable upon failure of a stipulation. ANZ was not bound to meet the customer's request. The liability to pay the fee arose as a result of, and in exchange for, something more than and different from that which had existed up to that point in time. Properly construed, the provision which entitled ANZ to charge the Honour Fee did not impose a fee to be regarded as security for performance by the customer of other obligations to ANZ. It was a fee charged in accordance with pre-existing arrangements according to whether ANZ chose to provide something more and further to the customer. In the present case, it was a fee charged by ANZ for authorising payments upon instructions by Mr Paciocco upon which ANZ otherwise was not obliged to act: see [33]-[38] above.

64    This reasoning can be seen to be founded upon the substantive importance of the principles to the banker customer relationship to which her Honour had referred. This is the subject of significant attack on appeal. For the reasons later set out, that attack fails.

65    At this point in the reasons ([203]-[204]), the primary judge discussed the relevance of so-called "shadow limits". Shadow limits (as explained by the primary judge at [101] of the reasons) were informal limits that enabled the customer (unless he or she opted out of the arrangement) to be given additional credit upon the payment of the relevant fee. This permitted, as the primary judge said at [203], the ANZ to deal with the discretionary credit arrangement (and the fee) automatically.

66    At [205]-[208] of the reasons, the primary judge rejected the contention (though it was unnecessary to do so) that the honour fee was unconscionable.

The Card Account Overlimit Fee

67    The terms of these provisions were set out at [59]-[62] of the reasons: see [15(b)] above. Again, her Honour referred to as relevant the other circumstances discussed at [117]-[130] of the reasons: see [46]-[48] and [54]-[55] above. Her Honour then referred to what were the uncontentious "exception fee events": see [214]-[219] of the reasons.

68    At [220]-[227] of the reasons, the primary judge construed the overlimit fee as neither payable upon breach of a term or as collateral (or necessary) to a primary stipulation. This was for the same reasons as her Honour reached this conclusion in respect of the honour fee. Her Honour saw it (see [222] of the reasons) as substantially the same, notwithstanding the differences in nomenclature. The clause provided for what was said to be prohibited: overdrawing and the consequences in cost thereof. The customer chose to initiate the transaction that the ANZ could choose to honour, for a fee. The essence of the reasoning was set out with clarity in [224] and [225] of the reasons as follows:

224    An overlimit fee was not charged in order to secure the performance of a primary stipulation not to overdraw the account or initiate an overdraw transaction. Rather, the customer was entitled to initiate such a transaction and the fee was payable in respect of ANZ's consideration of and decision in respect of the request for a further advance. The fee was charged if ANZ chose to allow the transaction and thereby approve the request for additional borrowing. Moreover, an overlimit fee was charged once per month, regardless of how many transactions occurred in that month which caused the credit limit to be exceeded: see [61]-[62] above. The fee was not payable upon a failure of a stipulation. It was payable in respect of ANZ's response to the request for further borrowing. Indeed, it was not payable each time that a request and response was made. It was only payable once per month.

225    As was the position with Saving Account 156, it was within ANZ's power to prevent Mr Paciocco from overdrawing his Card Accounts. There was no necessity for ANZ to accommodate such informal requests for additional borrowings and exercise any discretion with respect to the requests. ANZ could have elected not to permit Mr Paciocco to overdraw at all. Instead of preventing overdraw transactions, ANZ anticipated and planned for such transactions and developed procedures and systems to assess and determine whether to allow the overdrawing to occur. The fact that ANZ chose to accommodate these informal requests, when there was no necessity for it to do so, supports the conclusion that the overlimit fee cannot be characterised as security for the performance of a stipulation, especially a stipulation not to overdraw the credit limit. As noted above, the overlimit fee was a consensual additional obligation in the card account and not a penalty. The term imposed a fee in circumstances where Mr Paciocco had the right to initiate a transaction that would exceed the credit limit, thereby seeking further accommodation from ANZ, and the fee was payable for ANZ's consideration and approval of the relevant instruction.

69    The primary judge again concluded (though not needing to do so) for the same reasons as related to the honour fee, that this fee was not extravagant or unconscionable.

Non-Payment Fee

70    At [230]-[233] of the reasons, the primary judge dealt with certain fees that ANZ accepted were charged without contractual authority.

The other fees – Honour, Overlimit and Non-Payment Fees: post December 2009

71    Once again, the terms of the provisions, and the fee exception events for all these fees were not in dispute: see [16] above, and see [244], [255]-[257] and [268]-[269] of the reasons. Once again, in respect of each of these fees, the primary judge referred to as relevant the other circumstances discussed at [117]-[130] of the reasons.

Overlimit Fee

72    Mr Paciocco's case was that, whilst this was not payable on breach of contract, cf cl 2 of the March 2010 Conditions of Use at [16(b)] above, the fee (and the provision for it) was collateral or accessory to a primary stipulation in favour of ANZ.

73    The primary judge rejected this submission for the same reason that she had rejected the submission concerning the honour fee (to which this fee was substantially the same). Again, it is appropriate to use her Honour's own clear words in [249]-[250] of the reasons to reveal the reasoning:

249    That action required (as the clause stated) the consensual conduct of ANZ and Mr Paciocco. For the transaction to proceed, ANZ had to agree to and authorise the transaction: see [192]-[195] above. The overdraw transaction was a request by the customer for an advance or loan from ANZ which ANZ had the discretion to approve or disapprove: see [93] above. The overlimit fee became payable upon the customer initiating an overdraw transaction and ANZ exercising its discretion to approve the loan. The card account expressly contemplated the occurrence of overdraw transactions and stipulated that ANZ had a discretion to authorise the transaction and allow it to proceed. The overlimit fee was not charged in order to secure the performance of a primary stipulation not to overdraw the account or initiate an overdraw transaction. Rather, the customer was entitled to initiate such a transaction and the fee was payable in respect of ANZ's consideration of and decision in respect of the request for a further advance. The fee was charged if ANZ chose to allow the transaction and thereby approve the request for additional borrowing. Moreover, an overlimit fee was charged once per month, regardless of how many transactions occurred in that month which caused the credit limit to be exceeded: see [78]-[79] above. The fee was not payable upon a failure of a stipulation. It was payable in respect of ANZ's response to the request for further borrowing. Indeed, it was not payable each time that a request and response was made. It was only payable once per month.

250    As was the position with Saving Account 156, it was within ANZ's power to prevent Mr Paciocco from overdrawing his Card Accounts. There was no necessity for ANZ to accommodate such informal requests for additional borrowings and exercise any discretion with respect to the requests. ANZ could have elected not to permit Mr Paciocco to overdraw at all. Instead of preventing overdraw transactions, ANZ anticipated and planned for such transactions and developed procedures and systems to assess and determine whether to allow the overdrawing to occur. The fact that ANZ chose to accommodate these informal requests, when there was no necessity for it to do so, supports the conclusion that the Overlimit Fee cannot be characterised as security for the performance of a stipulation, especially a stipulation not to overdraw the credit limit. As noted above, the Overlimit Fee was a consensual additional obligation in the card account and not a penalty. The term imposed a fee in circumstances where Mr Paciocco had the right to initiate a transaction that would exceed the credit limit, thereby seeking further accommodation from ANZ and the Overlimit Fee was payable for ANZ's consideration and approval of the relevant instruction.

74    The primary judge again (though not needing to do so) concluded, for the same reasons as related to the honour fee, that this fee was not extravagant or unconscionable.

Business Honour Fee

75    Again, it was accepted by Mr Paciocco and SDG that this fee was not payable upon breach of the terms at [16(c)] above. Again, his case was that the fee was collateral or accessory to a primary stipulation in favour of ANZ.

76    The primary judge again rejected these submissions for the same reasons as she rejected the same submissions for the honour fee and the overlimit fee: see [260]-[264] of the reasons.

77    For the same reasons as related to the honour fee, the primary judge concluded (though it was unnecessary to do so) that the fee was not extravagant or unconscionable.

Business Dishonour Fee

78    Again, Mr Paciocco and SDG accepted that this fee was not payable upon breach; but was collateral or necessary to a primary stipulation in favour of ANZ.

79    Again this was rejected on the basis that, in substance, the fee was (like the honour fee) payable for the consensual giving of credit: [271]-[272] of the reasons.

80    Once again, the primary judge concluded for the same reasons as for the honour fees that the business dishonour fee was not extravagant or unconscionable.

The appeal of ANZ (VID 149 of 2014) in relation to late payment fees

81    The appeal by ANZ was divisible into seven parts: (1) the characterisation of the late payment fee: grounds 1 and 2 of the Notice of Appeal (NoA 149); (2) the conclusion that the fee was prima facie a penalty: ground 3 of NoA 149; (3) whether the fee was extravagant or unconscionable: grounds 4-7 of NoA 149; (4) evidentiary questions as to the maximum conceivable loss: grounds 8-13 of NoA 149; (5) evidentiary questions as to actual costs incurred by ANZ from Mr Paciocco's late payment events: ground 14 of NoA 149; (6) the operation of the limitation period: ground 15 of NoA 149; and (7) the form of orders: ground 16 of NoA 149.

(1)    Characterisation of the late payment fee: grounds 1 and 2 of NoA 149

82    The approach of the primary judge has been discussed at [40]-[80] above.

83    The ANZ submitted that the primary judge had misread the provision in question (at least in relation to the provision pre-December 2009). Her Honour, it was submitted, overlooked the significance of the 28-day period running from the statement date. This was a different, and longer period, than that marked out by the time for payment of moneys due immediately or moneys due as a minimum monthly payment. These moneys were due some 14 or 3 days earlier than the date which caused the fee to be accrued. Thus, it was submitted the criterion of imposition of the fee is not the failure to pay on the due date, rather it is the occurrence of a period of additional credit after that date which had not been agreed. The fee was a charge for additional credit.

84    The primary judge's reasoning, especially in the last sentence of [114] of the reasons, on one reading (being that propounded by ANZ) hinged her conclusion on there being no gap of time between the due date for payment and accrual or imposition of the fee.

85    Thus, at least for the late payment fee before December 2009, it was submitted that the fee was payable for an extension of credit.

86    After December 2009, there was no gap in time: the late payment fee was accrued or imposed upon the failure to pay on the due date. Other arguments were put forward for this fee: it was expressed as a fee, not as damages; it was the unitary imposition of a fee akin to interest, annual fee or other fee. It fell in as part of the remuneration that ANZ charged for its financial services.

87    I would reject both strands of the argument. A reading of [239]-[251] of her Honour's reasons in Andrews 211 FCR 53 make clear that she confronted the argument about credit directly. Her Honour was not unaware of the gap in time. She dealt with this in terms of [243] in Andrews 211 FCR 53. She treated this period as a period of grace expiration of which would see the fee imposed, not in exchange for the credit represented by the grace period, but for the late payment. That is the plain meaning of the clauses. They were not expressed as a fee for credit but as a fee payable for late payment (even if a period of grace were provided for). A period of grace does not deny the nature of the criterion of imposition: cf Financing Ltd v Baldock [1963] 2 QB 104; 1 All ER 443; The Office of Fair Trading v Abbey National PLC [2008] EWHC 2325 (Comm) at [19].

88    ANZ argued (as it argued in Andrews 211 FCR 53: see [248] and as it adopted formally before her Honour) that the fee was properly characterised as one associated with an increased credit risk. That, however, once again, was not what the clause said.

89    Reading [114]-[116] of the reasons, together with [239]-[251] of the judgment in Andrews 211 FCR 53, I agree with the primary judge's characterisation of the fee and the provision for it as one payable upon breach of contract, or as a collateral or accessary stipulation, as security for, or in terrorem of, the primary stipulation: timely repayments according to the terms of credit.

90    Thus, I would reject grounds 1 and 2 of NoA 149.

(2)    The conclusion that the fee was prima facie a penalty: ground 3 of NoA 149

(3)    Whether the fee was extravagant or unconscionable: grounds 4-7 of NoA 149

91    These two grounds are inter-related and should be dealt with together.

92    The ANZ submitted that the primary judge, having correctly stated the law at [14], [21], [32], [39] and [45] of the reasons, failed to apply that to the material before her. The correct approach, it was submitted, was founded upon the need to show, by an ex ante analysis at the time of entry into the contract, that the stipulation was extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to follow from such a breach.

93    This, it was submitted, the primary judge did not do; rather, her Honour undertook ex post analysis of actual loss from the breaches by Mr Paciocco and SDG.

94    Before examining ANZ's arguments, a number of important preliminary matters should be stated.

Some preliminary considerations

95    It is to be recalled that the task of the court is to assess whether the clause in question is penal in character. The task (or technique) is one of construction in a wide sense, falling to be decided by the meaning and content of the words and on the inherent circumstances of each particular contract, judged at the time of its making: Dunlop at 86-87. As discussed later, this involves the related tasks of ascription of meaning and content to the relevant clause by the process of contractual construction and interpretation, and also any necessary characterisation of the clause with that legal meaning in its full context. That is the technique; the requisite character involves the essential features of penalty: the secondary stipulation is, as a matter of substance, collateral or accessory to a primary stipulation in favour of the obligee and upon failure of which, the secondary stipulation imposes an additional detriment for the benefit of the obligee: Andrews (HC) at [10]; the secondary stipulation is in the nature of security for, and in terrorem of, the satisfaction of the primary stipulation: Andrews (HC) at [10]; and (as an essential element) the secondary stipulation imposes an additional detriment that is out of all proportion to the loss suffered by the obligee on the failure of the primary stipulation or that is inordinate or extravagant or oppressive: Ringrow 224 CLR 656 at [21], [28], and [32]. The adjectival description of the disproportion varies in expression in the cases, but for present purposes "extravagant", "exorbitant", "oppressive", "inordinate" and "unconscionable" can be seen to be broad synonyms: see Ringrow at 667 - 669, [26] - [32]. The question is to be assessed as at the time of entry into the contract. It is not a mechanical task.

96    The relevant character: the penal character, is to be contrasted with the non-penal conception of a genuine pre-estimate of loss. That dichotomy recognised in Dunlop at 86, was as Rossiter said in his important work, Penalties and Forfeiture (Law Book Co, 1992) at 33 and as recognised by the High Court in Andrews (HC) at [15], a product of centuries of equity jurisprudence. The breadth of the conception of the genuine pre-estimate is derived in this context from its juxtaposition with the conception of a penalty: see [25] above.

97    The dichotomy of penalty, and liquidated or unliquidated damages or a genuine pre-estimate is central to the operation of the penalty doctrine and its correct understanding is important here, in no small part, because of the terms of the relevant admissions in ANZ's defence, the primary judge's utilisation of them in the reasons, and the criticisms in that regard by ANZ.

98    The dichotomy has its roots in the distinction between compensation and security: Peachy v The Duke of Somerset (1721) 1 Strange 447 at 447; 93 ER 626 at 626; Sloman v Walter (1783) 1 Bro CC 419 at 419; 28 ER 1213 at 1214; Woodward v Gyles (1690) 2 Vern 119; 23 ER 686.

99    That dichotomy would be an inadequate or incomplete framework of analysis if the genuine pre-estimate of damage or compensation must, to be such, be the subject of express words or be able to be seen as framed by the parties as such. If a lack of adversion by the parties to likely damages and a lack of expression that the clause is one of agreed damages meant that the sum cannot be regarded as agreed liquidated damages or a genuine pre-estimate that would necessarily make it a penalty. Yet it may not in fact be extravagant or out of proportion to damage that may be suffered. Alternatively, a rejection of such a reflexive operation of the dichotomy with agreed damages so understood would give room for a third alternative: a trichotomy, rather than a dichotomy. This is what Mance LJ (as his Lordship then was) said in Cine Bes Filmcilik VE Yapimcilik v United International Pictures [2003] EWCA Civ 1669 at [15] (drawing on what Colman J said in Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 at 763-764):

…that a dichotomy between a genuine pre-estimate of damages and a penalty does not necessarily cover all the possibilities. There are clauses which may operate on breach, but which fall into neither category, and they may be commercially perfectly justifiable.

100    The above difficulties are avoided if the notion of a genuine pre-estimate of loss is recognised (as the authorities dictate: Dunlop at 86; Clydebank at 16; Public Works Commission v Hills [1906] AC 368 at 376; Campbell Discount Co Ltd v Bridge [1962] AC 600 at 633; Ringrow at 662 [10]) to be the reflex of a penalty. Sometimes, the proper conclusion may not be that the sum is a genuine pre-estimate of loss, but that the sum is payable for an additional benefit, a conclusion made by reference to the antecedent enquiry whether it is a collateral or accessory clause at all, or whether it is part of the bargain for another right: French v Macale, and see Heydon J, Leeming M and Turner P, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (5th Ed, LexisNexis Butterworths, 2015) [18-105] at 564-565. If it is so regarded, it necessarily takes its character as something different in nature from a clause which in terms or in its origins of contractual creation was intended by the parties as agreed damages. It is to be recalled that, for the doctrine of penalties to be engaged, the relevant clause is one which operates either upon breach or as a secondary collateral or accessory stipulation for a primary stipulation. Relevantly, the matter can be expressed as did the Court in Ringrow at 662 [10]:

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

(Emphasis added).

101    For these reasons, the approach discussed at [25] above is correct. It is not necessary, for the sum to be regarded as a genuine pre-estimate of loss, for the parties to have set the figure by reference to likely loss. See also Yarra Capital Group Pty Ltd v Sklash Pty Ltd [2006] VSCA 109 at [13] and [1].

102    At times, the arguments of Mr Paciocco and SDG on appeal sought to support the primary judge's approach by limiting the conception of genuine pre-estimate of loss to one which the parties had actually addressed as such. For the above reasons, I would reject that approach.

103    It is necessary at this point to consider the legitimate scope of the compensation that is the subject of the assessment of extravagance or exorbitance. Care must be taken not to dwell on the words of expression used by judges in cases as if they were statutes. It is essential to keep in mind and distinguish the object and purpose of the doctrine of penalties (the prevention or limitation of oppressive or unconscionable terms) and the means of prevention or limitation (the leaving of the obligee to an action in damages). 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: Andrews (HC) at [75]; Dunlop at 91-93; Clydebank at 15-17, 19 and 20; Public Works Commission v Hills at 375-376. 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: Public Works Commission v Hills at 375-376. One only needs to reflect on the facts of Dunlop and the justification for the payment that was found to be legitimate to appreciate these matters.

104    The above distinction is important in the discussion of the differences between the two experts and the primary judge's reasons in preferring one (Mr Regan) over the other (Mr Inglis). Different considerations may be seen to arise when one is seeking to address the question of what damage did Mr Paciocco's or SDG's breach of the term in question cause, as opposed to the question what could possibly be the greatest loss or damage that could arise by some breach of the term in question, as a means of assessing the proper protection for ANZ's interest in the due performance of the obligation.

The attack on the primary judge's approach

105    The primary judge's reasoning as to the penal character of the late payment stipulation, or at least its prima facie penal character, is to be found at [119]-[123] and [129]-[130] of the reasons. (See [47]-[55] above.) Briefly, to recapitulate: First, there was a presumption, to be rebutted, that the stipulation was penal because of the engagement of the third rule of construction in Dunlop in para 4(c) at 87: [119] of the reasons.

106    Secondly, the second rule of construction in Dunlop in para 4(b) at 87 was also engaged as the primary term was the failure to pay a sum of money and the secondary stipulation would be a penalty if it requires the payment of money greater than the sum which ought to have been paid: [121] of the reasons.

107    Thirdly, the conclusion that the provision was prima facie penal was supported by the entitlement of ANZ to interest on the outstanding late payment ([120] of the reasons) and by the other inherent circumstances that her Honour discussed at [92]-[102] of the reasons ([122] of the reasons).

108    Fourthly, ANZ admitted that the late payment fee was not a genuine pre-estimate of damages: [129] of the reasons.

109    Fifthly, the prima facie penal character of the late payment fee was to be rebutted by undertaking an enquiry as to what extent (if any) the amount stipulated to be paid exceeded the quantum of any relevant loss or damages which can be proved to have been sustained by the breach or failure of the primary condition: [129] and [139] of the reasons.

110    Sixthly, the penal character of the late payment fee as arising on the failure to pay money depended upon an enquiry of the same kind as the rebuttal of the prima facie presumption: Is the sum stipulated a sum greater than that which ought to have been paid?: [121], [129] and [139] of the reasons. (The similarity, indeed identity, of these enquiries can be accepted, notwithstanding the entitlement of ANZ to interest by reference to the modern entitlement to damages for non or late payment of money: Hungerfords v Walker [1989] HCA 8; 171 CLR 125.)

111    The ANZ submitted that the primary judge: (a) misconceived the notion of "prima facie" in relation to the possible penal character of a provision; (b) was wrong to invoke the third rule of construction in Dunlop; (c) was wrong to apply the second rule of construction in Dunlop to over-ride the need to show extravagance and exorbitance; (d) was wrong to construe the pleading by ANZ as an admission that the fee was not a genuine pre-estimate of damages, thereby elevating it to an effective admission that the fee was penal; (e) was wrong to give any weight to the fact that ANZ was entitled to charge interest on the overdue amount; and (f) was wrong to give any weight to the inherent circumstances.

112    The burden of these complaints crystallised in the proposition of the asserted fundamental error of the primary judge: failing to undertake a forward looking or ex ante analysis at the date of the contracts to assess the greatest loss that could be conceivably proved by breach of the provision in question in order to assess whether the fee was extravagant or unconscionable.

The notion of "prima facie" a penalty

113    At [139] of the reasons, the primary judge said that if the late payment fee was prima facie a penalty, and that the relevant enquiry thereafter was the extent to which (if any) the fee exceeded actual damage caused. That would be the correct approach only once one concluded that the provision and fee were penal in character. On the other hand, if one has yet to consider the question of extravagance or exorbitance, to analyse the matter, as her Honour did, is to conflate two enquiries: the anterior enquiry as to whether the provision is penal in character; and the later enquiry as to the remedial consequence of any such characterisation.

114    These two enquiries are importantly separate: one looks forward and is referable to the time of entry into the contract and the extent of the legitimate interest of the obligee in the performance of the relevant provision of the contract; the other looks backwards to see what damage has been demonstrated to have been caused by the breach or failure of the relevant provision in order to found some relief for such breach or failure.

115    The notion of a prima facie penalty or the presumption of a penalty was adverted to in Lord Elphinstone's Case by Lord Watson at 342, and in Dunlop by Lord Dunedin at 86, 87 and 88, by Lord Parker of Waddington at 98-99, and by Lord Parmoor at 103-104. As the phrase was thus used, it referred to the possible conclusion to be drawn from other circumstances at the time of the entry into the contract that the inference of a penalty might, or might not, be drawn: see especially Lord Dunedin in Dunlop at 88 and also Lord Parker at 98-99. Further, the phraseology should not be understood as creating some evidentiary presumption and as altering the onus of proof: Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 at 1447; 3 All ER 128 at 142-143.

116    The circumstances that might go to rebut the presumption or inference are those matters which attend the question, as at the time of entry into the contract, as to the parties' intention as to the operation of the clause, its proper characterisation, including whether it is to operate as security for or in terrorem of a primary stipulation, and as to whether its amount is extravagant, exorbitant, unconscionable or oppressive. This is the balance of the enquiry as to whether the stipulation is penal. It is not assisted by knowing what the damages from this particular breach or failure were. As Lord Davey said in Clydebank at 17, it was "perfectly irrelevant and inadmissible for the purpose of shewing the clause to be extravagant…to admit evidence…of the damages which were actually suffered…". See also Lord Robertson at 20.

117    Thus, to the extent that the primary judge is to be taken to have undertaken an ex post enquiry of actual damage as a step in assessing whether the prima facie penal character of the late payment fee was rebutted (as a reading of all the reasons requires) her Honour, in my respectful view, was wrong.

The third rule of construction in Dunlop: para 4(c) at 87

118    The ANZ submitted that the third rule of construction in para 4(c) at 87 in Dunlop was confined to the case of a stipulation that provides for a single sum to become payable on the occurrence of breach of a variety of covenants, damages from which various breaches would vary from the trivial to the serious, and did not extend to a sum payable on the occurrence of a breach of a single term, just because of the possibility of different qualities of breach.

119    The phraseology of para 4(c) in Dunlop at 87 was taken from Lord Watson's speech in Lord Elphinstone's Case at 342-343. It is therefore convenient to begin with that case, before turning to Dunlop and earlier cases.

120    Lord Elphinstone's Case relevantly concerned the deposit of slag from blast furnaces of the lessee upon land the subject of the lease. Various articles defined the privilege to deposit slag on part of the leased land; other articles defined the compensation payable for the exercise of the privilege; other articles dealt with the mode of deposit and the maintaining of access, protecting watercourses etc. The article in question concerned the obligations to level and soil over the slag from the various deposits. The article modified certain liabilities under an earlier agreement in which different provisions concerned with different deposits, similarly provided for the payment of £100 per acre for all land covered with slag not levelled and soiled. This was found to be a penalty by the Second Division of the Court of Session. In rejecting this conclusion, Lord Watson (with whom the balance of the House, Lord Herschell LC, Lord Blackburn, Lord FitzGerald and Lord Halsbury concurred) said at 342-343:

When a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage, the presumption is that the parties intended the sum to be penal, and subject to modification. The payments stipulated in article 12 are not of that character; they are made proportionate to the extent to which the respondent company may fail to implement their obligations, and they are to bear interest from the date of the failure. I can find neither principle nor authority for holding that payments so adjusted by the contracting parties with reference to the actual amount of damage ought to be regarded as penalties.

121    In his concurring speech, Lord Herschell LC said at 345:

The agreement does not provide for the payment of a lump sum upon the non-performance of any one of many obligations differing in importance. It has reference to a single obligation, and the sum to be paid bears a strict proportion to the extent to which that obligation is left unfulfilled. There is nothing whatever to shew that the compensation is ordinate or extravagant in relation to the damage sustained. And provision is made that the payment is to bear interest form the date when the obligation is unfulfilled. I know of no authority for holding that a payment agreed to be made under such conditions as these is to be regarded as a penalty only; and I see no sound reason or principle or even convenience for so holding.

122    It can be seen from both these passages that the critical factor in the payments under the articles not being penal was the making proportionate of the payment to the acreage. (See Ringrow at [28].) The distinction was not whether there was one covenant or more than one. In fact, there were a number of provisions in the earlier agreement, similarly worded, and picked up and extended by the relevant article of the agreement in question.

123    In Clydebank, Lord Davey, after setting out what Lord Watson had said in Lord Elphinstone's Case, said the following at 16, which, although it emphasised the question of breach of one covenant, also stressed the proportionality of the payment:

My Lords, I therefore conceive that it may be taken as an established principle in the law of Scotland that, if you find a sum of money made payable for the breach, not of an agreement generally which might result in either a trifling or a serious breach, but a breach of one particular stipulation in an agreement, and when you find that the sum payable is proportioned to the amount if I may so call it, or the rate of the non-performance of the agreement – for instance, if you find that it is so much per acre for ground which has been spoilt by mining operations, or if you find, as in the present case, that it is so much per week during the whole time for which the non-delivery of vessels beyond the contract time is delayed – then you infer that prima facie the parties intended the amount to be liquidate damages and not penalty. I say "prima facie" because it is always open to the parties to shew that the amount named in the clause is so exorbitant and extravagant that it could not possibly have been regarded as damages for any possible breach which was in the contemplation of the parties, and that is a reason for holding it to be a penalty and not liquidated damages notwithstanding the considerations to which I have alluded.

124    In Webster v Bosanquet [1912] AC 394, the Privy Council (Lord Macnaghten, Lord Shaw of Dunfermline, Lord Mersey and Lord Robson) was concerned with a Ceylon appeal concerning a clause in a contract that provided for liquidated damages of £500. The parties were former partners in the business of exporting tea from a plantation owned by the defendant. A deed of dissolution provided for the defendant to sell his crop to the plaintiff and not to sell "the whole or any part of the tea crops" to others, in breach of which the defendant would pay £500. The Supreme Court of Ceylon found the clause to be a penalty because breach could be trifling (even a pound of tea) or serious. Thus, it could not be seen to be a pre-estimate of damages, but a penalty. The Privy Council overturned the Supreme Court. The argument for the appellant was that it was reasonable to fix a sum for the amount of damages since it was not easy to foresee and might be difficult or expensive to prove. Reference was made to Kemble v Farren (1829) 6 Bing 141 at 147; 130 ER 1234 at 1236; Lord Elphinstone's Case; Public Works Commission v Hills; and Clydebank. The argument for the respondent focused upon the potentially several and distinct breaches (of the one term) of varying degrees of importance showing that a pre-estimate was inapplicable. Lord Mersey at 398-399 referred to Clydebank and said that the question was whether the construction rendered the agreement unconscionable and extravagant. He construed the phrase "whole or part of a crop" as a substantial part, not "some packets which might be sold over the grocer's counter": see [1912] AC at 399. The £500 related to the whole crop. That is what defeated the argument put by the respondent; not that this was a single covenant.

125    In Dunlop, the relevant provisions were distinct: (1) not to alter or remove or tamper with marks or numbers on tyre covers or tubes; (2) not to sell or offer tyres, covers or tubes below prices in the list, or give cash discounts; (3) not to supply such goods to anyone Dunlop suspends nor to exhibit goods anywhere without permission; (4) not to export tyres, covers or tubes without Dunlop's consent. The impugned clause was to pay £5 for each and every tyre, cover or tube sold or offered in breach of the agreement, as liquidated damages.

126    Counsel for the respondent, in seeking to uphold the majority of the Court of Appeal's views that the clause was penal, based his argument on the long line of authorities that established the principle:

[T]hat where the contract contains a variety of stipulations of different degrees of importance and one large sum is stated at the end to be paid on breach of performance of any of them, that must be considered as a penalty.

127    He referred to Kemble v Farren; Thompson v Hudson (1869) LR 4 HL 1 at 30; Betts v Burch (1859) 4 H&N 506; 157 ER 938 (approved by Willes J in Hinton v Sparkes (1868) LR 3 CP 161 at 166); In re Newman (1876) 4 Ch D 724 at 731 and 733; Magee v Lavell LR 9 CP 107; and Lord Elphinstone's Case. He also submitted that the courts had drawn a marked distinction between a single stipulation which may be violated in different ways and a series of stipulations of widely different value, referring to Strickland v Williams [1899] 1 QB 382 at 384 and Ford Motor Company (England) v Armstrong (1914) 30 Times LR 400.

128    The speeches of their Lordships responded to the arguments put. There is no doubt that in the various discussions a distinction was drawn between breach of a single covenant in a variety of possible ways and breaches of multiple covenants, both the subject of the payment in question: see Lord Dunedin at 89, Lord Atkinson at 93, Lord Parker of Waddington at 97-98 and Lord Parmoor at 104. As all the speeches make clear, the task is not a mechanical one. This is so, if for no other reason than one is seeking to ascertain the character of a clause by a wide process of construction and to ascertain whether the clause, so construed, is exorbitant or extravagant. Categorising contracts by reference to their form is likely to be unhelpful in this process. This can be seen most clearly in the discussion by Lord Parker at 97-98. After stating that the general consideration is extravagant excess, he discussed the difficult cases where the Court has to consider the presumption or inference "from the number and nature of the stipulations on breach of which the sum in question is agreed to be paid.": see 97. He first referred (at 97) to the case of a single stipulation, which, if broken at all, can only be broken once and in one way only. It is more complex, he said (at 98) when the stipulation, though still single, is capable of being broken more than once and in more ways that one. One example (non-solicitation of trade customers) may elicit varying degrees of actual damage, but nevertheless damage of the same kind. In these circumstances (at least where it is referred to as agreed damages) it will not be a penalty. He then dealt with multiple breaches, where he drew a distinction between cases where the damage likely to accrue is the same and where it varies in kind with each stipulation. This area had provoked disagreement in the cases: see in particular the discussion by Jessel MR in Wallis v Smith (1882) 21 Ch D 243.

129    There is force in the submission of the ANZ that the breach of the single covenant being the late payment fee stipulation did not engage the third rule of construction in Lord Dunedin's para 4(c) in Dunlop. The submission has the support of the Privy Council in Philips Hong Kong Ltd v Attorney General for Hong Kong [1993] 1 HKLR 269, especially at 282. Nevertheless, depending upon the circumstances, it may be open, in a particular case, to take into account the fact that one stipulation could be broken in countless ways, many (and likely most) trivial in consequence and some serious. A limited understanding about the form of the covenant and its subjection to a fixed sum in payment for breach or failure is unlikely to be sufficient to conclude the enquiry. All the circumstances would be relevant to consider.

130    In Dunlop, the obligee was entitled to point to the indirect and systemic consequences to its business in globo of the undermining of its price maintenance system. It was accepted that the appellant lost nothing by any individual sale, in the sense of direct and immediate loss. The object was to prevent the disorganisation of their trading system and consequent injury to their trade upon that occurring. It was impossible to say that that interest was incommensurate with the sum agreed to be paid: see Lord Atkinson at 91-92.

131    Here, the late payment by any particular customer might, as the primary judge said, be for $0.01 or for thousands of dollars. Uninstructed by the evidence one might assume that any damage (though of a similar kind) might well vary, especially if interest is accruing in any event. It is unnecessary to invoke the presumption in Dunlop to say that this may, depending on the size of the fee and what the evidence said about the ANZ's business system, be penal.

132    Thus, I do not consider that the primary judge was necessarily wrong to invoke the third rule of construction in Dunlop. What can be said, however, is that to the extent the primary judge can be seen (as her Honour did) to undertake an enquiry about actual damage from this breach to decide whether a presumption (from the third rule of construction) had been broken, that was an error.

The second rule of construction in Dunlop at para 4(b) at 87

133    The conclusiveness of the penal character of a payment is to be understood as deriving from Equity's historical rejection of an obligation or bond to pay a greater sum on failure to pay a lesser sum.

134    The framing of para 4(b) by Lord Dunedin was by reference to what Tindal CJ had said in Kemble v Farren at 147-149; 1236-1237. There, the parties had agreed on a clause called liquidated damages and said not to be a penalty for the payment of £1,000 for any breach of the agreement. The agreement concerned the defendant acting as principal comedian for four seasons at the Theatre Royal in Covent Garden. In breach he refused to perform in the second season. A jury, upon trial at law, assessed damages at £750. The plaintiff sought to increase the damages to the agreed amount. Tindal CJ said (at 148;1237) that if the terms had been limited to breaches which were of an uncertain nature and amount, it would have been good. But the provision extended to any term including the payment of small amounts of money, or other trivial non-money breaches:

But that a very large sum should become immediately payable, in consequence of the nonpayment of a very small sum, and that the former should not be considered as a penalty, appears to be a contradiction in terms; the case being precisely that in which courts of equity have always relieved, and against which courts of law have, in modern times, endeavoured to relieve, by directing juries to assess the real damages sustained by breach of the agreement.

135    Lord Dunedin's second rule of construction in para 4(b) in Dunlop at 87 reflects the fact that money bonds were always the subject of relief in Equity upon principal and interest being tendered: Spence G, The Equitable Jurisdiction of the Court of Chancery (London: Stevens, 1856) Vol 1 at 629-630; Friend v Burgh (1679) Rep Temp Finch 437; 23 ER 238; Puleston v Puleston (1675) Rep Temp Finch 312; 73 Seld Soc 295.

136    The most obvious example is a stipulation to pay $X+Y on failure to pay $X. "What ought to have been paid" is clear from the arrangement. In other examples, $X dollars may be the stipulated sum, in circumstances where it can be proved that only a fraction of $X would ever be due. That Lord Dunedin said it was the corollary of what appeared in para 4(a) meant that it was clear that the stipulation was of the kind just referred to.

137    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 to be understood as a security for or collateral or accessory to a primary obligation. The fee may or may not, in fact, be greater than the sum due; that does not appear on the face of the provision, or from an understanding of the facts. The question as to whether it is penal is to be assessed by reference to the question whether it is extravagant or exorbitant by reference to the obligee's legitimate interest in the performance of the contract assessed by the greatest loss that could conceivably be proved to have followed from a breach or failure to comply.

138    The fee was not conclusively a penalty by the second rule of construction. During argument on appeal, Mr Paciocco and SDG broadly agreed with this. (See T 227.)

The admission by ANZ

139    The admission by the ANZ was contained in its Amended Defence para 39(a)(ii):

ANZ did not determine the quantum of each Exception Fee by reference to a sum that would have been recoverable as unliquidated damages.

140    That absence of conduct does not mean that the fee in question was a penalty. It was no more than an admission of fact that the ANZ did not act in the fashion identified. As I have already discussed, the notion of a genuine pre-estimate of damages is not a description of the contractual or pre-contractual activity of the parties. Rather it is the objective reflex of a penalty: a payment on breach or on failure of a collateral stipulation that is not proved to be extravagant or exorbitant. This was recognised by her Honour: [41] of the reasons. It may go too far to say, as the ANZ does, that the admission was entirely irrelevant to the enquiry. If, contrary to the fact, some bona fide assessment of the direct and indirect consequences of customers defaulting had been made and spread over the customer base in the manner of the provisions, it might go some way to a conclusion that the character of the fee was not penal, and was therefore a genuine pre-estimate of damage. The relevance of the contemporaneous acts and approaches of the parties is referred to later in dealing with the relevance of such facts to the characterisation of any provision as penal or not. The absence of those potentially relevant facts removed them from present consideration.

141    It was, in my respectful view, therefore wrong to conclude, as the primary judge did at [129] and [139] of the reasons, that the admission was that the late payment fee was not a genuine covenanted pre-estimate of damage. To so conclude was to conclude that it was penal in character and so necessarily exorbitant and extravagant without the need for any further analysis.

The relevance of interest charges and the inherent circumstances

142    The enquiry as to the penal character of the contractual stipulation providing for the fee, and in particular whether it is extravagant or exorbitant, requires an attendance to all the circumstances. In that context, the charging of interest, and indeed all other fees, and the circumstances of the entry into the contracts, were all relevant.

143    The charging of interest and other fees becomes of particular relevance when one is analysing the approaches of the experts, in particular Mr Inglis. The enquiry concerned with extravagance, exorbitance and unconscionability by reference to the greatest loss that could conceivably be proved to follow from the breach will require an analysis of all the consequences in terms of possible loss and damages flowing from the breach.

144    It may only mean that the charging of interest means that one form of loss was avoided: the charge or recompense for being held out of the money. As a matter of logic, if consequences of loss can be shown to have occurred that cannot be recompensed through interest, then interest may, in the assessment, have no, or minimal, impact. The enquiry is, however, to do with the consequences in terms of loss and damage that could flow from a breach of a term.

Whether the primary judge considered the extravagance and unconscionability of the fee

145    It is now necessary to examine how the primary judge approached the tasks of what her Honour referred to as stages 5 and 6 of the enquiry at [15(5) and (6)] of the reasons.

146    It was emphasised by Mr Paciocco and SDG that the heading immediately above [117] of the reasons is "Extravagant and Unconscionable – step 5". That can be accepted; but [129] of the reasons is pellucid: the question left to be decided was as there set out (see [51] above) which is the enquiry referred to in [48] of the reasons: the ex post assessment of actual damage. (See [27] above.)

147    That the assessment of extravagance, exorbitance and unconscionability 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. The assessment is for that reason, forward looking, or ex ante. It is the prospective assessment of compensation commensurable with the interest of the obligee protected by the bargain. This is different from working out what damage can be proved from a particular breach after the event. It is different in timing, in perspective and in conceptual purpose. No better illustration can be given than Dunlop itself. The damage that could be proved from the offering for sale of one tyre cover, or even of 10 or 50 tyre covers, may well have been nothing: nominal damages. What was important, however, to Dunlop (and to the analysis of their Lordships), was the protection of its business in globo. Set against that interest and the potential compensable overall deterioration, £5 per tyre cover was not exorbitant. It was for this reason that Lord Davey in Clydebank at 17 said that it was irrelevant and inadmissible in order to show extravagance to adduce evidence of the actual damages; as did Lord Robertson at 20.

148    It is also important to recall that it was not the ANZ's onus to disprove exorbitance and extravagance at the time of entering into the contract; rather, the onus to prove extravagance and exorbitance lay on Mr Paciocco and SDG. The primary judge so stated: [45] of the reasons (against which conclusion there was no appeal).

149    In that context, and before examining the primary judge's reasoning in detail, it should be noted how the parties addressed the issues through their instructions to their respective experts. As Mr Paciocco and SDG recognised in their submissions (Respondent's Outline of Submissions in Appeal VID 149 of 2014 (ROWS (149)) that Mr Inglis was retained by ANZ to consider only step 5, whereas Mr Regan was retained to consider step 6. This recognition was reflected in her Honour's reasons at [134] and [135].

150    Mr Paciocco and SDG submitted (see ROWS (149) at paras 20-24 dealing with the Prima Facie Penalty Contention, and at paras 25-26 and following) that the evidence of Mr Regan was also relevant to the question of examination of exorbitance and extravagance prospectively and that this was the approach of the primary judge. The validity of this proposition must be considered in the light of the comments of Lord Davey (and Lord Robertson) in Clydebank and of the different conceptual approaches to the two enquiries. Broadly, however, a review of the evidence of Mr Regan and Mr Inglis reveals that while Mr Regan criticised the approach of Mr Inglis his evidence was directed to the elucidation of the damages caused by Mr Paciocco's and SDG's breaches. He did not attempt to look forward to assess what conceivably could be the damage from some (but not this particular) breach of the contract. It may be that some of the criticisms of Mr Regan weaken or undermine Mr Inglis' evidence. Nevertheless, one cannot take from Mr Regan's evidence or conclusion that, on a forward looking analysis, the amount of the fee was extravagant or exorbitant by reference to the greatest conceivable loss that might be caused by breach of the term in question.

(4)     Evidentiary questions as to the maximum conceivable loss: grounds 8-13 of NoA 149

The primary judge's threshold criticism of the purpose of Mr Inglis' evidence: questions addressed by the expert evidence: ground 8 of NoA 149.

151    At [138] of the reasons, the primary judge correctly identified the purpose of Mr Inglis' reports: to establish ANZ's greatest conceivable loss (and that it exceeded the fee). This was in accordance with a prospective enquiry as to extravagance and exorbitance. That the primary judge considered it the wrong enquiry can be seen from the second sentence and introductory words of the third sentence of that paragraph:

This approach had a number of problems. Instead of calculating ANZ's loss or damage from each separate Exception Fee Event…

152    That her Honour viewed Mr Inglis' forward-looking enquiry as erroneous is also evident from what her Honour said before and after [138] at [129] and [139] of the reasons.

153    For the reasons that I have expressed Mr Inglis' perspective was correct. Thus, unless (notwithstanding the different conceptual frameworks and the views of Lord Davey and Lord Robertson in Clydebank) Mr Regan's evidence as to damage and any other evidence that he gave, can be seen to address this prospective enquiry, Mr Regan's evidence as to damage was irrelevant as to the assessment of extravagance or exorbitance. At this point, it is worthy of note that Mr Regan was asked to assess the actual variable or incremental costs incurred by the ANZ as a result of the fee events: [159] of the reasons. Mr Regan's evidence cannot, on the authorities, and from its own terms, be utilised for a purpose different from that for which it was propounded and cannot be utilised for the prospective enquiry as to exorbitance and extravagance. Ground 8 of NoA 149 is made out.

The question of the ex post nature of Mr Inglis' evidence: ground 9 of NoA 149

154    The primary judge also identified as a flaw in Mr Inglis' enquiry that it was done ex post facto. By this the primary judge did not mean that Mr Inglis had conducted an enquiry ex post facto as to the consequences of the particular breaches by Mr Paciocco and SDG, but that his prospective enquiry was not a contemporaneous one or a commentary on a contemporaneous body of activity by ANZ. Rather, he constructed, after the event, what could be viewed, he said, at an earlier point of time, as the greatest conceivable loss from a breach of the provisions.

155    The primary judge agreed (at [139] of the reasons) with the submissions of Mr Paciocco and SDG that this did not inform a genuine pre-estimate of damage because it had nothing to do with the contemporaneous activity of the parties in that regard. The calling in aid of the admission of the ANZ by the primary judge reinforced this. Her Honour can be seen either to be saying that the evidence was irrelevant to a genuine pre-estimate of damage, because the ANZ had admitted that it was not such (and so a penalty); or, to be saying that, given (as was true) ANZ did not determine the quantum of the fees by reference to a sum that would have been recoverable as unliquidated damages, it lacked contemporaneous relevance of activity of the parties, or a party. If her Honour meant the former, respectfully, she was wrong because that took the admission too far, for the reasons given above. If her Honour meant the latter, respectfully, she was wrong because that impermissibly narrowed the content of the notion of genuine pre-estimate of damage as a reflex of penalty, for the reasons given above.

156    In Clydebank, Lord Davey said that it was open to the parties to address exorbitance: at 16. The enquiry is as to the relevant disproportion: Ringrow at [10] and [27]. The ex post facto construction by Mr Inglis of his prospective enquiry was not impermissible. Ground 9 of NoA 149 is made out.

The use of data from the 2009 financial year: ground 10(a) of NoA 149

157    In [138] of the reasons, the primary judge criticised Mr Inglis for his use of data from the 2009 financial year. The first basis for criticism was that it failed to direct attention to the damage caused by each Exception Fee Event. For the reasons that I have given, that criticism was unjustified.

158    The primary judge said that Mr Inglis used this material because it was the only material supplied to him by ANZ: [138] of the reasons. Mr Inglis, however, gave evidence that he considered 2009 to be appropriate for a forward looking analysis. The primary judge agreed with Mr Regan's view that 2009 was an inappropriate period on which to base calculations because of the effect of the global financial crisis: [138] of the reasons. ANZ criticised this finding, saying that Mr Inglis gave evidence that he made appropriate adjustments for these matters, adjustments which were not the subject of comment by Mr Regan. The judge did not address that question of adjustment, stating (at [138]) that she agreed with Mr Regan (who did not comment upon the attempts of Mr Inglis to adjust for the special circumstances of the global financial crises).

159    The appropriateness, or otherwise, of the 2009 financial year as a basis for Mr Inglis' calculations was debated in submission on appeal largely, if not wholly, by the parties by mere assertion, making any real analysis impossible. What can be said, however, is that the criticism by the primary judge of the forward looking task Mr Inglis' undertook was incorrect.

Theoretical accounting costs: ground 10(b) of NoA 149

160    ANZ attacked the statement in [140] of the reasons that Mr Inglis engaged in a theoretical accounting exercise. The complaint can be dealt with shortly: it is soundly based to the extent that her Honour erred in viewing the correct question as the calculation of actual loss from the breaches in question.

Increase in loss provisions: grounds 10(c), (d) and (e) of NoA 149

161    At [144]-[151] of the reasons, the primary judge discussed the relevance of ANZ's provisioning for loss under relevant accounting principles. ANZ's approach (not said to be other than appropriate) involved the collective provision of individual events consequent upon, amongst other things, late payment by customers. The primary judge refused to take into account loss provisions, expressing her reasoning at [150]:

Are loss provisions then a cost to be considered in assessing the extravagance or otherwise of an Exception Fee? While a loss provision may well be a "cost" in an accounting sense, it does not represent a loss or damage incurred as a result of an Exception Fee Event. A provision is merely an accounting entry, which is made to reflect the fact that it is estimated that some proportion of a group of outstanding loans will be unable to be collected. As Mr Regan said in evidence, a bank in the credit card business knows when advancing funds on behalf of cardholders that not all of those cardholders are going to be paying the balances. A provision is no more than a probability that not all of the recorded amount will be received by the institution. In the case of Mr Paciocco, he was not among the population of cardholders that were not paying the cardholder balances to ANZ. ANZ was not writing off the balances due from him. He may have been paying late, but he was paying. There was and remains a distinction between the statistical estimate of a future loss (general in nature) and what in fact occurred. Moreover, if assets are ultimately received at their full value, a provision will be written down to zero.

162    One element of this reasoning was related to the question that her Honour was answering: the actual damage from the particular breaches in question. In this context, the fact that Mr Paciocco had not defaulted may be seen to be relevant. It is, however, difficult to see why, in a forward looking analysis, provisioning which results in impairments to the balance sheet and the profit and loss account of ANZ, is not to be considered as a real cost, as a form of loss against which the obligee bank has a legitimate interest in protection. That it might (looking forward) be reversed later would not deny, at the point (or year) of late payment, the reality of the economic consequences by the effect on provisioning. This is brought about not least by the reality that a borrower in default is not the same credit risk as at a time before default. That increased risk is translated into a lower worth of the lending. The factual findings of the primary judge at [144]-[146] of the reasons describe the process.

163    Mr Inglis made various calculations on a forward looking basis. The primary judge set out in annexure 3 the magnitude of the (average) costs of provisions from the actual late payments based on his evidence of $23.

164    Respectfully, I cannot agree with the primary judge's reasons for rejecting provisioning as a legitimate business cost for which the fee imposed on the (now riskier) customer can be seen to provide. Whilst risk is, of course, an indication of future loss, the requirement to manifest risk in the reality of present values (in the balance sheet and profit and loss account) makes the risk caused by late payment a legitimate object of commercial interest for protection by compensation. The fact that a countervailing entry will, or may, be made in the future should the risk be seen not to eventuate does not deny or make hypothetical the present impairment of value and worth – that is that a loss incurred. That a degree of risk is reflected in the interest rate charged on accounts does not deny the legitimacy of assessing the cost that flows from late payment and the impairment of the value of the assets and earnings thereby in any one period.

Increase in the cost of regulatory capital: grounds 10(f), (g) and (h) of NoA 149

165    At [152]-[155] of the reasons, the primary judge discussed the nature and relevance of the costs of regulatory capital and Mr Inglis' calculation of the increase in such cost from late payment.

166    As a deposit taking institution, ANZ was and is required to hold regulatory capital which is not available to be put to use to earn normal banking returns. As assets become impaired, a need for further capital may arise because the impairment creates an effect upon the ratio of the capital base to the risk weighted assets. At [155] of the reasons, the primary judge summarised the positions of Mr Inglis and Mr Regan and expressed her conclusion as to the irrelevance of the cost of regulatory capital, as follows:

Mr Inglis calculated the effect of overdraw transactions and late payment on the amount of Regulatory Capital required to be held by ANZ and the cost of that additional Regulatory Capital. In many instances, the cost of additional Regulatory Capital alone would exceed the applicable Exception Fee. Mr Regan disregarded regulatory capital cost for the same reason he disregarded provision costs. He considered that the regulatory capital cost was a follow on cost from the provision costs. As such, the costs of regulatory capital were not relevant to the question that he was asked. ANZ submitted that because the question he was asked was not relevant to the issue of "extravagant quantum" to be determined by the Court, his view on this topic should be disregarded. I reject the contention that the alleged increase in cost of regulatory capital is to be taken into account in calculating loss or damage. Put another way, provisions and regulatory capital are part of the costs of running a bank in Australia. No increase in them can be directly or indirectly related to any of the late payments by Mr Paciocco. As the Applicants submitted, there are many cases each year by banks against customers and guarantors where the principal debtor has defaulted. In those cases, the banks seek damages limited to the sums outstanding, enforcement costs and interests. No one has suggested that a bank would be entitled to recover an increase in provisioning or the cost of its regulatory capital.

167    With respect, I cannot agree. That provisions and regulatory capital are part of the costs of running a bank, does not detract from the point that, as part of that operation, a cost may arise (and be the subject of a compensating fee) from a breach, or failure of a stipulation, of a contract. Regulatory capital returns less than other capital. If a breach of contract can cause the need to supplement that capital and thereby withdraw funds from circulating capital, that is a loss worthy of compensation, and an interest worthy of protection.

168    The primary judge set out in Annexure 3 the (average) regulatory capital costs from individual events based on Mr Inglis' evidence of $23 per event.

169    That ANZ does not seek to recover these costs in the ordinary course is not to the point. The fee is to be assessed by reference to the economic interests to be protected and the greatest possible loss.

170    The loss of the value of use of capital when it is attributed to regulatory capital is real and is not reversed if events in the future are such as to justify a reversal of an underlying provision.

Collection costs: grounds 10(i), (j) and (k) of NoA 149

171    The operational costs associated with late payments were accepted by the primary judge to be a cost. Mr Inglis calculated that in many scenarios the collection costs exceeded the fee: noted in [157] of the reasons. The ANZ submitted that this was a finding, and alone justified the fee as not extravagant or exorbitant. It was not a finding in the strict sense; it was a summary of the evidence of Mr Inglis.

172    The approach of Mr Inglis was to allocate various structural costs in respect of its deposit and card account products that related to responding to enquiries from customers who have incurred exception fees. Mr Regan, on the other hand, whilst accepting that these costs were incurred, directed himself to the actual variable or incremental costs incurred as a result of the actual exception fee events of Mr Paciocco and SDG.

173    The primary judge accepted Mr Regan's approach in dealing with the different types of costs, individually. From the perspective of assessing the damage from the individual and particular breaches by Mr Paciocco and SDG that approach is understandable. If, as I think it is to be the case, the correct approach was to look at the greatest possible loss on a forward looking basis, it is difficult to see why the structural costs should not be taken into account. Further, that correct perspective would make legitimate Mr Inglis' approach to collection costs of average customer call times, not Mr Regan's approach of the incremental or variable costs as a result of a particular breach.

174    The ANZ complained about the description by the primary judge at [162] of the reasons of Mr Inglis' methodology as "full absorption costs". The primary judge preferred Mr Regan's calculations. That preference was for costs only directed to Mr Paciocco's and SDG's breaches and thus variable and incremental costs of those events. It made no allowance for some necessary infrastructure involved. Further, the primary judge used the calculations of Mr Regan based on wage rates in Manila from 2012. These rates were not relevant to a forward looking calculation in 2006 and 2009.

175    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 (the second of the two questions posed of Mr Inglis), 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. Mr Inglis' calculation of collection costs to answer this second question were mainly the costs of contacting customers by telephone and in handling and responding to customer queries from late payment events. Certainly, the cost incurred "in connection with" late payment events (the first of the two questions posed of Mr Inglis) had a broad range of imputed costs of the kind mentioned by the primary judge at [164] of the reasons, as exemplifying the criticism in [162] of the reasons. It is difficult to see that the cost included for the second question would be described as "full absorption costing methodology" as perhaps could the costs included in answering the first question. Indeed, the joint report described Mr Inglis' cost calculation for the second question as a "long run incremental costing", in contradistinction to "absorption costing" for the first question. The calculation of collection costs was principally the cost of telephoning which time could vary from 1 minute to 20 minutes.

176    I agree with the criticisms made by ANZ. My agreement flows largely from my view as to the correct perspective to be taken. If one looks forward to the possible consequences of a breach it is difficult to justify the removal of the costs included by Mr Inglis in answering the second question, at least those which he said would result from late payment, including direct and common costs that represented some infrastructure costs. Further, the lowered costs from 2012 of overseas wages would have been irrelevant in 2006 and 2009, at least without evidence of known expectation (of which there was no finding). 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 19th quintile of customers being 20 minutes, the cost of collection (looking forward) might be seen to exceed the fee.

177    Thus, the including of provisioning costs, regulatory capital costs and collection costs including an element for infrastructure, would likely increase the possible loss to a level at or above the fee.

Interest charged to card accounts: ground 11 of NoA 149

178    The primary judge was of the view that interest on the unpaid balance was relevant to the question of whether the fee was a penalty. Her Honour's reasons are set out at [166] and [168]:

166    ANZ submitted that ANZ's other revenues were irrelevant to the question it was required to consider. In support of that contention, ANZ submitted that Mr Regan's comment was based on an assumption, namely that "the interest rate which a bank imposes on the cardholders' unpaid balance is designed to cover its cost of capital, its related operating costs and the risk that it will not be repaid, and provide a profit to the bank", for which there was no evidentiary foundation. ANZ submitted that therefore there was no basis to conclude that it applied to the manner in which ANZ set its interest rates, including on Card Account 9629, the low rate card account. Secondly, ANZ submitted that the question of ANZ's other revenues were irrelevant to the issue to be determined by the Court because the other fee revenue earned by ANZ was revenue earned whether or not a customer engaged in activities that give rise to the Exception Fees.

…

168    ANZ submissions, in part, are rejected. The general contention that ANZ derives revenue whether or not a customer engages in activities that give rise to exception fees is of little assistance in seeking to resolve the question to be determined by the Court. However, in assessing whether an Exception Fee is extravagant and unconscionable, the fact that ANZ derives other revenue (other than the Exception Fee) from the specific Exception Fee Event is relevant. It simply cannot be ignored. When Mr Paciocco did not make the required monthly payment on his Card Account 9522 by the due date of 31 August 2006, at least two sources of revenue were earned by ANZ – interest at 12.24% on the amount outstanding and the Late Payment Fee. How can you assess the proper character of the Exception Fee without considering the other revenue earned by ANZ on the same Exception Fee Event? The answer is you cannot. That is not the only other term of the contract between the Bank and Mr Paciocco that remains to be considered. For example, under cl 30 of the September 2006 Conditions of Use (see [5(9)] of Annexure 2), ANZ retained the right to cancel the card or refuse authorisation of further transactions on that card at any time if, among other things, ANZ believed the use of the card or account may cause loss to ANZ or Mr Paciocco when, for example, Mr Paciocco was in default under the terms of the account. Those facts and matters are of relevance in determining, for example, whether the stipulated sum (the late payment fee) is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from a failure to meet the primary stipulation.

179    The ANZ submitted that it was an error to conclude that late payment caused an increase in interest revenue. But all that her Honour was saying was that one cannot divorce the fee impugned from all the circumstances of the loan, including the interest. This was so even if the interest flowed from the terms of the initial contract. If there is late payment, there is compensation for use of the money by interest. It is relevant.

A prudent bank would not allow late payment: ground 12 of NoA 149

180    At [170] of the reasons, the primary judge said:

The calculations of Mr Inglis and Mr Regan for each Exception Fee varied considerably. A summary of their respective calculations for Late Payment Fees is attached as Annexure 3. Mr Inglis' calculations produced figures that suggested that the cost to ANZ is significantly greater than the Exception Fee charged. In a competitive financial market, it is difficult to accept that a prudent bank would allow Exception Fee Events to occur at all if the costs of each event far outstripped the amount of the fee.

181    The comment was not integral to her Honour's reasons. It is unnecessary to deal with the considerations that could well justify setting a fee level, in a competitive market, that was less than the greatest loss that could flow from that kind of breach.

Difficulty of estimation: ground 13 of NoA 149

182    At [175]-[176] of the reasons, the primary judge said the following:

175    ANZ submitted that it was apparent from the evidence adduced by Mr Inglis that the costs that might be occasioned to ANZ by late payment of a card account would be very difficult to calculate precisely. It abandoned its contention that it was impossible. In support of its contention that calculation of costs would be very difficult to calculate precisely, ANZ submitted that when it entered into a card account with a customer, it could not know in advance the circumstances in which the customer might not pay on time the amounts due on the account. In the case of Mr Paciocco, ANZ submitted that it could not know:

(a)    the account balance at the time of the late payment (which would impact the level of ANZ's provisions and regulatory capital);

(b)    the (credit risk) score assigned to Mr Paciocco's account at that time (which would also impact the level of ANZ's provisions and regulatory capital); and

(c)    whether and in what period Mr Paciocco would rectify the late payment (which would affect both the level of ANZ's provisions and regulatory capital and whether ANZ would need to take steps to secure repayment of the additional borrowings from Mr Paciocco which would occasion collection costs).

176    This contention is rejected for a number of reasons. First, it refers to and relies upon categories of cost which are not relevant. Secondly, and no less importantly, it misstates the task of the Court. The applicable principles are set out above: see Part 4, Sections E and F above. The fact that the task is difficult (even very difficult) does not provide an answer (or even part of an answer) to the fact that the Late Payment Exception Fee Provision and Late Payment Fee is a penalty at law and in equity. The stipulated sum is not agreed compensation.

183    Approaching these paragraphs recognising that the relevant enquiry is the forward looking enquiry in which both provisions and the cost of regulatory capital are relevant, her Honour was, with respect, wrong to reject the ANZ's contentions. If the analysis as to exorbitance and extravagance is to be taken to be part of the assessment of whether the fee is a penalty, not of assessing the consequences of it being a penalty (cf the last two sentences of [176] of the reasons), the difficulty of assessment of loss is a relevant consideration, as her Honour said at [40] of her reasons, as follows:

In assessing whether a stipulation is a penalty, the difficulty in establishing the quantum of the loss that might be suffered by reason of the breach (or failure of the primary stipulation) is relevant. A stipulated payment is more likely to be regarded as a bargain between the parties pre-estimating loss or compensation, and not as a penalty, when the consequences of the breach (or failure of the primary stipulation) upon which the payment is due are difficult or impossible to estimate: Clydebank at 11; Dunlop at 87-88, 95-96 and 104; Waterside at 128-129 and 132; Yarra Capital Group Pty Ltd v Sklash Pty Ltd [2006] VSCA 109 at [13].

Cumulative effect of grounds 8, 9, 10 and 13 of NoA 149

184    The above reasons do not exhaustively analyse the differences between Mr Inglis and Mr Regan. The submissions on appeal did not essay that not inconsiderable task. The significance of the above is, however, the necessary conclusion that Mr Paciocco and SDG failed to prove by this expert 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 many of the criticisms of his work flow from the primary judge's adoption of an ex post damages analysis.

185    In the context of the evidence of Mr Inglis, despite whatever faults it may be perceived to have, it is not possible to conclude as proven the fact that the fees are extravagant or exorbitant merely from the amounts taken alone or in the context of the "inherent circumstances" identified by Mr Paciocco and SDG discussed by the primary judge at [95] of the reasons. (See [33] above.) Those considerations bespeak a superior bargaining power in the context of consumer banking, but they must be considered in the light of the matters also legitimately raised by ANZ discussed by the primary judge at [96]-[102] and also [290] of the reasons. (See [34] – [36] above and [308] below.)

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

187    The above should not be taken to be, or reflect, a mechanical approach to the construction or characterisation of a provision as penal. Essential to the task is the conclusion that the provision provides for overcompensation which is extravagant, exorbitant or unconscionable in circumstances when the purpose of the provision is as set out by the High Court in Andrews (HC) at [10]: see [95] above. In any given case, what might be critical or decisive in the examination of all the circumstances might be (as here) the analysis of the extent of legitimate protection of the obligee's interest measured in the manner discussed in Dunlop, or (as in Fermiscan Pty Ltd v James [2009] NSWCA 355; 261 ALR 408) the clear contractual purpose of the coercion of performance by the payment or forfeiture of a large amount of money. One must examine all the circumstances. Here, given the nature of the relationship, the legitimate interest of ANZ and the correct analytical perspective, the fees were not demonstrated to be extravagant, exorbitant or unconscionable.

(5)    Matters concerning ANZ's actual costs: ground 14 of NoA 149

188    On the view that I take of the above grounds of appeal, this ground does not arise.

189    The submissions put by ANZ were by way of assertion only. To deal with them would require this Court, for itself, and without real assistance, to pick apart the voluminous evidence of the experts, Mr Inglis and Mr Regan.

190    Further, Mr Inglis did not direct himself to the task of analysing damages. The difference in the perspective and the task between the forward-looking analysis and the backward-looking damages analysis, has already been discussed and the significance of the distinction referred to under various of the above appeal grounds.

191    In the light of these matters, I would decline to deal with ground 14.

(6)     The operation of s 27 of the Limitation of Actions Act 1958 (Vic): ground 15 of NoA 149

192    This issue does not strictly arise. To the extent that it is appropriate or necessary to discuss it, I agree with the reasons of Besanko J on this.

(7)    The form of the orders and s 33ZB of the Federal Court of Australian Act 1976: ground 16 of NoA 149

193    This does not arise.

The appeal of Mr Paciocco and SDG concerning penalties in relation to all other fees

194    The Amended Notice of Appeal in VID 141 of 2014 (ANoA 141) has five grounds in relation to penalties:

(a)    that the relevant fees as a matter of construction were (contrary to the conclusion of the primary judge) payable either upon a breach of contract or upon the failure of a stipulation to enable the equitable jurisdiction of penalties to be enlivened: ground 1 of ANoA 141;

(b)    that the contractual provisions should not have been construed against the background of the established principles of the banker customer relationship: ground 2 of ANoA 141;

(c)    that the approach of the primary judge in approaching the question of penalty objectively without reference to the subjective views of the parties was wrong, and thus her Honour rejected, or did not take into account relevant evidence: ground 3 of ANoA 141;

(d)    that the relevant fees were penalties: ground 4 of ANoA 141; and

(e)    that findings should have been made as to loss and damage: ground 5 of ANoA 141;

195    The essence of the submissions of Mr Paciocco and SDG as to the approach and conclusions comprised the following inter-related propositions. Her Honour wrongly, it was submitted, approached the question of whether the provisions for the fees were payable upon breach of contract, or were security for the performance by the customer of other obligations to ANZ, or were for the provision of further accommodation to the customer, as one of contractual construction above: see [38] of the reasons. The process was wider than the objective construction of the meaning of the terms in question and included the consideration of the subjective views of people at ANZ as to the purpose of the terms, as well as the consideration of the extravagance or exorbitance of the fees in question. This latter consideration was said not to be limited to the separate, distinct and later enquiry as to the unconscionability of the term, earlier construed as providing for a sum payable upon breach or as security for the performance by the customer of other obligations, but rather it was part of the earlier characterisation task as to what the clause was.

196    One manifestation of that broad complaint was the specific complaint about the refusal by the primary judge at [124]-[130] of the reasons to consider, as relevant or of assistance, the internal ANZ documentation tendered against it and some evidence in cross-examination that was said to bear on the question of the proper characterisation of the terms in question.

197    Another element of the broad complaint was the proposition that, in the process of construction (properly to be understood, it was submitted, as a wider process of "characterisation" that included the consideration of subjective elements to which I have referred), the primary judge placed too much emphasis on the established principles of the banker and customer relationship.

198    The approach of the primary judge has been outlined above: as to the Savings Account Honour Fee: [59]-[66] above; as to the Card Account Overlimit Fee [67]-[69] above; as to the other fees: [71]-[80].

199    The first step in the analysis is to ascertain whether there is engagement of the doctrine of penalties at all: Andrews (HC) at [10] and [80]-[82]: whether, as a matter of construction in the sense described in Dunlop at 86-87 (see [95] above) and as a matter of substance, the term in question provides for payment of a sum upon breach, or if it is collateral or accessory to a primary stipulation in favour of the obligee and the collateral stipulation, upon the failure of the primary stipulation, imposes on the obliger an additional detriment to the benefit of the obligee, or whether the term provides for payment for some further contractual right or accommodation: Andrews (HC) at [80]-[82]; French v Macale (1842) 2 Drury and Warren 269 at 275-276; Hardy v Martin (1783) 1 Cox Eq Cas 26 at 27; 29 ER 1046 at 1046-1047; and Metro-Goldwyn-Mayer v Greenham [1966] 2 NSWR 717 at 723.

200    To insist, as the cases do, that the process is one of substance and not form is not, however, to abandon accepted canons of contractual construction. The meaning and content of a contract is to be ascertained, in substance, in reality. The words employed by the parties (here the ANZ as the propounder of the language used) must be analysed against the inherent circumstances of the case and any relevant background circumstances. Once meaning and content are ascribed to the words, a process of characterisation may be necessary. The words of Lord St Leonards in French v Macale which were set out and emphasised by the Court in Andrews (HC) were as follows:

[I]t appears, that the question for the Court to ascertain is, whether the party is restricted by covenant form doing the particular act, although if he do it a payment is reserved; or whether according to the true construction of the contract, its meaning is, that the one party shall have a right to do the act, on payment of what is agreed upon as an equivalent. If a man let meadow land for two guineas an acre, and the contract is, that if the tenant choose to employ it in tillage, he may do so, paying an additional rent of two guineas an acre, no doubt this is a perfectly good and unobjectionable contract; the breaking up the land is not inconsistent with the contract, which provides, that in case the act is done the landlord is to receive an increased rent.

(Emphasis added by the High Court).

201    The simplicity of the example given by Lord St Leonards belies the contestability of the conclusion that might be reached in any given case. The process is neither mechanical nor sequential, but the meaning of the term in question upon its proper construction is an integral element to the analysis.

202    In Metro-Goldwyn-Mayer, the obligor (Greenham) screened films without the written permission of the obligee (MGM). Clause 9 of their contract provided:

The Exhibitor shall within the period of hire exhibit the films set out in the Schedule in the theatre and shall not exhibit any of the said films, or allow, or suffer, any of the said films to be exhibited or used at any other place or at any time not authorised by or pursuant to this Agreement without the written consent of the Distributor.

Another clause, cl 56(a), provided for the position if films were exhibited without consent:

If the Exhibitor without the consent in writing of the Distributor exhibit or permit to be exhibited any film on or at any date or time or at any place not authorised by this Agreement the Exhibitor shall pay as hire for each such exhibition four times the amount of the hire calculated in accordance with clause 54 as if each day on which the film was so exhibited or permitted to be exhibited were an authorised exhibition date on which the Exhibitor without excuse had failed to exhibit.

203    A majority of the New South Wales Court of Appeal (Jacobs JA and Holmes JA) considered the clause to be non-penal, as providing for payment for an additional contractual entitlement: see [1966] 2 NSWR at 723-724 (Jacobs JA) and 726-727 (Holmes JA). Wallace P, on the other hand, considered the clause to be penal. The process undertaken by all three judges was that to which I have referred: one of construction as to the substance of the clause – its meaning, content and contractual purpose. As Jacobs JA said at 723-724:

Upon such an approach it seems to me that cl.56 is properly regarded as one providing for an additional hiring fee in the event of an additional showing of a film. It may well be intended by the agreement that such an additional showing should be strongly discouraged. For this reason a very large hiring fee compared with the original hiring fee is provided. However, that does not make the clause a penalty clause: cf. Bridge v. Campbell Discount Co. Ltd., [1962] 1 All E.R. 385; [1962] A.C. 600. First it would be necessary to determine that cl. 56(a) truly dealt with damages and not with hire of the film for a further occasion or occasions. In the light of the interpretation which I have given to the agreement I do not see how, despite the language of cl. 9, the clause in question can be regarded as a clause dealing with damages. There is no right in the exhibitor to use the film otherwise than on an authorized occasion. If he does so then he must be taken to have exercised an option so to do under the agreement, if the agreement so provides. The agreement provides that he may exercise such an option in one event only, namely, that he pay a hiring fee of four times the usual hiring fee. In my view this is not a clause dealing with damages but is dealing with the price of such an option. Thus, if an exhibitor were to be sued by a distributor for conversion of the film in that he used it for exhibition on an unauthorized occasion or on more than one occasion (and particularly in the latter case) the exhibitor could deny the conversion by referring to cl. 56 of the contract, but he could only rely on cl. 56 if he was willing to comply with its terms, namely, to pay four times the usual hiring fee. If the film were destroyed in the course of an unauthorized use, an exhibitor who was guilty of conversion would be absolutely liable for the cost of the film; on the other hand if the use was one which was possible under the terms of the agreement, he would not be so liable in the absence of negligence on his part. If the film were so destroyed and the exhibitor were sued for the value of the whole film surely he could rely on the terms of cl. 56 which expressly provides for the price of a use outside the primary use intended to be given by the terms of the contract. It would be to depart a long way from the intention of the words used in the standard form of contract if every additional use, or use outside the particular occasion or occasions permitted, were to be regarded a s conversion of the film. So to regard it would be to go contrary to the express words of the prescribed contract.

(Emphasis added).

204    To return to the context here, there is no warrant for disturbing the application of accepted and stable principles of the banker customer relationship to ANZ's business. It was a bank carrying on banking business with customers. No sound reason was propounded for so doing. The primary judge made no error at [198] of the reasons in this regard.

205    The focus on substance and not form which is at the heart of the doctrine of penalties does not mean that formalism is acceptable in law, but Equity provides for a wider and different process, subjectively focused on what the parties, or one of them, thought that, they or it, were or was, doing.

206    The core of the task is the ascription of meaning and content to the provision in question. Once its meaning and content is clear, the character of the provision must be assessed. In Dunlop, the meaning of the clause was clear. Money was payable on breach, whether it was penal in character was to be understood by reference to the legitimate interests being protected, explained by Mr Beasley. Thus, the character of a clause that provided for payment on breach as penal or not was assisted by extrinsic evidence.

207    As to what the clause creates in terms of substantive rights, the words or labels chosen by the parties are not controlling; it is the substance of what is agreed and created by the contract that is controlling. Such an approach is not one limited to penalties or Equity: see for example Radaich v Smith [1959] HCA 45; 101 CLR 209 at 217 and 221-222. To say as the Supreme Court of Washington did in Chandler v Doran Co 44 Wash 2d 396 at 401-402; 267 P.2d 907 (1954) cited in Minnick v Clearwire US LLC 174 Wash 2d 443 at 462; 275 P.3D 1127 at 1137 (2012) (cited by Mr Paciocco and SDG) that a term will not be allowed to be a "cover for the enforcement of a penalty" is not to call for the abandonment of the process of true interpretation. To the contrary, that process is at the heart of the process; as it was in Minnick v Clearwire.

208    In G & C Kreglinger v New Patagonia Meat and Cold Storage Company Limited [1914] AC 25, Viscount Haldane LC described at 35-36 some of the history of the approach of Equity to the common law mortgage – that is the full and complete transfer of the property and the control by Equity of forfeiture and the sometimes oppressive penal character of the transfer. He made clear that one looked to all the surrounding facts to understand the real nature and substance of the transaction. He said at 35-36, after referring to the Council of Lateran in 1179 and the concern of the Church with usury:

It was therefore not surprising that the Court of Chancery should at an early date have begun to exercise jurisdiction in personam over mortgagees. This jurisdiction was merely a special application of a more general power to relieve against penalties and to mould them into mere securities. The case of the common law mortgage of land was indeed a gross one. The land was conveyed to the creditor upon the condition that if the money he had advanced to the feoffor was repaid on a date and at a place named, the fee simple should revest in the latter, but that if the condition was not strictly and literally fulfilled he should lose the land for ever. What made the hardship on the debtor a glaring one was that the debt still remained unpaid and could be recovered from the feoffor notwithstanding that he had actually forfeited the land to his mortgagee. Equity, therefore, at an early date began to relieve against what was virtually a penalty by compelling the creditor to use his legal title as a mere security.

My Lords, this was the origin of the jurisdiction which we are now considering, and it is important to bear that origin in mind. For the end to accomplish which the jurisdiction has been evolved ought to govern and limit its exercise by equity judges. That end has always been to ascertain, by parol evidence if need be, the real nature and substance of the transaction, and if it turned out to be in truth one of mortgage simply, to place it on that footing. It was, in ordinary cases, only where there was conduct which the Court of Chancery regarded as unconscientious that it interfered with freedom of contract. The lending of money, on mortgage or otherwise, was looked on with suspicion, and the Court was on the alert to discover want of conscience in the terms imposed by lenders. But whatever else may have been the intention of those judges who laid the foundations of the modern doctrines with which we are concerned in this appeal, they certainly do not appear to have contemplated that their principle should develop consequences which would go far beyond the necessities of the case with which they were dealing and interfere with transactions which were not really of the nature of a mortgage, and which were free from objection on moral grounds. Moreover, the principle on which the Court of Chancery interfered with contracts of the class under consideration was not a rigid one. The equity judges looked, not at what was technically the form, but at what was really the substance of transactions, and confined the application of their rules to cases in which they thought that in its substance the transaction was oppressive.

(Emphasis added).

209    None of what was said by the Lord Chancellor is a foundation to depart from accepted canons of contractual construction when the task is to understand what is the meaning and content, in substance, of the relevant provision. That said, it is clear that extrinsic evidence is available to set the clause in context and to ascertain its true character as penal or not. The nature and width of that evidence will depend on the circumstances. In Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504, the evidence concerned the origin and evolution of the liquidated damages clause and, in particular the reason for its particular form, the discussions that had occurred regarding it and its object. These matters did not assist as to the meaning and content of the clause, but as to whether it was an attempt to reach a genuine pre-estimate of damage, as to whether it was in terrorem, or as to whether it was unconscionable: that is, as to the character of the clause as penal, or not.

210    The same process of examination of extrinsic material occurred in Dunlop (with Mr Beasley's evidence) and in Clydebank (in the examination of the genesis of the clause in question including the pre-contractual correspondence of the parties).

211    The distinction between ascribing the substantive meaning to the clause in question (the process of construction of the contract: French v Macale) and characterising the provision as penal or not is to recognise the different elements of the enquiry. If, as a matter of substance, the parties have agreed to a payment in exchange for further rights, the penalty doctrine is not engaged. The process of deciding such will engage the rules of contractual construction. If, however, the words are said to be a device for another (penal) end, evidence would be admissible to show that.

212    If, however, the clause properly construed provides for a payment upon breach or pursuant to a stipulation that is collateral or accessory to a primary stipulation in the relevant sense, all the circumstances and evidence tending to illuminate all the circumstances will be admissible to assist with the process of characterisation as to whether the clause is penal or is a genuine pre-estimate of damage in the relevant sense.

213    Turning to the criticisms of the approach of the primary judge, her Honour dealt with the honour, overlimit and non-payment fees before December 2009 in Section C at [188]-[233] of the reasons, and with the same kinds of fees after December 2009 in Section E at [243]-[274] of the reasons. I will deal with these in turn.

214    Her Honour commenced with the savings honour fee before December 2009, the terms of which were set out at [65]-[66] of the reasons. (See [15(c)] above).

Savings Honour Fee – pre-December 2009

215    At [196]-[197] of the reasons, the primary judge rejected the submission of Mr Paciocco and SDG that cl 2.12 of the August 2008 terms and conditions meant that the fee was payable upon breach. The primary judge's analysis was correct. The clause as a whole provides for the discretion of ANZ to permit an overdrawing, for a fee. The clause make plain that overdrawing is not to take place without prior arrangements, but then provides for a mechanism, at the discretion of ANZ, of permitting an overdrawing that contains a fee. In its own terms, and set against the background of the findings in Andrews 211 FCR 53 set out at [198] of the reasons, the fee is payable for the accommodation provided.

216    For similar reasons, the primary judge, at [202], rejected the contention that the fee was payable upon failure of a collateral stipulation. The fee was payable if ANZ honoured an instruction that required an accommodation to which the customer was not entitled. That this was at the discretion of the ANZ through the operation of shadow limits (explained at [101] of the reasons) did not affect this analysis: [203]-[204] of the reasons.

217    It was submitted that there was a logical flaw in the reasoning of the primary judge: that what the provision did was to cure a breach by waiver. I reject that submission – it is neither what the clause provided for, nor what the primary judge said. There was no breach; there was no failure of a stipulation; a fee was payable for a contractually permitted transaction, effectively extending the drawing limits temporarily.

218    It was submitted that her Honour failed to consider the position in Equity by approaching it as a matter of mere contractual form, and by approaching it as a clear binary choice: that if there was a consensual additional obligation, the provision could not be a penalty. The submission was that the primary judge failed to recognise that, even if some additional consensual arrangement were made, it could "in truth" be a penalty, dealing truly with damages or was a cover to exact a penalty.

219    I deal below with the question of the ANZ documents and other evidence. I do not read her Honour's reasons as taking any approach other than one whereby, as a matter of substance, her Honour construed the clause and came to the view, correctly, in my view, that the clause provided for a payment for honouring of a transaction that could be rejected as beyond arrangements. To the extent that the submissions asserted that the clause cannot have any feature of encouragement to a desired end of compliance with contractual obligations such overlooked the fact that such is permissible. As Jacobs JA said in MGM v Greenham at 723 (earlier set out):

It may well be intended by the agreement that such an additional showing should be strongly discouraged. For this reason a very large hiring fee compared with the original hiring fee is provided.

220    It was submitted that the use of "shadow limits" somehow made the process one that did not involve any decision by the ANZ, and, in substance, a fee for breach or failure of a stipulation. I cannot agree. That a structure was put in place for dealing with instructions that would overdraw the limits such that, for a fee, the limit was permitted to be exceeded, does not make the arrangement something different from that which the terms provided.

221    It was submitted that the primary judge should have considered the quantum of the fees and then assess whether, in light of that (and any other relevant consideration) the provision was to be characterised as collateral to the primary stipulation.

222    It can be accepted that, in a given fact situation, the surrounding circumstances, including the level of the relevant fee, may lead to the conclusion that a provision, that on its face provides for a fee for an additional contractual benefit, is in substance a disguise for a fee for a breach that is extravagant and unconscionable. Any such judgment recognises the possibility of the overlapping of the processes of construction of the instrument and its characterisation from all the circumstances. The true legal substantive meaning of the clause is integral to any process of characterisation. A high fee for the contractual benefit may, however, be just that – a high fee for the additional contractual benefit.

223    That the fees may have had a degree of disparity from the likely cost of rejecting or accepting a transaction that was governed by the "shadow limits" does not mean that it was not a fee (even a high fee) for the additional contractual benefit.

224    It was submitted that deterrence was the true purpose – deterrence of customers breaking their account limits. This, it was submitted, was to be found in the secondary material wrongly not considered by her Honour.

225    The primary judge did not consider the material tendered about the ANZ's state of mind to be relevant. In the context of dealing with the late payment fee, her Honour said that the enquiry as to whether a fee was a genuine pre-estimate of damage was one that did not invite any enquiry into the parties' states of mind at the time of the contract: see [126] of the reasons. With respect, I do not agree. The views of the parties may well not conclude the enquiry, but, as in Clydebank, with the correspondence between the parties, as in Multiplex, with the pre-contractual discussion of the parties, and as in Dunlop, with Mr Beasley's evidence of the purpose of the clause, the approach and purposes of the parties may be of some assistance in understanding both what was intended and whether it has a legitimate commercial justification.

226    In a contract of adhesion, such as here, the aims and purposes of those involved with the dominant party might cast light on the substantive characterisation. If, for instance, the board of ANZ had considered this question and resolved, in terms, to exact a fee far in excess of any damage or cost to ANZ for any breach of overdraft limit, in order to convince customers to stick to their contractual arrangements, but the resolution made clear that the terms were to be drafted by way of disguise as a formal fee for overdraft extension, it would be difficult to see why such evidence would not be admissible (even if not conclusive) going to the question of whether the clause which, on its face, appeared to have the meaning of a fee for a contractual benefit should not be characterised as having a penal purpose.

227    That said, what people in an organisation such as the ANZ think they are doing must always be examined against the reality that antecedent commercial expectations may be translated into contractual arrangements, the form of which arrangements is intended to be the substance of that arrangement. Further, the fact that some encouragement of compliance with contractual arrangements is desired by a clause does not make it penal.

228    Nevertheless, the primary judge examined the material in meticulous detail. In Annexure 4 to the reasons, the primary judge set out over 10 pages a detailed summary of that material under the heading of each document. In [127] of the reasons, the primary judge set out a summary of the contentions of the parties in respect of the material, as follows:

1.    ANZ frequently turned its mind to the conditions which would give rise to exception fees becoming payable and what the quantum of each fee ought to be.

2.    ANZ operated in a framework where it regarded exception fees as a part of its revenue which contributed significantly to profit (and, therefore, not merely covering costs arising from the Exception Fee Events) – indeed (critically) it well knew that the level of Exception Fees was well above "cost recovery".

3.    ANZ regarded exception fees as arising when accounts were otherwise not "in order" or being properly managed, or as capable of effecting "behavioural control" over how customers dealt with accounts.

4.    ANZ wanted to encourage customers to "avoid" exception fees (because, it should be inferred from the evidence, it did not want customers' accounts to be "out of order").

5.    ANZ was aware that if customers were presented with a reminder of the exception fee before finalising a transaction, a significant percentage of them would not proceed with the transaction (and would not overdraw their accounts, but rather maintain them in an orderly state).

6.    In terms of the level at which ANZ set exception fees, ANZ was conscious that the fees were not set at an amount "limited to cost recovery only" and that ANZ set the level of fees by reference "to market". That is, the exception fees were set by reference to what other banks were charging, and by extension, the maximum ANZ thought it could get away with charging, and bore no relation whatsoever to the costs to ANZ of the relevant events giving rise to the exception fees. (The Applicants submitted that this arbitrary process of setting the amount showed, without more, that the amount was "extravagant and unconscionable".)

7.    ANZ, on the other hand, contended that the material evidenced the response by ANZ staff to the changing competitive and regulatory environment affecting exception fees in the period from 2006 to 2009 and that the changes ultimately adopted reflected the nature of the fees and the events that gave rise to those fees. The passages relied upon by ANZ are italicised in Annexure 4.

229    At [128] of the reasons, the primary judge expressed difficulties that she perceived with the material: (a) that it was selective and was used selectively in submissions; (b) that it was incomplete; (c) that some of the material was in draft form only; and (d) that some of the material was in the nature of proposal, not acted upon.

230    The complaints on appeal about her Honour's specific treatment of the material began with the proposition that it was for ANZ to explain the material. With respect, that is not so. Mr Paciocco and SDG had the advantage of discovery: they bore the onus of proof of extravagance, exorbitance and unconscionability.

231    Mr Paciocco and SDG emphasised, first, the evidence of Mr Erving, a credit risk manager of ANZ of 10 years' experience. In his cross-examination, he accepted that, as he understood it, the whole point of the exception fees was to make sure people were fulfilling their obligations to keep their accounts in order, a matter which was important to the ANZ. Her Honour's careful analysis of the material in Annexure 4 need not be set out here. It is sufficient to say that a reading of exhibit 33 (the tender bundle), the primary judge's summary of it in Annexure 4 and Mr Erving's evidence, does not lead me to draw the inference that the contractual terms drafted to regulate the substantive legal relationship between the ANZ and its customers was a disguise for a penalty. Encouragement to compliance with terms and profit taking were both strong motivations. These were achieved by a substantive legal relationship which gave a contractual benefit, a contractual benefit which, on the evidence, Mr Paciocco took advantage of.

Overlimit Fees on Card Accounts – pre-December

232    The terms of these provisions were set out at [60]-[62] of the reasons. (See [15(b)] above.)

233    At [220]-[227] of the reasons, the primary judge rejected the submissions of Mr Paciocco and SDG that these fees were payable upon breach or upon the failure of a collateral stipulation. The fees were substantially identical to the honour fee dealt with at [196]-[204] of the reasons.

234    The primary judge's construction of the terms was correct. As a matter of meaning and content, the clause in the July 2009 Conditions of Use (see [60] of the reasons, [15(b)] above) provided for the overdrawing of the account, for the extension of accommodation, for a fee. The transaction was a request that was approved.

235    My conclusions as to the lack of transformative effect of the surrounding circumstances, including the evidence of Mr Erving and the ANZ documents, are the same.

Non-Payment Fees – pre-December 2009

236    For the reasons set out at [230]-[233] of the judgment concerning the admitted applicable contractual arrangements, Mr Paciocco was entitled to common law damages, because the terms did not permit ANZ to charge these fees in this period. It was (and is) therefore unnecessary to deal with their character as penal or not. The primary judge dealt with them in the period after December 2009 at [270]-[273] of the reasons, to which I will come to below.

Overlimit Fees – post December 2009

237    The relevant clauses were set out at [77]-[81] of the reasons. (See [16(b)] above.)

238    The clauses were clear in their meaning. See, in particular, clause 2 of the March 2010 conditions (at [77] of the reasons, [16(b)] above):

When a debit is initiated which, if processed, would result in the outstanding balance temporarily exceeding your credit limit, you make a request for an Informal Overlimit amount. ANZ will consider your request for an Informal Overlimit amount and, if both the debit and the account holder satisfy ANZ's credit criteria for Informal Overlimit amounts, ANZ will allow the debit to be processed as an Informal Overlimit amount, on the following terms:

…

•    An overlimit fee will be charged …

239    If this is (as the primary judge found it to be) the substantive provision of a contractual benefit, and the surrounding material does not show it to be a device to disguise the true character of the legal relationship (as it does not) the doctrine of penalties is not engaged.

Business Honour Fee – post December 2009

240    The relevant clauses were set out at [84]-[88] of the reasons. (See [16(c)] above.)

241    The reasons of the primary judge at [258]-[264] were essentially the same as for the savings honour fee. The substantive construction found by her Honour was correct. The secondary material (including the evidence of Mr Erving) does not establish that the clauses were a device to disguise the true character of the provisions as penal.

Business Dishonour Fee – post December 2009

242    The relevant clause was set out at [90] of the reasons. (See [16(d)] above.)

243    As the fee's name and the terms of the clause disclosed, this was a fee paid if the transaction initiated by the request was dishonoured, not for the additional benefit of the honouring of it by a temporary extension of the overdraft. The fee in terms is, as the primary judge found at [271], "charged in return for the bank considering (and ultimately rejecting) the customer's request." It should be noted that for savings accounts and centrally managed business accounts in the case of electronic transactions, the automatic honour system using the "shadow limits" would lead to a fee if there was an honouring, but no fee if there was dishonouring. In respect of so called "batch transactions" (cheques, direct debits and certain periodical payments) an honour fee was charged if the transaction was within the "shadow limit". If outside the "shadow limit" the transaction was referred to a credit team (NSF team) for manual decision. See the evidence collected in ROWS in appeal VID 141, para 10. For this, an honour fee or dishonour fee was charged depending on the decision.

244    The secondary material (including the evidence of Mr Erving) does not establish that the clause was a device to disguise the true character of the provision as penal.

Conclusion as to penalties

245    For the above reasons, the appeal of ANZ should be allowed. It was not proven that the late payment fee was, in the relevant sense, extravagant or unconscionable. For the reasons dealt with below, the notice of contention of Mr Paciocco and SDG based on the statutory claims should be dismissed.

246    For the above reasons, the appeal of Mr Paciocco and SDG in relation to other fees, in so far as they were said to be penalties, should be dismissed.

247    I will deal with the form of orders after dealing with the statutory claims.

Statutory unconscionability, unjustness and unfairness

248    In Parts 7 ([275]-[310]), 8 ([311]-[325]) and 9 [326]-[353]) of the reasons, the primary judge dealt with three bodies of Commonwealth and State statutory provisions concerning unconscionability, unjustness and unfairness.

249    No complaint was made on appeal that the primary judge misdirected herself by reference to the wrong provisions. The application of these provisions admits, however, of some further comment, for different reasons. The interlocking and overlapping provisions are not a model of the simplicity that ought prevail in statutory provisions concerned with commerce, and with consumer protection. Also, it is appropriate to say something of the meaning of terms such as "unconscionability" and of their place in Australian commercial law.

Unconscionability provisions

250    As to the provisions in question, the primary judge dealt meticulously with the not uncomplex web of provisions that has been placed in various statutes at various times. Her Honour summarised the position as to "unconscionable conduct" at [277] of the reasons:

Unjust transaction provisions

251    As to unjust transactions under the Credit Codes, the primary judge noted at [313] of the reasons that the relevant claims were limited to claims in relation to Overlimit Fees on Mr Paciocco's Card Accounts by reference to s 76 of the National Credit Code.

Unfair contract terms

252    As to unfair contract terms, the primary judge set out the not uncomplex position at [326]-[327] of the reasons:

326    This claim was made in relation to Saving Account 156 and the Card Accounts. The unfair term provisions of the FTA and the ASIC Act do not apply to business contracts. The law is not straightforward. It was amended many times. The amendments may be divided into four phases:

1.    Phase 1 – 9 October 2003 to 11 June 2009;

2.    Phase 2 – 11 June 2009 to 1 July 2009;

3.    Phase 3 – July 2010 to 31 December 2010; and

4.    Phase 4 – 1 January 2011 to 1 July 2012.

327    In general terms:

1.    neither s 32W of the FTA nor s 12BG of the ASIC Act has ever applied to Saving Account 156;

2.    Part 2B of the FTA as in force during Phase 2 applied to Card Account 9629 from the date the account was opened (on or about 12 July 2009) and to the Exception Fee Provisions of Card Account 9522 from December 2009 until the repeal of the FTA on 1 July 2012; and

3.    s 12BG of the ASIC Act has never applied to either Card Account.

253    At [328]-[341] of the reasons, the primary judge dealt with the relevant provisions in the four phases to which she referred. Phase 1 was found not relevant to the proceedings. No complaint was made about that conclusion. The complexity of the relevant application of provisions can be understood from a reading of [329]-[330] and [332]-[341] of the reasons. In phase 2, Pt 2B of the FT Act containing, relevantly, ss 32W and 32X dealing with the meaning of "an unfair term" applied to Card Accounts 9629 and 9522, but not Savings Account 156. In phase 3, ss 32W and 32X in the form in which they had been in in phase 2, continued to apply to Card Accounts 9629 and 9522. Further, Pt 2B of the FT Act was amended to incorporate provisions in Pt 2-3 of the Australian Consumer Law (ACL), but none of Mr Paciocco's accounts became subject to it. In phase 4, Pt 2B of the FT Act (including s 32W) was repealed and replaced by provisions equivalent to the ACL from 1 July 2012.

254    At [342]-[351] of the reasons, the primary judge resolved disputes about the application of various provisions. No complaint is made about that.

255    In the end, after meticulous analysis and discussion over a number of pages of her judgment (at [275]-[278], [311]-[316], [326]-[351]) the primary judge identified as relevant the statutory provisions which the parties put before us as relevant:

Statutory Unconscionability Laws

Statutory Unfair Terms Laws

Statutory Unjust Transactions Laws

256    These statutory provisions are set out as annexures 1 to 6 to be found behind these reasons and the reasons of Besanko J and Middleton J.

The meaning of unconscionable conduct – the approach of the primary judge

257    The primary judge approached the matter in accordance with the arguments of the parties. First, there was no dispute concerning the field of operation of unconscionability under the ASIC Act, the FT Act and the ACL. Secondly, there was no dispute that the concept of unconscionability in, and the applicable principles concerning, the respective statutory regimes were the same.

258    At [281]-[285] of the reasons, the primary judge set out the principles to govern the application of the statutory norm of unconscionability, as follows:

281    In determining whether conduct is unconscionable, the Court:

1.    may have regard to any matter in determining whether matter is unconscionable: ASIC Act (pre 1 Jan 2012) – ss 12CB(2) and s 12CC(2); ASIC Act (post 1 Jan 2012) – s 12CC(1) and FTA – ss 8(2) and 8A(3);

2.    except in relation to unconscionable conduct in business transactions, may have regard to conduct engaged in, or circumstances existing, before the commencement of the relevant section of the statute: ASIC Act (pre 1 Jan 2012) – ss 12CB(4)(b) and  12CC(5)(b); ASIC Act (post 1 Jan 2012) – s 12CB(3)(b) and FTA ss 8(4)(b) and s 8A(6)(b); and

3.    must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention: ASIC Act (pre 1 Jan 2012) – ss 12CB(4)(a) and  12CC(5)(a); ASIC Act (post 1 Jan 2012) – s 12CB(3)(a) and FTA ss 8(4)(a) and  8A(6)(a).

282    Further, after 1 January 2012, s 12CB(4)(c) of the ASIC Act states that in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of the terms of the contract and the manner in which and the extent to which the contract is carried out, and is not limited to consideration of the circumstances relating to formation of the contract.

283    The term "unconscionable" is not defined in the ASIC Act or the FTA. It is to be given its ordinary meaning, being something done not in good conscience and that which is irreconcilable with what is right or reasonable: Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at [42]; Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] ATPR 42-447 at [41]; Hurley v McDonald's Australia Ltd (2000) ATPR 41-741 at [22] and [31] cited with approval in Ange v First East Auction Holdings Pty Ltd (2011) 284 ALR 638 at [96] and [104] and followed in Australian Competition and Consumer Commission v Simply No-Knead Franchising Pty Ltd (2000) 104 FCR 253 at [30]; Australian Competition and Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491 at [183]-[185]; Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 2) (2009) 253 ALR 324 at [113] and Perdaman Chemicals and Fertilisers Pty Ltd v ICICI Bank Ltd [2013] FCA 175 at [22].

284    In Tonto Home Loans Australia Pty Ltd v Tavares (2011) 15 BPR 29,699 at [291], Allsop P (as he then was) summarised the meaning of statutory unconscionable conduct in the following terms:

Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 140; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; 117 FCR 301 at 316-317; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; ... the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at genera/law and equity: National Exchange at 140; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at 143. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances.

See also Lux Distributors at [23] and Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 168.

285    As the Court said in Lux at [23]:

The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. In some contexts, such values are contestable. Here, however, they can be seen to be honesty and fairness in the dealing with consumers. The content of those values is not solely governed by the legislature, but the legislature may illuminate, elaborate and develop those norms and values by the act of legislating, and thus standard setting. The existence of State legislation directed to elements of fairness is a fact to be taken into account. It assists the Court in appreciating some aspects of the publicly recognised content of fairness, without in any way constricting it. Values, norms and community expectations can develop and change over time. Customary morality develops "silently and unconsciously from one age to another", shaping law and legal values: Cardozo, The Nature of the Judicial Process (Newhaven, Yale University Press, 1921) pp 104-105. These laws of the States and the operative provisions of the ACL reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct.

Unconscionable conduct – the approach to an evaluative statutory standard

259    Notwithstanding the lack of controversy at the trial about the applicable principles, it is appropriate to say something about the standards involved, in particular unconscionability. This is so in order to explain why the conclusions reached by her Honour in her application of the principles were not shown to be wrong. I will focus, initially, upon the word "unconscionability" in the ASIC Act.

260    It is also necessary to say something as to the relative standards or norms of unconscionability, unfairness and unjustness and the care needed in the use of other language to explicate those standards. In particular, the phrase "moral obloquy" and a "high level of moral obloquy" has been used to identify a feature of unconscionability: see Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; 15 BPR 29,699 at [291] where I referred to what Spigelman CJ said in Attorney-General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 at 583 [121] about the concept of unconscionability in s 62B of the Retail Leases Act 1994 (NSW). There are other cases in which this shorthand has been employed. It is unnecessary to discuss them.

261    It is important to recognise that Spigelman CJ in World Best was using the phrase in a way to differentiate the moral or normative standard in unconscionability as higher than in unfairness or unjustness. At [121] of World Best, the Chief Justice said:

The Ministerial Second Reading speech, quoted above, indicates a similar concern to distinguish what is unconscionable from what is merely unfair or unjust. Even if the concept of unconscionability in s62B of the Retail Leases Act is not confined by equitable doctrine, as the decisions under s51AC of the Trade Practices Act suggest, restraint in decision-making remains appropriate. Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what was "fair" or "just", it could transform commercial relationships in a manner which the Minister expressly stated was not the intention of the legislation. The principle of "unconscionability" would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises.

262    That a degree of morality lies within the word "unconscionable" is clear. "Unconscionability" is a value-laden concept. "Obloquy" is "the condition of being spoken against; bad repute; reproach; disgrace; a cause of detraction or reproach,"; "obliquity" is "a deviation from moral rectitude, sound thinking or right practice; a delinquency; a fault or error.": The Shorter Oxford English Dictionary on Historical Principles (3rd Ed, Oxford, 1969) Vol 2 p 1428. That unconscionability contains an element of deviation from rectitude or right practice or of delinquency can be readily accepted, as long as the phrase "moral obloquy" is not taken to import into unconscionability a necessary conception of dishonesty. The statutory language is "unconscionable": that is, against conscience. A sense of moral obloquy or moral obliquity can be accommodated within the meaning or conception of unconscientious or unconscionable conduct. That said, an understanding of the meaning conveyed by the word "unconscionable" in the statute is not simply restated by substituting other words for those chosen by Parliament; danger easily lurks in the use of other words to capture the meaning of the statutory language. The task involved is not the choice of synonyms; rather, it is to identify and apply the values and norms that Parliament must be taken to have considered relevant to the assessment of unconscionability: being the values and norms from the text and structure of the Act, and from the context of the provision. Parliament has given some guidance to its proper application (and to its meaning) by identifying in s 12CC certain non-exhaustive factors that may be taken into account by a court in deciding whether conduct was unconscionable. Given the value-laden character of the word, it is necessary to ascertain and organise the relevant values and norms by reference to which the meaning of the word is to be ascertained, and by reference to which the application of the section is to be undertaken (the two tasks being distinct). It must, however, be emphasised at the outset that the values and norms that are relevant are those that Parliament has considered, or must be taken to have considered, as relevant. The following discussion should be understood as dealing with those matters, and not with any values or norms disembodied from, or unconnected with, the choice made by Parliament.

263    The first group of values are the enduring historical (and contemporary) norms and values that are recognised in the unwritten law referred to in s 12CA, and that are embedded within the conception of unconscionable conduct as referred to in s 12CB. These are the norms and values in the law, especially, but not limited to, Equity, that bear upon the notion of conscience, in this context the conception of a business conscience – one attending conduct in trade or commerce. These norms and values can be seen in the different branches of the general law, as well as in statute.

264    One should commence with the value of certainty. It is a consideration and legal value central to the rational and coherent operation of the section (and a matter of central concern to Spigelman CJ in World Best). Certainty in the law is an element or essence of enduring importance. As Sir Frederick Pollock said in The First Book of Jurisprudence for Students of the Common Law (5th Ed, London: Macmillan, 1923) at 37:

[T]he normal and necessary marks, in a civilised commonwealth, of justice administered according to law… [are] Generality, Equality, and Certainty.

265    These considerations are central to law's acceptance as an objective form of societal will, and not the subjective views of fellow humans finding themselves in a position of power. Certainty goes to the heart of the conception of the rule of law, not of men.

266    Certainty is a quality sometimes posited as a reason for removing from the expression of rules to govern conduct (in particular in regard to commercial conduct) standards, values and norms that lack precise definition, or that involve the application of values, or that apply or operate in contestable fields or with contestable results. But no sophisticated legal system, or society, seeks intellectual refuge in the proposition that rules alone are the guardians of the security of certainty. Lord Mansfield recognised this. He said that the law merchant must be easily learned and easily retained: Hamilton v Mendes (1761) 2 Burr 1198 at 1214: 97 ER 787 at 795. The rules to which Lord Mansfield referred did not depend on subtleties and niceties of expression or idea, rather they were easily learned and easily retained, because they were "the dictates of common sense, drawn from the truth of the case": at 1214; 795. That was not a call for rules of unbending logical expression; rather, for rules (or principles) expressed in language that reflected the customs, norms and values of the society, or commerce, of the time.

267    The place of norms, values and principles in commercial law, lacking particular precision, but stating a value or general standard, can be seen in the common law, statutes on commercial subjects, in Equity, and in other branches of commercial law. Sometimes, a rule can only be expressed at a certain level of generality, often involving a value judgment. To do otherwise, and to seek precise rules for all circumstances, may be to risk complexity, incoherence and confusion.

268    The common law has many rules and principles expressed in terms of norms and values, rather than specific definitions expressed in terms of a priori logic that are sufficient by linguistic formulae to capture or recognise precise future situations of application. This was so in commerce, as in other fields of activity and life. As Lord Wright said in Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494 at 507, the legal implication of what is reasonable runs throughout the whole of English law, and is easily made. The notion of good faith in contract (not Equity) discussed later is another example. The law of restitution involving the informing concept of unjust enrichment is another. The relief from penalties and unconscionable restraints of trade are two more: see generally the comments of Lord Diplock in Schroeder Music Publishing Co v Macaulay [1974] 1 WLR 1308 at 1315-1316.

269    Sometimes, provisions of statutes central to the operation of commerce, are expressed in terms of generality laden with value judgments. For instance, in marine insurance, the notion of discharge of the insurer from liability is central to the operation of the promissory warranty and to the operation of the principles of deviation and delay: see the Marine Insurance Act 1909 (Cth) ss 39-47 (warranties), and ss 52-54 (deviation and delay). The discharge of the insurer will see the assured lose for all time, the benefit of the contract of insurance. If there is delay in a voyage covered by voyage policy, the rule is expressed generally: "the insurer is discharged from liability as from the time when the delay became unreasonable": Marine Insurance Act, s 54. The rule, easily learned and easily retained, is expressed in general terms, by reference to a standard that is evaluative.

270    In Equity, norms and values permeate – as maxims, principles, doctrines, and rules. One of those norms is a rejection of unconscionable conduct. Equitable intervention in, and concerned with, commerce is not exceptional. One needs only to appreciate the reach of Equity into commercial life and law through partnership, joint ventures, agency, directors' duties, trading trusts, the place of equity in bankruptcy, mortgages, relief against forfeiture, penalties, estoppel, mistake, marshalling, subrogation, contribution, hotchpot, equitable assignments, specific performance and injunctions and the attendant discretionary considerations, discovery, rectification, receivers, laches, acquiescence and delay, account, and specific restitution. Of course, certain direct competitive and self-interested aspects of commerce may negate, limit or constrain Equity's influence. Nevertheless the demands of honest commerce conform with a degree of right behaviour. The morals of the market place of which Cardozo J spoke in Meinhard v Salmon 249 NY 458 at 459; 164 NE 545 at 546 (1928) were honesty and good faith, in contradistinction to the punctilio of an honour most sensitive of the trustee.

271    Equity, as a reflection of underlying norms and values (and often expressed thus rather than by rules that are precisely linguistically expressed) required, necessarily, a form of judicial technique different to the common law. This difference was expressed by Dixon CJ, McTiernan J and Kitto J in Jenyns v Public Curator (Qld) [1953] HCA 2 at [3]; 90 CLR 113 at 118-119 and in their repetition (at 119) of Lord Stowell's generalisation in The Juliana (1822) 2 Dods 504 at 522; 165 ER 1560 at 1567:

A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case".

272    The citation of a case in the Admiralty Court concerned with the wages of a seafarer as illustrative of the different technique of Equity to that of the common law reflects the fact that principles of Equity in English law were not confined to the courts of Chancery. Equity, as the natural expression of fairness and decency in the face of sharp practice, or the taking of advantage over the vulnerable and weak, unfair tactics, fraud and surprise, was a hallmark of maritime law, especially in, but not limited to, the oversight of the rights and lives of mariners. For instance, in Harden v Gordon 11 F Cas 480; 2000 AMC 893 (Circuit Court 1823) Story J set aside the articles of agreement (the contract of employment) of a seaman that purported to restrict his right to maintenance and cure. The juridical foundations for the approach were the general principles of justice, doctrines of general equity, and customs and usages of the sea.

273    A similar approach was taken by Lord Stowell in The Juliana (the case cited in Jenyns). The plaintiff seaman, Lattimore, was one of only two survivors of a ship wrecked off Portsmouth en route to her final port of discharge, London. The ship had undertaken a series of voyages, for 16 months, from Portsmouth to Tasmania, thence to Batavia, thence to Bengal, thence to return to the Port of London. Lattimore's articles of agreement were entered into prior to the voyages. By the articles themselves, it was agreed that no officer or seaman could demand or be entitled to his wages, or any part thereof, until the arrival of the ship at the final port of discharge (London) and until her cargo was delivered. There was no suggestion that Lattimore was other than a loyal and competent seaman. He had worked for 16 months. Under the articles, he was entitled to nothing, beyond the sustenance, and maintenance and cure that he had received while working for almost a year and a half. Lord Stowell discussed the history of the Admiralty Court's setting aside of bonds taken simultaneously at the point of entry into articles of agreement which renounced the rights of mariners to a lien on freight or to demand any wages until return of the ship to the final port of discharge. There was, of course, often good reason to encourage seamen to remain on board until the end of the voyage in conformity with their articles of agreement. Lord Stowell then considered the question as to whether these cases on bonds could be circumvented by incorporation of the term previously the substance of the bond into the articles of agreement. It was in this context that the passage quoted in Jenyns appeared. Lord Stowell then went on to say at 521; 1567:

This court certainly does not claim the character of a Court of General Equity; but it is bound by its commission and constitution, to determine the cases submitted to its cognisance upon equitable principles, and according to the rules of natural justice.

274    The provision incorporated into the articles was not enforced, because it was taken to be an imposition on illiterate and inexperienced persons against their own ignorance and imprudence: 522; 1567, and was unjust and taken upon advantage of ignorance and weakness, and, in other words, by oppression or fraud: 515; 1565.

275    The context of The Juliana (a case so carefully cited by the Court containing two of the great masters of law and Equity in Australian law, Sir Owen Dixon and Sir Frank Kitto) was the then epitome of English commercial law: the law governing the relations of the participants in shipping and maritime adventures.

276    Before leaving the law maritime, a quintessential branch of the law merchant, it is worth noting, by but two examples, the central place of conceptions of fairness, justice and equitable principles to the contemporary operation of commercial maritime law. First, in deciding the priority of competing maritime liens to a limited fund from the sale of a ship or other maritime property after an arrest and sale, an Australian or English Court of Admiralty will generally distribute funds by reference to an order of priority that would see a lien for damage done by the ship prevail over a lien for salvage or for crew's wages. The court is, however, able to vary such priority to do justice, according to the equity of the situation: Thomas D, Maritime Liens (Colinvaux R (ed), London: Stevens & Sons 1980, British Shipping Laws, Vol 14) at 234-235.

277    Secondly, a salvage contract will only be enforced according to its terms if it is "consistent with equity": The Firefly (1857) Swab 240 at 241; 166 ER 1116 at 1117. Maritime law, whilst recognising the importance of the bargain between competent persons, provided for a power in the court to set aside or reform contractual salvage bargains that were on inequitable terms. No statute was or is needed for this authority. The equity of rewarding spontaneous services, often required in circumstances of dire need, limited the remedy and the right (including by contract) to what was and is just: The Medina (1876) 1 PD 272 at 275-276; The Juliana at 520-521; The British Empire (1842) 6 Jur 608 at 608; The Emulous (1832) 1 Sumn 207 at 210-211; The Iodine (1844) 3 No C 140 at 142; The True Blue (1843) 2 W Rob 176 at 179 and 181; 166 ER 721, 722 and 723; The Helen and George (1858) Swab 368 at 369; 166 ER 1170; The Strathgarry [1895] P 264 at 270; Rose F, Kennedy and Rose Law of Salvage (8th Ed, Sweet and Maxwell, 2013) at 390-391 and 415-425 and the cases there discussed.

278    The values of justice and equity, simply expressed, have been no strangers to commercial men and women. The context will form and guide their application. The familiarity of the context gives comfort to the relevant commercial community for its acceptance of them in everyday usage. Provisions such as s 12CB and the other relevant statutes are a modern expression of simple norms, generally expressed, being placed into both consumer and commercial law.

279    The statutes in question give express guidance as to the norms and values that are relevant to inform the meaning of unconscionability and its practical application. The central provision relied upon, s 12CB, is to be understood in the context of Subdiv C of Div 2 of Pt 2 of the ASIC Act. Section 12CA provides immediate statutory context. The unwritten law referred to in s 12CA is the general law or common law of Australia, including in that phrase, the principles and doctrines of Equity. Unconscionability in Equity can be understood from at least two perspectives: first, the principles of unconscionable conduct as a basis for setting aside or refusing to enforce transactions or contracts entered into in certain circumstances; and, secondly, as a thematic feature of Equity being a central ethical or moral aspect of the character of Equity: see generally Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 at 72-74 [42]-[46]. Both features are relevant to Subdiv C as a whole. Further, s 12CB as a provision of an Australian statute can be taken to have been using the conception of "unconscionable" used in Australian legal discourse. It is Australian legal and public values that inform the meaning of words of an Australian statute. This is not an expression of parochialism, but a reflection of the influence of community values in the development of legal standards and legal development appropriate to a community: Lange v Atkinson [2000] 1 NZLR 257 at 263 (PC); Skelton v Collins [1966] HCA 14; 115 CLR 94 at 134-137 (Windeyer J); O'Sullivan v Noarlunga Meat Ltd No(2) [1956] HCA 9; 94 CLR 367 at 375-376 (Dixon CJ, William, Webb and Fullagar JJ).

280    Insofar as one is considering the first perspective, it is important to recall that Equity operated to set aside or not enforce a particular transaction between the parties. The conduct and circumstances that gave rise to equitable relief related to the parties themselves, and to the transactional setting in which they found themselves. This is to be contrasted with s 12CB, which, in para (4)(b), provides that the section is capable of applying whether or not a particular individual is identified as having been disadvantaged by the conduct.

281    Insofar as one is considering either the first or the second perspective, it is important to keep in mind the nature of the judicial technique of Equity discussed in Jenyns. This judicial technique was required by the nature of Equity itself: as a body of doctrines, principles and rules significantly based on values and norms, rooted in justice and fairness and often mediated or expressed through the conscience of the party. Equity was not a corpus of fixed rules, but a living body of doctrines, principles and rules, ordered and made coherent by taxonomical and theoretical organisation, especially in the late 18th and then the 19th centuries, but, nevertheless, retaining its principle-based flexibility for adaption to circumstances at hand. The values and norms that informed the equitable notion of conscience included honesty, fraud, surprise, mistake and hardship. The broad scope of these notions, extending beyond deceit and misrepresentation at common law, can be seen in the principles of unconscionable conduct picked up in statutory form by s 12CA.

282    Unconscionable conduct, as a coherent basis for relief, had, at its root, the protection of the vulnerable from exploitation by the strong: Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447, at esp 461-462 and 474-475; Blomley v Ryan [1956] HCA 81; 99 CLR 362 at esp 405, 415 and 428-429; Louth v Diprose [1992] HCA 61; 175 CLR 621 at esp 626-627, 637 and 650; Bridgewater v Leahy [1998] HCA 66; 194 CLR 457 at 485-486; and Kakavas v Crown Melbourne Ltd [2013] HCA 25; 250 CLR 392. Equitable relief for unconscionable conduct is based on a principle, not a rule. The applications or exemplifications of the principle are impossible to describe fully. Care should be exhibited in dwelling over technically or textually on individual expressions of the general principle of normative values, rooted in Equity's remedying of injustice. That said, the expression of the underlying general principle by Mason J and Deane J in Amadio at 462 and 474 and Lord Selborne LC in Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 490-491 are enduring.

283    By the incorporation of the unwritten law into the ASIC Act, Parliament can be taken to have adopted, for the operation of the Act and arising out of its text, the values and norms that inform the living Equity in that doctrine. Section 12CB(4)(a) makes it plain that the operation of s 12CB is not limited by the unwritten law referred to in s 12CA. That is not to say, however, that the values and norms that underpin the equitable principle recognised within s 12CA do not have a part to play in the ascription of meaning to, and operation of, s 12CB, notwithstanding s 12CA(2).

284    Further, in s 12CB Parliament can be taken to have adopted the conception of unconscionability as developed in Australian law. Australian law can be seen to have used unconscionability in standards (implicitly moral in character) exacted of parties in a variety of circumstances (including, at times, in commercial law) reflecting the values that concern Equity: Dowsett v Reid [1912] HCA 75; 15 CLR 695 at 705 (discretionary defences to specific performance); Legione v Hateley [1983] HCA 11; 152 CLR 406 (promissory estoppel); Amadio; Taylor v Johnson [1983] HCA 5; 151 CLR 422 (mistake); Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; 156 CLR 41 (fiduciary obligation); United Dominions Corp Ltd v Brian Pty Ltd [1985] HCA 49; 157 CLR 1 (joint ventures); Chan v Zacharia [1984] HCA 36; 154 CLR 178 (fiduciary obligations); Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; 164 CLR 387 (equitable estoppel); Moorgate Tobacco Co v Philip Morris Ltd (No 2) [1984] HCA 73; 156 CLR 414 (breach of confidence); Muschinski v Dodds [1985] HCA 78; 160 CLR 583 (constructive trust); Baumgartner v Baumgartner [1987] HCA 59; 164 CLR 137 (constructive trust); and the contexts referred to in Berbatis 214 CLR at 72-73 [42].

285    More specific guidance to the meaning and operation of s 12CB as a consumer provision is given by the matters set out in s 12CC (whether from 2002 to 2011 inferentially from s 12CC applying to "business transactions" as referred to in the section heading for s 12CC as to which see subss 12CC (6), (7), and where relevant (8) and (9), or since 1 January 2012 as expressly directly explicative of s 12CB) to which a court may have regard for the purposes of considering the question of unconscionable conduct. These matters assist in setting a framework for the values that lie behind the notion of the relevant conscience of the parties in trade or commerce identified in s 12CB. Those values and conceptions can be seen as: fairness and equality: see paras (a), (b), (d) – (k); a lack of understanding or ignorance of a party: para (c); the risk and worth of the bargain: paras (e) and (i); and good faith and fair dealing: para (l).

286    Some of the matters enumerated in s 12CC deserve specific comment. The inclusion in para (a) in sub-ss (1) and (2) of inequality of bargaining power can be seen to be a recognition that in commerce there may arise circumstances of asymmetry of power; such asymmetries are sometimes ruthlessly exploited in a manner that may offend the commercial conscience: see for example Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [102] – [105] (Gordon J). The reality of that to business people is no more difficult to understand than is the difference between sharp practice and good faith, even when the latter is accompanied by hard bargaining. (That does not mean, however, that using one's bargaining position is necessarily unconscionable, or even unfair.)

287    Paragraph (l) in sub-ss (1) and (2) refers to good faith. That is a conception that has been recognised (though not by all courts in Australia) as an implication or feature of Australian contract law attending the performance of the bargain and its construction and implied content: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Hughes Aircraft Systems International v Airservices Australia (No 3) [1997] FCA 558; 76 FCR 151; Seddon N, Bigwood R, Ellinghaus M, Cheshire and Fifoot's Law of Contract (10th Ed, Aust Ed, 2012) 10.41- 10.47; cf Commonwealth Bank of Australia v Barker [2014] HCA 32 at [42] and [107]; 88 ALJR 814 at 827 and 837. Yet, good faith in the performance of contracts is well-known to the common law and to civilian systems. It is a good example of the presence of values in the common law. I repeat what I said in United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; 74 NSWLR 618 at 634 [58] (in a commercial context of a clause expressly incorporating good faith):

… [G]ood faith is not a concept foreign to the common law, the law merchant or businessmen and women. It has been an underlying concept in the law merchant for centuries: L Trakman, The Law Merchant: The Evolution of Commercial Law (Rothman 1983) at p 1; W Mitchell, An Essay on the Early History of the Law Merchant (CUP 1904) at pp 102 ff. It is recognised as part of the law of performance of contracts in numerous sophisticated commercial jurisdictions: for example Uniform Commercial Code §1-201 and § 1-203 (1977); Wigand v Bachmann-Bechtel Brewing Co 118 NE 618 at 619 (1918); E A Farnsworth, Farnsworth on Contracts (Aspen 3rd Ed 2004) Vol 1 at pp 391-417 § 3.26b; International Institute for the Unification of Private Law, UNIDROIT Principles of International Commercial Contracts 2004, Rome, Art 1.7 (www.unidroit.org [Ed. 3 May 2010]); R Zimmerman and S Whittaker (Eds) Good Faith in European Contract Law (CUP 2000). It has been recognised by this Court to be part of the law of performance of contracts: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263-270; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91; Burger King Corporation v Hungry Jack's Pty Ltd at 565-574 [141]-[187]; and Alcatel Australia Ltd v Scarcella at 363-369. …

288    The usual content of the obligation of good faith that can be extracted from cases such as Renard Constructions, Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; 69 NSWLR 558, Alcatel Australia Ltd v Scarcella [1998] NSWSC 483; 44 NSWLR 349, and United Group Rail Services Limited is an obligation to act honestly and with a fidelity to the bargain; an obligation not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained.

289    None of these obligations requires the interests of a contracting party to be subordinated to those of the other. It is good faith or fair dealing between the parties by reference to the bargain and its terms that is called for, be they both commercial parties or business dealing with consumers. As Posner J said in Market Street Associates Limited Partnership v Frey 941 F.2d 588 (1991) the contractual notion of good faith varies in what is required for its satisfaction by reference to the nature of the contract. But the notion is rooted in the bargain and requires behaviour to support it, not undermine it, and not to take advantage of oversight, slips and the like in it. To do so is akin to theft, and if permitted by the law led to over-elaborate contracts, and defensive and mistrustful attitudes among contracting parties. At 595 Posner J said:        

The contractual duty of good faith is thus not some newfangled bit of welfare-state paternalism or (pace Duncan Kennedy, "Form and Substance in Private Law Adjudication", 89 Harv Law Rev 1685, 1721 (1976)) the sediment of an altruistic strain in contract law, and we are therefore not surprised to find the essentials of the modern doctrine well established in nineteenth century cases.

290    The standard of fair dealing or reasonableness that is to be expected in any given case must recognise the nature of the contract or relationship, the different interests of the parties and the lack of necessity for parties to subordinate their own interests to those of the counterparty. That a normative standard is introduced by good faith is clear. It will, however, not call for the same acts from all contracting parties in all cases. The legal norm should not be confused with the factual question of its satisfaction. The contractual and factual context (including the nature of the contract or contextual relationship) is vital to understand what, in any case, is required to be done or not done to satisfy the normative standard.

291    It is unnecessary to deal with the jurisprudence on the subject of good faith in other jurisdictions, beyond saying that the above expression of the matter is consistent with the content ascribed to the phrase "good faith" in persuasive cases in influential jurisdictions in the United States: for example, refraining from acting with subterfuge and evasion: Daitch Crystal Dairies Inc v Neisloss 190 NYS 2d 737 (Appeal Div 1959); Harbor Insurance Co v Continental Bank Corp 922 F.2d 357 (7th Cir 1990); refraining from opportunistic conduct such as by taking advantage of a disadvantageous position of the other party who has performed first: Industrial Representatives Inc v CP Clare Corp 74 F.3d 128 (7th Cir 1996); refraining from hindering or preventing the occurrence of conditions of the party's own duty or the performance of the other party's duty: see the discussion in Farnsworth E A, Farnsworth on Contracts (3rd Ed, Aspen, 2004) Vol 2 at § 7.17 p 362 and § 8.6 and 8.15; co-operating to achieve the contractual goals: Larson v Larson 636 NE 2d 1365 (Mass App Ct 1994); AMPAT/Midwest Inc v Illinois Tool Works Inc 896 F.2d 1035 (7th Cir 1990). See generally, Farnsworth on Contracts at § 7.17-7.17b and Director General of Fair Trading v First National Bank plc [2001] UKHL 52 at [17], [36], and [54]; [2002] 1 AC 481 at 494, 500 and 505. The above are but a few examples.

292    Good faith does not import an equitable notion of the fiduciary that is rooted in loyalty to another in the service of her or his interests: Smith L, "Fiduciary Relationships: Ensuring the Loyal Exercise of Judgement on Behalf of Another" (2014) 130 LQR 608. Rather, it is rooted in honest and reasonable fair dealing: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [12]-[13].

293    Trickery and sharp practice impede commerce by decreasing trust and increasing risk. Good faith and fair dealing promote commerce by supporting the central conception and basal foundation of commerce: a requisite degree of trust. Business people understand these things.

294    Any hesitancy in courts in Australia in relation to good faith has been made irrelevant for the operation of s 12CB by s 12CC (1)(l)and (2)(l), at least since 1 January 2012. Further, the relevance of good faith is not merely in regard to the support of the bargain as made; rather, at least since 1 January 2012, good faith in s 12CB can be seen as part of a nascent doctrine of bargaining in good faith (culpa in contrahendo) since the standard of conduct required extends to the possible supply of financial services: see the chapeau to s 12CB.

295    Thus, commercial law, whether drawing on common law, Equity, Admiralty or statute, is infused with norms and values in its rules and principles. Unconscionability in new statutory contexts is just another example.

296    The working through of what a modern Australian commercial, business or trade conscience contains and requires, in both consumer and business contexts, will take its inspiration and formative direction from the nation's legal heritage in Equity and the common law, and from modern social and commercial legal values identified by Australian Parliaments and courts. The evaluation of conduct will be made by the judicial technique referred to in Jenyns. It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.

297    The variety of considerations that may affect the assessment of unconscionability only reflects the variety and richness of commercial life. It should be emphasised, however, that faithfulness or fidelity to a bargain freely and fairly made should be seen as a central aspect of legal policy and commercial law. It binds commerce; it engenders trust; it is a core element of decency in commerce; and it gives life and content to the other considerations that attend the qualifications to it that focus on whether the bargain was free or fair in its making or enforcement.

298    The normative standard of a business conscience referred to in the statute is permeated with accepted and acceptable community values: Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23]; Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [64] and Australian Securities and Investment Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 139-140, esp [30].

299    These considerations may involve behaviour that is best evaluated relationally in a transaction; they may involve conduct that can be evaluated against normative or ethical standards, apart from any particular transaction: see, for instance, National Exchange.

300    It should also be borne in mind that the conduct in s 12CB is of sufficient seriousness as to warrant the punishment involved in a civil penalty: s 12GBA. The penal character of the provision is relevant to its construction: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; 239 CLR 27 at 49 [57]; Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58; 224 CLR 193 at 210-211 [45].

301    The judicial technique involved may perhaps be seen to be described by Lambert JA in the Court of Appeal of British Columbia in Harry v Kreutziger (1978) 95 DLR (3d) 231:

The single question of whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded must be answered by an examination of the decided cases and a consideration, from those cases, of the fact patterns that require that the bargain be rescinded and those that do not. In that examination, Canadian cases are more relevant than those from other lands where different standards of commercial morality may apply, and recent cases are more germane than those from earlier times when standards were, in some respects, rougher and, in other respects, more fastidious. In my opinion, it is also appropriate to seek guidance as to community standards of commercial morality from legislation that embodies those standards in law.

302    The last sentence of this passage reflects the place of public statutes in influencing the values and norms to be considered. See also Lux Distributors at [5] and [23]; Pound R, "Common Law and Legislation" (1908) 21 Harvard LR 383; Finn P, "Statutes and the Common Law" (1992) 22 UWALR 7; Burrows A, "The Relationship Between Common Law and Statute in the Law of Obligations" (2012) 128 LQR 232; Finn P, "Statutes and the Common Law: the Continuing Story" in Corcoran S and Bottomley S (ed), Interpreting Statutes (5th Ed, Federation Press, 2005).

303    Here, the terms of s 12CB (the will of Parliament) have made more difficult to accept the notion that ruthless commerce, red in tooth and claw, is now acceptable in Australia, at least in relation to the supply or possible supply of financial services in trade or commerce: cf Verco v Rutland Fund Management Ltd [2010] EWHC 424 (Ch) at [343].

304    In any given case, the conclusion as to what is, or is not, against conscience may be contestable. That is inevitable given that the standard is based on a broad expression of values and norms. Thus, any agonised search for definition, for distilled epitomes or for shorthands of broad social norms and general principles will lead to disappointment, to a sense of futility, and to the likelihood of error. The evaluation is not a process of deductive reasoning predicated upon the presence or absence of fixed elements or fixed rules. It is an evaluation of business behaviour (conduct in trade or commerce) as to whether it warrants the characterisation of unconscionable, in the light of the values and norms recognised by the statute.

305    The task is not limited to finding "moral obloquy"; such may only divert the normative inquiry from that required by the statute, to another, not tied to the words of the statute. The clearest example of the lack of need for dishonesty, at least in Equity in unconscionable conduct (in the unwritten law), is the lack of criticism of the bank manager in Amadio by Deane J: 151 CLR at 478. See also Johnson v Smith [2010] NSWCA 306 at [5] and Aboody v Ryan [2012] NSWCA 395 at [65]. Such is not to deny that, in many cases of unconscionable conduct in Equity, a degree of moral criticism may attend the evaluation that the relevant conduct was unconscionable.

306    As Deane J said in Muschinski v Dodds 160 CLR at 616, property rights (and the same can be said of jural relations in trade or commerce) should be governed by law, and not some mix of judicial discretion or the subjective views as to who should win based on the formless void of individual moral opinion. Nothing in Subdiv C and ss 12CB and 12CC or the other statutes with which this case is concerned should be seen as requiring this. The notions of conscience, justice and fairness are based on enunciated and organised norms and values, including the organised principles of law and Equity, taken from the legal context of the statutes in question and the words of the statutes themselves. Employing judicial technique involving a close examination of the complete attendant facts and rational justification, the Court must assess and characterise the conduct of an impugned party in trade or commerce against the standard of business conscience, reflecting the values and norms recognised by Parliament to which I have referred.

The approach of the primary judge to the application of unconscionability to the circumstances of the case

307    The primary judge rejected the claim based on unconscionability after analysing the 11 matters emphasised in submissions before her by Mr Paciocco and SDG which her Honour set out at [287] and [288].

287    …

    1.    ANZ had all or most of the bargaining power in its relationship with the Applicants;

2.    The Exception Fees were imposed by standard form contracts drafted by ANZ which did not take into account the specific characteristics of the Applicants, were presented to the Applicants without negotiation on a take it or leave it basis, gave the Applicants no reciprocal rights for any failure by ANZ of its obligations under the contracts but gave ANZ a contractual right to:

2.1    vary unilaterally terms or conditions of the accounts including the terms and conditions relating to the Exception Fees, which it did;

2.2    charge the same fees no matter how small the default which constituted the Exception Fee Event;

2.3    charge the same fee regardless of whether ANZ held security as it did for Mr Paciocco; and

2.4    charge the same fees regardless of whether the applicants held other accounts in credit (or had credit available) or of whether ANZ was in a position to combine accounts (as it was entitled to do so).

3.    the Exception Fees were imposed in contracts governing the supply of essential services where the termination of the contracts by the Applicants was attended by significant inconvenience so as to dissuade the Applicants from switching banks and where discovering equivalent products which did not incur these exception fees was difficult and time consuming;

4.    the fees were most likely to be paid by low income customers in financial difficulty;

5.    the quantum of the fees was out of proportion to the loss, if any, that ANZ was likely to suffer from the event triggering the fee;

6.    ANZ would act inconsistently between customers and between different events with the same customer. On occasion, when faced with a complaint by a customer that an exception fee was unfair or exorbitant, ANZ would respond by waiving the fee for that customer;

7.    in charging the Exception Fees, ANZ allowed, took advantage of and profited from the fact that the Applicants initiated the events irrationally, inadvertently, unintentionally and as the result of accident, oversight or mismanagement of finances, where the applicants did not consider that they were making requests for credit when they incurred the fee and where they had other credit available at no or significant cost;

8.    ANZ was uniquely placed to prevent customers inadvertently triggering most if not all exception fees;

9.    The Exception Fees were charged regardless of whether they were caused by ANZ's payment systems (including shadow limits) and were thus incurred beyond the control or understanding of the customer; and

10.    For Saving Honour Fees, Business Honour Fees and Card Overlimit Fees, ANZ charged interest on the overdrawn sum (which included a profit margin) and was thereby fully compensated.

288    For the period post December 2009, the Applicants relied upon additional conduct – the deletion by ANZ of the express stipulations directing a customer not to overdraw and the replacement of that wording to the effect that ANZ was providing a fee for service: see for example, para 14 of Annexure 2. The Applicants submitted that in redrafting the contracts it did not alter the substance of the contracts but, in the face of public and legal scrutiny and with the prospect of losing a valuable income stream, ANZ sought to "finesse" the wording to give the impression that it was providing services. The Applicants submitted that that conduct, and in utilising its unilateral right to vary the contracts in aid of the disguise, ANZ acted unconscionably because it used its power in a manner contrary to acceptable community values.

308    Before dealing with each of these matters, her Honour, importantly, set out at [290] what was not alleged in, and what was absent from the circumstances of, the case. This is important because the same considerations attend the reconsiderations of the matter on appeal. These matters were:

(1)    There was no allegation of dishonesty, oppression or abuse of a commercially powerful position.

(1)    None of the matters in (1) existed.

(2)    The relevant contractual provisions were all disclosed to customers (in leaflets, booklets, in letters and telephone communications if fees were incurred).

(3)    There was no allegation that the applicants (Mr Paciocco and SDG) could not or did not understand the relevant provisions.

(4)    There was no allegation (and it was not the case) that the applicants were compelled to enter into these arrangements or that any financial or other pressure was placed on them to enter into the contracts.

(5)    There was no allegation (and it was not the case) that the applicants were compelled to engage in overdrawing. It was wholly a matter of choice for the applicants.

(6)    Indeed, ANZ provided (with some exceptions: see [100] of the reasons) a facility to "switch off" the ability to overdraw and thus to avoid the fees. This could lead, of course, to the declining of transactions.

(7)    Customers who wanted further borrowings from ANZ could apply for such, for which there may be a fee.

(8)    All relevant contracts were terminable at will.

309    These matters are of importance in looking at the question of unconscionability, both in relation to the transactions and contracts of Mr Paciocco and SDG, and in relation to ANZ's conduct generally relating to the group as a whole. Section 12CB(4)(b) emphasises that, even if there are factors militating against a conclusion that there was any unconscionable conduct by ANZ in its dealing with Mr Paciocco and SDG, that does not mean the "system of conduct or pattern of behaviour" of ANZ cannot exhibit unconscionable conduct.

310    This distinction is of some importance in this case where, not only did Mr Paciocco understand the fee provisions, but his evidence was that it was convenient for him to manage his ANZ accounts close to their limits and take the risk that he would overdraw his accounts and incur fees: see [304] of the reasons. (Presumably this was preferable to him than extending his credit, at the cost of an application fee.) In the light of this evidence, a conclusion that ANZ conducted itself unconscionably towards him and SDG is difficult.

311    At [292]-[310] of the reasons, the primary judge dealt with each of the 11 matters raised. Important features of those reasons were as follows:

(1)    The question of bargaining power.

312    This reflected practical business efficiency. The provisions were standard clauses in consumer banking. There was no necessity to bank with ANZ; it had no relevant market power or dominance. The applicants had accounts with other banks.

(2)    Standard form contracts.

313    The use of such contracts in consumer banking is an unremarkable matter: a matter of business practicality and efficiency.

(3)    The contracts were for essential services and difficult to terminate.

314    This was not pleaded, nor developed in evidence or argument. It was also wrong – the contracts were terminable at will, and banking services could be obtained from other institutions.

(4)    The fees were most likely to be paid by low income customers in financial difficulty.

315    This was summarily rejected on the evidence.

(5)    The quantum of the fees was out of proportion to ANZ's losses.

316    At [301] of the reasons, the primary judge rejected this contention, as follows:

It is neither possible nor appropriate (see [17]-[21] above) to consider the quantum of each Exception Fee separate from the terms and inherent circumstances of the contract and the applicable Exception Fee Events. For the reasons set out at [206]-[211], it cannot be said that the quantum of the Exception Fees was unconscionable.

317    The reference to [206]-[211] of the reasons was to the paragraphs where the primary judge found that pre-December 2009 the honour, overlimit and non-payment fees were not extravagant and unconscionable:

206    Mr Paciocco submitted that the Court was required to consider the substance of the arrangements, "based on the evidence and not be beguiled into acceptance of notions of theoretical deemed requests for financial accommodation, and non-existent considerations of those requests". Mr Paciocco sought to submit that an analysis of the kind just undertaken was incomplete in the sense that it was insufficient to reveal whether ANZ's conduct in charging the Honour Fee was unconscientious. Some at least of Mr Paciocco's submissions appealed to what he described as subjective to ANZ. As explained at [41] and [126] above, I consider those considerations not to be relevant.

207    Whether or not that is so, Mr Paciocco's analysis fails to take account of two fundamental considerations. First, the customer "chose" to give the instruction which constituted the request for further accommodation. The fact that Mr Paciocco may not have averted to the state of his account with the bank before issuing the instruction does not alter the fact that it was he alone who chose to issue the instruction to the Bank. The second point is that ANZ was not bound to meet the instruction. But, if it chose to do so, the terms on which it would meet the instruction had been notified to, and agreed by, Mr Paciocco.

208    Other considerations to which Mr Paciocco referred including, in particular, what he described as ANZ's desire to maximise its fees, neither permits nor requires the conclusion that ANZ acted unconscionably in charging the agreed fee to provide accommodation which Mr Paciocco sought and ANZ was not bound to provide.

Dr Jenkins and "service"

209    ANZ engaged Dr Jenkins, an economist, to provide her opinion on whether "the circumstances surrounding the charging of exception fees" gave rise to the supply of one or more services by ANZ to the Applicants, and if so, what the nature of those services was and what the benefit (if any) was that the Applicants received from those services. Those questions were not directed at the particular Exception Fees charged by ANZ against Mr Paciocco and/or SDG's accounts, and Dr Jenkins did not consider the questions she was asked in relation to Mr Paciocco and/or SDG specifically. Her focus was on a "broader group". As she stated in cross-examination, she "examin[ed] markets at a general level and from that [drew] conclusions about the behaviour of individuals". Dr Jenkins did not seek to identify any of the subjective characteristics of Mr Paciocco, for example, that may have influenced him in wanting the provision of a particular credit facility at any particular time. She did not seek any specific information about him as an individual, or of his motivations. She was not provided with a copy of, and did not read, Mr Paciocco's affidavit.

210    Unsurprisingly, Dr Jenkins' evidence was vague and generalised. It involved a summary of generalised conclusions containing such banalities as "the main characteristic of a service is that it conveys a benefit to the customer", "I find that consumers enjoy several benefits associated with the possibility to go into unarranged overdraft", and "[w]hen a transaction is honoured, consumers benefit from the flexibility of being able to meet wants or needs immediately". Such evidence does not assist the Court.

211    Finally, in this context, mention should be made of Abbey National, in which the United Kingdom Supreme Court held that charges for unauthorised overdrafts (equivalent to honour fees) were consideration for the package of banking services supplied to personal current (transaction) account customers. That decision does not advance ANZ's case. The regulatory framework is different. The terms of the "arrangements" between the bank and the customer are different. There can be no automatic application of what is said by the United Kingdom Supreme Court to the Exception Fees in issue in this case.

318    An attack on this part of the reasons was at the heart of the appeal. I will return to it.

(6)    Inconsistent application of the fees between customers.

319    The bank sometimes waived the fees to those who complained. The evidence was very general. The fees could be waived for hardship or if the overdrawing was by accident. None of this was unconscionable or even tended towards it.

(7)    ANZ took advantage of the applicants initiating transactions irrationally, inadvertently, or from mistake.

320    This was rejected as contrary to the evidence: see [304] of the reasons referred to at [310] above.

(8)    ANZ was uniquely placed to prevent customers inadvertently triggering the exception fees.

321    This was rejected as not pleaded and as contrary to the evidence.

(9)    Fees were charged regardless of whether it was caused by ANZ's system and thus were beyond the control and understanding of the customer.

322    Again this was rejected as not pleaded and against the evidence.

(10)    ANZ was fully compensated for honour and overlimit fees by interest

323    This did not make the fee unconscionable.

(11)    December 2009 redrafting as a disguise

324    This was rejected; the primary judge considered it to be a legitimate clarification of the pre-existing substance of the relationship.

The submissions on appeal and their resolution: there was no unconscionable conduct by ANZ

325    The primary judge's reasons (on unconscionability, indeed on all the statutory claims) were directed to fees other than late payment fees which she found to be penal. The submissions by Mr Paciocco and SDG on the notice of contention in appeal VID 149 were directed to the statutory claims in respect of the late fees and on the appeal in VID 141 were directed to all other fees. What follows in this and later sections, as to the lack of demonstrated unconscionability, unjustness or unfairness applies (except where otherwise expressed) to all the fees, including the late payment fees.

326    The focus of the attack on the primary judge's approach and conclusion was what was said to be the size and extravagance of the fees, and thus their necessary characterisation as unconscionable, unjust and unfair.

327    This attack began by the submission that the primary judge had, at [301] of her reasons, used her views on the lack of extravagance for the penalty question to foreclose a proper discussion of extravagance for the statutory claims.

328    Further (and relevant principally to the statutory unjust transaction and unfair contract term grounds) it was submitted that the primary judge impermissibly ran together and obscured the different legal tests for the different statutory provisions.

329    The first submission that the statutory unconscionability claim was inappropriately considered by reference to considerations only relevant to the assessment of penalties in Equity, should be rejected. The reasons at [206]-[208] were relevant to the principle posited by her Honour. Her Honour did not simply apply one conclusion as to one principle (penalties) to another (unconscionability).

330    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. Submissions were put in rich language of illusory services, price gouging, monopolistic price setting and cartel-type price fixing, and unethical overcharging. Much of the language was not supported, or even informed, by the evidence in the case. Further, the fact that the primary judge concluded, as she did, that the fees were in excess of the damage caused by these breaches by the applicants, did not make that analysis universally relevant or relevant for other purposes. The question whether the conduct of ANZ was unconscionable should be looked at from the perspective of all the circumstances. These circumstances, within reason, would include an assessment of the legitimacy of the fee from the perspective of the bank's business – including questions of provisioning and costs of regulatory capital.

331    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.

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. 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. 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 from individual breaches.

333    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.

334    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.

335    Further, s 12CB does not transform the Court into a price regulator. That said, there may be demonstrated in other cases circumstances of, and surrounding, exorbitant exercises of bargaining power that bespeak predation and taking advantage that contravene fair dealing and that may be unconscionable. Predatory lending practices may be such. But such exorbitance needs to be demonstrated. Here, the fact that her Honour drew conclusions about damage from breach based on incremental costs, does not negate the degree of legitimacy of the analysis of Mr Inglis.

336    Further, the equivocality of the evidence from these different perspectives of the expert evidence should be assessed in the context of the important matters referred to by her Honour at [290] of the reasons and referred to at [308] above, using those matters as relevant to all fees. In the assessment of the conduct of ANZ against the values that I have earlier described, one can say the following: 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; these applicants chose to run their affairs by risking the fees; 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. It was not demonstrated that customers could not go to financial institutions that did not charge these fees.

337    In these circumstances, her Honour's conclusions as to a lack of unconscionability, both transactionally as it affected the applicants, and generally, were open. It cannot be concluded on the evidence before the primary judge that ANZ engaged in unconscionable conduct.

338    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 of them, I do not consider the conduct by ANZ to have been unconscionable.

339    If that premise were to be clarified by making it a forward looking analysis for the purposes of the question of extravagance or exorbitance in the test in Dunlop at 86-87, the conclusion of the primary judge that the late payment fee was penal would be correct.

340    That would leave, however, the other fees since they were not payable upon breach or in relation to a secondary stipulation described in Andrews (HC) at [10]. The question would then arise whether, because the fees were so large, for the contractual bargain in the provisions, the conduct of ANZ was unconscionable.

341    That the fee is extravagant or exorbitant for the purposes of penalties doctrine does not necessarily lead to a conclusion of statutory unconscionability. The penalties' doctrine is substantially concerned with compensation, and law and Equity's rejection of over-compensation. On this hypothesis, however, the fees are not compensation. Their characterisation as the product of unconscionable conduct would depend upon the application of the broader considerations of the statute.

342    The question might be seen to be whether (to use the words of Clarke JA in AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd (1989) 15 NSWLR 564 at 577, although in the context of penalties) the conduct was the imposition of an oppressive burden on a weaker party by the unconscientious use of power by a stronger party.

343    Without revisiting all the circumstances, in particular those described in [308] above, I would not conclude that ANZ's conduct was unconscionable. There was evidence that other banks charged similar fees. It could not be concluded, however, that equivalent financial services for such accounts could not be obtained from other institutions whether banks, building societies, credit unions or other credit institutions.

344    It was not suggested, and certainly not proved, that the conduct was part of any cartel behaviour or the product of abuse of market power.

345    Also highly relevant was the absence of support for the proposition that these fees were a form of predation on the weak or poor (see [315] and [319] above).

346    It is true that the fees were charged under contracts of adhesion, reflecting a strength of bargaining power to impose terms. But these terms could only be imposed whilesoever the person remained a customer. The accounts could be closed at will. The fees were not charged if the customer kept within the original terms of the account. The terms were openly disclosed.

347    In all the circumstances, in particular, the lack of any proven predation on the weak or poor, the lack of real vulnerability requiring protection, the lack of financial or personal compulsion or pressure to enter or maintain accounts, the clarity of disclosure, the lack of secrecy, trickery or dishonesty, and the ability of people to avoid the fees or terminate the accounts, I do not consider the conduct of ANZ to have been unconscionable. To do so would require the court to be a price regulator in banking business in connection with otherwise honestly carried on business in which high fees were extracted from customers.

The primary judge's approach to unjust transactions under the National Credit Code and unfair contract terms under the FT Act

Unjust transaction?

348    After identifying the relevant provision of the National Credit Code (s 76), the primary judge, at [317]-[321] of the reasons set out various guiding principles, none of which were said on appeal to be wrong:

317    "Unjust" includes unconscionable, harsh or oppressive: s 76(8) of the New Code. "Unjust" is not however confined to that "tautological trinity": West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621. The definition is not exclusive. As is self-evident, s 76(2) of the New Code is mostly concerned with matters of procedural injustice: West at 620-621 (dealing with identical wording under the Contracts Review Act 1980 (NSW) (the CRA). However, it is not limited to questions of procedural injustice. As McHugh J explained in West at [620]:

a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision. …

Thus a contract may be unjust under the [CRA] because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice.

318    As the statutory language of s 76 of the New Code makes clear, it is the contract or the provisions, not the transaction, that must be unjust: West at 621E. As Kirby P stated in Baltic Shipping Company v Dillon ("Mikhail Lermontov") (1991) 22 NSWLR 1 at 20 (considering the CRA):

I consider that it is a mistake to read into the language of s 9 an obligation to show that the contract was unjust because it was produced by unfair conduct or unjust conduct on the part of one of the parties to it. This is not what the section says. It addresses attention to the resulting contract itself … A contract may be "unjust" because of peculiarities inherent in the circumstances of one of the parties of which the other party was quite ignorant. It may be "unjust" although the other party has acted quite honourably and lawfully.

319    In determining whether a credit contract is unjust, a Court is not to have regard to any injustice arising from circumstances that were not reasonably foreseeable when the contract was entered into or changed: s 76(4) of the New Code. However, the Court must take into account the public interest and all the circumstances of the case: s 76(1) of the New Code.

320    Different views have been expressed about the "public interest" element. In Custom Credit Corporation Ltd v Lupi [1992] 1 VR 99 at 105 Murphy J noted that "public interest" was a difficult concept but suggested that it directed attention to whether the credit provider's conduct offended against community standards of business morality. As Mr Paciocco submitted, the community standards of business morality "may vary over time": Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [64]. In Knowles v Victorian Mortgage Investments Ltd [2011] VSC 611 at [64] and [68], the Court considered that the public interest criteria involved a weighing and balancing of competing considerations including the consumer protection purpose of the Code with the need to hold parties to their bargain.

321    Determination of unjustness involves a normative evaluation of the totality of relevant circumstances. As Allsop P (as he then was) said in Provident Capital Ltd v Papa [2013] NSWCA 36 at [7]:

The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect his or her interests in the circumstances.

349    At [322] of the reasons, her Honour stated how the argument was put:

Mr Paciocco identified the same matters as those considered in Part 7 above with particular emphasis on three specific matters – the gross disproportion of the fees charged, there was in substance no service provided and the circumstances and purpose of the 2009 redraft. Each of those particular matters was also addressed in Part 7 above: see also [206]-[211] above.

350    It was not submitted that this misstated the position in any respect. At [323]-[325] of the reasons, the primary judge rejected the claims for the following reasons:

323    For the reasons set out in Part 7 at [286]-[309] above, each of Mr Paciocco's Card Accounts was not, in all the circumstances at the time that they were made or changed, unjust within the meaning of s 76(1) of the New Code. The circumstances indicative of unjustness were not present.

324    The following matters further support that conclusion:

1.    Mr Paciocco did not contend that he had an inability reasonably to protect his own interests or lacked the capacity to decide whether to enter into the Card Accounts: cf Knezevic v Perpetual Trustees Victoria Ltd [2013] NSWCA 199 at [12].

2.    Mr Paciocco did not contend that he did not understand the terms of the Card Accounts or that ANZ did not take adequate measures to ensure that he understood the nature and implications of the Card Accounts and their terms: May v Brahmbhatt [2013] NSWCA 309 at [41].

3.    Mr Paciocco did not contend he was unaware of the purpose and nature of the Card Accounts or his potential financial exposure (Radin v Commonwealth Bank of Australia [1998] FCA 1361 at [104]). 406 or that he had an inability to meet the obligations under the Card Accounts: Knezevic v Perpetual Trustees Victoria Ltd [2013] NSWCA 199 at [12]. Indeed, when Mr Paciocco opened Card Account 9522, he transferred across to that account a pre-existing indebtedness of $10,000. When Mr Paciocco opened Card Account 9629, he immediately used the account for a cash advance of $4,000: see [215] above.

4.    Mr Paciocco did not contend that ANZ exerted or used unfair pressure, undue influence or unfair tactics on Mr Paciocco to enter into the Card Accounts (May v Brahmbhatt [2013] NSWCA 309 at [40]) or that he did not have a real or informed choice to enter into the Card Accounts: Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398. In fact, Mr Paciocco was under no obligation to enter into the Card Accounts or to draw on their credit in any amount or at any time: Godfrey v National Australia Bank (2001) NSWSC 977 at [61].

5.    Mr Paciocco did not contend that there was anything unusual or exceptional in the manner in which the Card Accounts were entered into or in their terms: May v Brahmbhatt [2013] NSWCA 309 at [43]. On the contrary, it was common ground that similar terms were offered by ANZ's competitors: see [95(2)] above.

325    For those reasons, Mr Paciocco's claim under s 76 of the New Code in relation to the Overlimit Fees on his Card Accounts (Exception Fees 12-13, 15, 19-22, 24-26, 29-30, 32-33, 35, 39-40, 43-44, 48 and 50) is dismissed.

Unfair terms?

351    As to ss 32W and 32X of the FT Act, the primary judge stated the following at [352]-[353] of the reasons:

352    Mr Paciocco again identified the same matters as those considered in Part 7 above with particular emphasis on the same three specific matters – the gross disproportion of the fees charged, there was in substance no service provided and the circumstances and purpose of the 2009 redraft. Each of those particular matters was also addressed in Part 7: see also [206]-[211] above.

353    For the same reasons as set out in Part 7 at [286]-[309] above, none of the provisions imposing any of Exception Fees 12 and 14-50 was unfair within the meaning of the FTA.

The transactions were not unjust and the terms were not unfair

352    The first submission that the primary judge incorrectly ran together the meanings of the relevant statutory provisions is difficult to accept in the light of her Honour's expression of the principle in [313]-[321] and [326]-[351] of the reasons.

353    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.

354    The answer to this broad challenge to her Honour's conclusion is the evaluation of all the circumstances against the standards of unjustness and unfairness.

355    Relevant to unjustness is the body of jurisprudence built around the terms and operation of statutes such as the Contracts Review Act 1980 (NSW). In over 30 years of decisions, the courts have brought the equitable technique in Jenyns to bear on countless factual circumstances. The primary judge referred to the principles from those cases. Each statute contains its own body of relevant circumstances to assist in the evaluative assessment. Here, s 76 of the National Credit Code and s 32X of the FT Act provide considerations relevant to the conceptions of unjustness and unfairness.

356    Even recognizing, as Spigelman CJ said in World Best, that "unconscionable" (especially in the context of a penal section) has a higher moral threshold than "unjust" and "unfair" (especially in a non-penal context), the circumstances here do not reveal that the terms or transactions were unfair or unjust.

357    I will not repeat the circumstances of this case: see [308] above, using those matters as relevant to all fees. That is not to say that in relation to some customer, of some bank, the particular circumstances concerning a particular account, including its terms and how the particular customer was treated, may not bespeak unfairness, unjustness or even unconscionability. What can be said here is that there is no basis to conclude that, against these applicants, or generally, the provisions were unfair or the transactions unjust.

358    Considering the terms of s 32W of the FT Act, at the time of entry into the arrangements, did the provisions in question cause an imbalance in the parties' rights and obligations to the detriment of the consumer? It is difficult to see why this would be so by reference to the matters in s 32X or otherwise. The provisions were clearly disclosed. In most instances, the fees could be avoided. No trickery took place. Although set by the bank in contracts of adhesion, the contracts were terminable at the will of the customer; and the fee could be avoided by the conduct of the customer that was not unreasonable – keeping to her or his contractual limits.

359    Looking at s 76 of the National Credit Code, the same conclusion could be reached. Whilst the ANZ had the bargaining power to proffer the terms un-negotiated, the customer could terminate the account at will, could (in most cases) avoid the fee by turning off shadow limits, or in all cases, by adhering to contractual arrangements. The terms were not unreasonably difficult to comply with. The reasonable protection of the bank's interests by the terms was debatable. That debate can be seen in the acceptability or not of Mr Inglis' approach. It may be that fully analysed, the fees as a whole were more than protection of the ANZ's interests required and, in point of fact, were an important part of the profits of the bank. If so, one would need to consider in an evaluative assessment whether the profit taking bespoke unjustness to the customer from the individual fees in question. Given here the degree of debate about Mr Inglis' approach and the legitimacy of considerations such as provisioning and the cost of regulatory capital, it cannot be concluded that the fees, and any contribution to bank profits that the evidence may disclose, reveals unjustness of individual contractual terms.

360    Further, for s 76(2), the terms were clear, intelligible, and openly disclosed. The practical effect of the terms was disclosed clearly: leaflets etc., as well as explanations by letter and telephone. There was no unfair pressure, undue influence or unfair tactics. The measures to bring the terms to the attention of customers was not said to be inadequate. There was no evidence of hardship on the part of these applicants. It was not proved that the ANZ inflicted hardship on others by the fees.

361    In all the circumstances, and in particular in the light of the equivocality of the evidence as to exorbitance 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 with the applicants, or customers generally, were unjust, or that the terms were unfair.

362    If one were to make the assumption referred to at [338] above as to Mr Regan's evidence reflecting 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 of them, I do not consider the transactions to have been unjust or the terms unfair.

363    Although it can be accepted that unjustness and unfairness are of a lower moral or ethical standard than unconscionability, the reasons at [338]-[343] above as well as [348]-[357] above justify the conclusion as to lack of unjustness or unfairness.

364    The characterisation of unjustness or unfairness is, of course, evaluative and a task to be carried out with a close attendance to the statutory provisions. The reasons at [358]-[360] attend to the relevant considerations in ss 32W and 32X of the FT Act and s 76 of the National Credit Code. The introduction of a consideration of the nature of the assumption alters the considerations involved, but not the overall evaluation. The most important change to the analysis would be the recognition that the size of the fees was not necessary for the protection of the interests of ANZ: s 76(2)(e) of the National Credit Code.

365    Neither the relevant provisions of the FT Act nor of the National Credit Code exhibit the intention that the Court should assume the role of a price regulator. It is unjustness or unfairness of transactions or terms that is required to be demonstrated. Price may affect such an evaluation but it does not determine it. In all the circumstances, in particular those discussed at [308], [343] - [347] and [358] – [360] above, I do not consider the transactions to have been unjust or the terms unfair.

Orders

366    For these reasons, the appeal in VID 141 of 2014 should be dismissed. Further, the notice of contention in VID 149 of 2014, to the effect that, even if her Honour was wrong in relation to the late payment penalty conclusion (as in my respectful view she was) the orders could be supported by the application of the statutory provisions, fails.

367    Thus, for the above reasons, I would dismiss the appeal in VID 141 of 2014 and allow the appeal in VID 149 of 2014. I see no reason why costs should not follow the event in the appeals.

368    The primary judge made no order as to costs on the basis that the outcome was evenly balanced: Paciocco v ANZ (No 2) [2014] FCA 254 at [10]. On the view that I have taken, costs should follow the event.

369    It is then necessary to deal with the orders made by the primary judge on 13 February 2014. Declarations 1 and 2 as to the penal character of the late fees and order 3 as to Mr Paciocco's entitlement to judgment should be set aside. Order 4, being judgment for Mr Paciocco in relation to ANZ's admitted breach in respect of non-payment fees remains. That order may support the retention of Order 8. Order 5 should stand, given that order 4 stands. That leaves order 6 concerned with s 33ZB. In its current form, it should be set aside. There remains the question of what order should be made under s 33ZB binding all members of the class to the dismissal of the application. Given the way the matter was argued about the conclusions that can be drawn generally from the circumstances, both as to penalty and under statute, the order dismissing the claim for relief in the originating application should affect and bind the applicants and group members. Further, as to order 4, reflecting the admittedly good claim of Mr Paciocco for the non-payment fees (see [230]-[233] of the reasons), the primary judge's order 6 made that common to all in the group. I do not understand that to be challenged.

370    In these circumstances, I would make the following orders:

In relation to appeal VID 141 of 2014

(1)    Appeal dismissed with costs.

In relation to appeal VID 149 of 2014

(1)    Appeal allowed.

(2)    Declarations 1 and 2, and order 3 made by the Court on 13 February 2014 be set aside.

(3)    Order 6 made by the Court on 13 February 2014 be set aside, and in lieu thereof it be ordered that, for the purpose of s 33ZB of the Federal Court of Australia Act 1976 (Cth), orders 4 and 5 made by the Court on 13 February 2014 bind the parties and group members, other than those who opted out of the proceeding.

(4)    The order of the Court made on 19 March 2014 be set aside, and in lieu thereof it be ordered that the applicants pay the respondent's costs of the proceeding at first instance (other than costs, if any, specifically ordered in interlocutory proceedings).

(5)    The respondents pay the appellant's costs of the appeal.

Associate:

Dated:    8 April 2015

REASONS FOR JUDGMENT

besanko J:

371    I have had the advantage of reading the reasons for judgment of the Chief Justice. I respectfully agree with those reasons and with the orders his Honour proposes. In the circumstances, it is not strictly necessary for this Court to address the issue raised concerning the Limitation of Actions Act 1958 (Vic). However, the issue is an important one and it was the subject of detailed submissions from the parties. I will address it for the sake of completeness.

372    Mr Paciocco and Speedy Development Group Pty Ltd commenced this proceeding on 14 March 2013. Two of the Exception Fees debited to Mr Paciocco's card account 9522 were late payment fees debited to the account more than six years prior to the commencement of the proceeding. They were a late payment fee debited to the account on 4 September 2006 (Exception Fee 4), and a late payment fee debited to the account on 4 March 2007 (Exception Fee 5).

373    The primary judge found that Exception Fee 5 was not statute-barred because, although it was debited to Mr Paciocco's account more than six years before the proceeding was commenced, it was in fact paid within the six years preceding the date on which the proceeding was commenced. The date of payment is the date upon which the cause of action for the recovery of money paid because of a mistake of law accrues: Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCR 581. It was accepted by the Bank that the issue relating to the Limitation of Actions Act 1958 (Vic) was only relevant in relation to Exception Fee 4.

374    The relief Mr Paciocco sought in relation to his claim that the late payment fee was a penalty included declaratory relief, and orders for an account, interest and ancillary relief. The Bank pleaded in its amended defence various Limitation of Actions Acts, but it was common ground before the primary judge that the recovery of Exception Fee 4 was to be determined by Victorian law. Therefore, the relevant time limit, according to the Bank, was s 5 of the Limitation of Actions Act 1958 (Vic).

375    Section 5 relevantly provided as follows:

5    Contracts and Torts

(1)    The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued -

(a)    Subject to sub-sections (1AAA), (1AA) and (1A), actions founded on simple contract (including contract implied in law) or actions founded on tort including actions for damages for breach of a statutory duty;

    ...

(2)    An action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action.

...

(7)    Save as otherwise expressly provided an action shall not be brought to recover any arrears of interest in respect of any sum of money whether payable in respect of a specialty, judgment, legacy, mortgage or otherwise, or any damages in respect of such arrears, after the expiration of six years after they became due.

376    Mr Paciocco sought to avoid the operation of s 5 by arguing that, because he sought declaratory relief, the proper basis for relief was not restitution for money had and received. The primary judge rejected that argument and found that the legal entitlement (if it existed) was a claim in restitution for money had and received. In addition, her Honour said that it was immaterial that the legal entitlement was based in restitution, rather than as previously thought, implied contract (Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 356-357 per Mason CJ; Australian and New Zealand Banking Group Limited v Westpac Banking Corporation (1988) 164 CLR 662 at 673 per Mason CJ, Wilson, Deane, Toohey and Gaudron JJ). Having reached those conclusions, her Honour held that a six year limitation period applied to Mr Paciocco's claim that the Exception Fees were penalties. Mr Paciocco does not challenge that conclusion.

377    However, her Honour went on to hold that s 27(c) of the Limitation of Actions Act 1958 (Vic) applied to Mr Paciocco's penalty cause of action and that, in the circumstances of the case, time did not begin to run until 22 September 2010. Section 27 is the following terms:

27.    Postponement of limitation periods in case of fraud or mistake

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

(a)    the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or

(b)    the right of action is concealed by the fraud of any such person as aforesaid; or

(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 fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it:

Provided that nothing in this section shall enable any action to be brought to recover or enforce any charge against or set aside any transaction affecting any property which—

(i)    in the case of fraud, has been purchased for valuable consideration by a person who was not a party to the fraud and did not at the time of the purchase know or have reason to believe that any fraud had been committed; or

(ii)    in the case of mistake, has been purchased for valuable consideration, subsequently to the transaction in which the mistake was made by a person who did not know or have reason to believe that the mistake had been made.

378    The Bank contended before the primary judge that s 27(c) did not apply to Mr Paciocco's penalty cause of action because the section was limited to mistakes of fact and did not extend to mistakes of law. Her Honour accepted that, at the time s 27(c) was enacted, a mistake of law as a basis for a restitutionary claim was not recognised at law, and that at the time it was enacted, the section was not intended to extend to include a mistake of law. However, she said that for the reasons given by a majority of the House of Lords in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 ("Kleinwort Benson Ltd") at 387-389 per Lord Goff of Chieveley, 398-401 per Lord Hoffmann, and 416-418 per Lord Hope of Craighead, when construing the equivalent English section, s 27(c) was not limited to a mistake of fact.

379    Her Honour then turned to consider when Mr Paciocco had discovered the mistake within the terms of s 27(c). She found that he did not do so before the Andrews Trial proceeding (previously defined by her Honour in her reasons as Andrews v Australia and New Zealand Banking Group Ltd (2011) 211 FCR 53) was commenced on 22 September 2010. She found that until then, Mr Paciocco was operating under the belief that the Bank was entitled to charge the Exception Fees and that he was obliged to pay Exception Fee 4. Her Honour did not address that limb of the test in s 27(c) which activates the limitation period where an applicant could, with reasonable diligence, have discovered the mistake. That seems to have been because, as her Honour noted (at [366]), other than to contend that s 27(c) was limited to a mistake of fact, "ANZ did not contend for a different date" from 22 September 2010 as the date activating the limitation period.

380    In its supplementary notice of appeal, the Bank challenges her Honour's conclusion that s 27(c) applied to Exception Fee 4. It does so on the following ground:

15.    The Court erred in concluding that:

a.    for the purpose of s 27 of the Limitation of Actions Act 1958 (Vic) (Limitations Act), a "mistake" is not limited to a mistake of fact and includes a mistake of law (at [365]); and

b.    s 27 of the Limitations Act applied to the payment of the Late Payment Fees by Mr Paciocco to ANZ (at [365]).

381    In its oral submissions on the appeal, the Bank sought to advance an argument about the operation of s 27(c) to the facts of this case which was not addressed by the primary judge. The Bank submitted that Mr Paciocco had not shown that he could not, with reasonable diligence, have discovered that he was not obliged to pay Exception Fee 4 before 14 March 2007 and, therefore, he had not brought his case within s 27(c). The Bank submitted that Mr Paciocco had not adduced any evidence of inquiries he had made, or of any impediment to the making of inquiries by him, or of any judicial decision which had disabused him of his prior belief. As the Bank put it, these are only examples of the type of evidence Mr Paciocco might have adduced to discharge the onus on him to show that his case fell within the terms of the section. I do not think that it is open to the Bank to put this argument on the appeal. The argument was not put to the primary judge and it is not raised in the supplementary notice of appeal. It is not dealt with in the Bank's written outline of submissions. The Bank did not make an application to amend its supplementary notice of appeal, and it should not be permitted to raise this argument in the absence of an amendment to its notice of appeal. An application to amend would raise issues such as whether the amendment ought to be refused on the basis that had the point been raised below, Mr Paciocco might have conducted his case differently (Coulton and Others v Holcombe and Others (1986) 162 CLR 1 at 7-8 per Gibbs CJ, Wilson, Brennan and Dawson JJ; Water Board v Moustakas (1988) 180 CLR 491).

382    The principal argument advanced by the Bank is that s 27(c) of the Limitation of Actions Act 1958 (Vic) does not apply to a mistake of law.

383    Section 27 of the 1958 Act is, in material respects, in the same terms as s 27 of the Limitations of Actions Act 1955 (Vic). The latter Act was modelled on the English Limitation Act of 1939, and s 27 of the 1955 Act is, in material respects, in the same terms as s 26 of the English Act.

384    The English Act followed upon the Fifth Interim Report of the Law Revision Committee (1936) (Cmd 5334). Paragraph 23 of the report was in the following terms:

A somewhat similar position arises in cases where relief is sought from the consequences of mistake, e.g., when money is paid on property transferred under a mistake. The equitable rule is that the time should only run under the Statutes of Limitation from the time at which the mistake was, or could with reasonable diligence have been, discovered. At present this rule does not apply in cases which formerly fell within the exclusive cognisance of a court of law (Baker v Courage, [1910] 1 K.B. 56). It only applies to cases which were formerly only actionable in a court of equity, or were within the concurrent jurisdiction of the two systems (Re Mason [1928] Ch. 385, and [1929], 1 Ch.1; Re Blake, [1932], 1 Ch. 52). It was held in Baker v. Courage (supra) that the Judicature Acts had not altered the common law rule.

This position appears to us as unsatisfactory as the position with regard to the effect of concealed fraud, and accordingly 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. 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 a mistake. In such cases it appears to us to be wrong that the right should be defeated by the operation of the Statues of Limitation.

We wish to add that neither this recommendation nor those contained in the preceding paragraph are intended to encroach upon or affect the existing rules of equity relating to laches and acquiescence.

385    Prior to the decision of the House of Lords in Kleinwort Benson Ltd, the law in England was that there was a general rule that money paid because of a mistake of law, as distinct from a mistake of fact, was not recoverable. This general rule can be traced back to the decision in Bilbie v Lumley (1802) 2 East 469. There were a limited number of specific exceptions to the general rule, and a number of these exceptions were identified by Lord Bridge of Harwich in Reg v Tower Hamlets LBC., Ex p. Chetnik Developments Ltd [1988] 1 AC 858 at 874-877 (see also "Relief Under Mistakes of Law" (1907) 7 Columbia Law Review 279).

386    In addition to the exceptions at law, Courts of Equity, when exercising their jurisdiction on the ground of mistake, attached less importance to the distinction between a mistake of fact and a mistake of law. I put the matter in that rather general way because a good deal might be said on the topic, but I do not need to explore the matter for the purposes of resolving the issues in this case. The fact that Courts of Equity were less concerned about whether the mistake was one of fact or one of law may be seen from authorities such as Stone v Godfrey (1854) 5 De GM & G 76; (1854) 43 ER 798; Earl Beauchamp v Winn (1873) LR 7 HL 223 at 232-235; In re Diplock; Diplock v Wintle [1948] Ch 465 at 515-516; Kleinwort Benson Ltd at 388-389 per Lord Goff. On the other hand, absent a fiduciary relationship or a supervening equity, it has been said that Courts of Equity did not provide relief in the case of a voluntary payment made in full knowledge of the facts: Rogers v Ingham (1876) 3 Ch D 351; Campbell v Kitchen & Sons Ltd and Brisbane Soap Co Ltd (1910) 12 CLR 515 at 524-525 per Griffith CJ; at 531-532 per Barton J; at 537-538 per O'Connor J.

387    In Kleinwort Benson Ltd the House of Lords, by a majority, decided that the general rule precluding the recovery of a payment made because of a mistake of law no longer formed part of English law.

388    Their Lordships in Kleinwort Benson Ltd were also required to consider the scope of s 32(1)(c) of the Limitation Act 1980 (UK) which was in materially similar terms to s 26(c) of the Limitation Act 1939, and is in materially similar terms to s 27(c) of the Limitation of Actions Act 1958 (Vic). Lord Goff (at 388-389) rejected the argument that s 32(1)(c) did not apply to mistakes of law because the rule precluding the recovery of payments made because of a mistake of law applied in full force in 1939 when the predecessor to the section (s 26(c)) was first enacted. Lord Hope (at 417-418) also rejected the argument. His Lordship referred to the fact that the word "mistake" appeared in the subsection without qualification. He also referred to the fact that there were exceptions to the rule precluding recovery in a case involving a mistake of law and that, if s 32(1)(c) was interpreted having regard to the law at the time s 26(c) was enacted, then recovery was possible in the case of some mistakes of law. His Lordship considered that there was no reason why, if s 32(1)(c) could apply to some mistakes of law, it should not apply to mistakes of law generally.

389    The law in Australia before the decision of the High Court in David Securities Pty Limited and Others v Commonwealth Bank of Australia (1992) 175 CLR 353 was similar to the law in England before the decision in Kleinwort Benson Ltd. The Full Court of this Court in David Securities Pty Limited and Others v Commonwealth Bank of Australia and Others (1990) 23 FCR 1 identified the existing law by reference to what had been said by an earlier Full Court in J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 41 ALR 539. In the latter case, the Full Court said (at 550-551):

It is true that the distinction which has been drawn between mistake of fact and mistake of law has been subjected to much learned criticism and is often difficult to apply. It is, however, at least in so far as this court is concerned, firmly entrenched.

...

The insufficiency of mistake of law as the foundation of an action for recovery of money paid is commonly stated as a general principle or rule of law precluding any right of action in a case where the payment was voluntary. Thus, for example, Latham CJ in Werrin v Commonwealth (1938) 59 CLR 150 at 157, said that the "general rule, as stated in Leake On Contracts, 6th ed, (1911) p 63, is that money paid voluntarily, that is to say, without compulsion or extortion or undue influence and with a knowledge of all the facts cannot be recovered" (see also, to the same effect, Whiteley (Wm) Ltd v R (1909) 101 LT 741 at 745; Sawyer & Vincent v Window Brace Ltd [1943] 1 KB 32 at 34). Such statements of a general rule precluding recovery require to be hedged around by categories of exceptions which while "more or less canalized or defined" need not necessarily be regarded as closed. It is preferable to frame the general rule in terms of insufficiency rather than in terms of preclusion. So stated, the general rule is that a mistake of law does not, on its own, found an action for the recovery of money paid: see, generally, Kiriri Cotton Co Ltd v Dewani ([1960] AC) at 204–5.

390    In 1955 and in 1958 "an action ... for relief from the consequences of a mistake" would not, as a general rule, have included an action for the recovery of money paid because of a mistake of law. However, as I have said, at that time there were a limited number of specific exceptions to the general rule.

391    The next step in the Bank's argument is to submit that s 27(c) should be construed as what Bennion calls a "fixed-time" provision (Jones O, Bennion on Statutory Interpretation, (6th ed, Lexis Nexis UK, 2013) section 288) to which the maxim, contemporanea expositio est optima et fortissima in lege (the best and surest mode of construing an instrument is to read it in the sense which would have been applied when it was drawn up) is to be applied (Broom H, Broom's Legal Maxims, (10th ed, rev Kersley RH, Sweet & Maxwell, (1939) p 463); Corporate Affairs Commission of New South Wales v Yuill & Others (1991) 172 CLR 319 at 323 per Brennan J (as his Honour then was).

392    By contrast, Mr Paciocco submits that the canon of construction which should be applied to s 27(c) is that which gives it an ambulatory construction and that it should be construed as "always speaking".

393    In Forsyth v Deputy Commissioner of Taxation (2007) 231 CLR 531, the High Court considered the proper construction of legislation which conferred jurisdiction on the District Court of New South Wales by reference to the jurisdiction of the Common Law Division of the Supreme Court of New South Wales and a specified monetary limit. Subsequent legislation reorganised the Civil Divisions of the Supreme Court, and the question was whether the jurisdiction of the District Court was fixed by reference to the position as it was when jurisdiction was first conferred. The High Court held that it was so fixed.

394    The majority (Gleeson CJ, Gummow, Hayne, Callinan, Heydon and Crennan JJ) said that to speak in terms of a rebuttable presumption that a legislative provision is "always speaking" is apt to mislead.

... What it bespeaks is an exercise in statutory interpretation which seeks to discern what is called the intention of the legislature in enacting the specific provision, having regard to its context, scope and purpose. ...

(at 548, [39]).

Their Honours then went on to address the context, scope and purpose of the section in issue and said that the significant matters in that regard were first, that there was no reason to assume that Parliament would have intended a provision conferring jurisdiction on a court of limited and defined jurisdiction to be construed as ambulatory, second, an ambulatory construction would not promote one of the objectives of removing doubt about the District Court's jurisdiction and, finally, a fixed-time construction was consistent with the other limb of the relevant section which prescribed a monetary limit.

395    In R v Gee and Another (2003) 212 CLR 230, the High Court gave an ambulatory construction to s 68(2) of the Judiciary Act 1903 (Cth) so that it included jurisdiction to hear and determine a question of law reserved to the Full Court of the Supreme Court of South Australia in a case of a person charged with offences against the laws of the Commonwealth. Gleeson CJ said that it did not further the general policy of placing the administration of the criminal law of the Commonwealth in each State upon the same footing as that of the State, "to treat the provisions of Div 3 of Part X as, in effect, confining the case stated procedures provided for by the Judiciary Act to those of the kind in force at the time of Federation" (at 242-243, [13]).

396    In my opinion, s 27(c) of the Limitation of Actions Act 1958 (Vic) should be given an ambulatory construction. I should say at the outset that I do not think that there is anything in the Report of Law Revision Committee that assists either way. The reference in paragraph 23 to the equitable rule, is a reference to the rule in equity as to the postponement of time, not a reference to equitable rules more generally. With respect, I think that there is a good deal to be said for Lord Hope's approach in Kleinwort Benson Ltd that, even before the abolition of the general rule against recovery for a mistake of law, recovery was permitted in the case of some (albeit limited) mistakes of law, and the only ambulatory effect to be given to s 26(c) was to include all mistakes of law. However, I think that the case can be decided on a more general basis. The words used in paragraph 27(c) are quite general, and are capable of being given an ambulatory effect. Having regard to the inferred objects of s 27(c), I do not think there is a convincing reason, not to give the paragraph an ambulatory construction. The Bank referred to the general policy objectives that lie behind Limitation of Actions legislation (Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552-553 per McHugh J), but I think it is the object which lies behind s 27(c) itself which is significant. That object is to postpone the activation of limitation periods in the case of a mistake until the mistake is discovered, or could, with reasonable diligence, have been discovered. At the risk of stating the obvious, 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. The Bank also submitted that undesirable consequences would result if s 27(c) is given an ambulatory construction so as to include mistakes of law. For example, transactions considered final and settled might be upset many years after they have taken place on the basis of a mistake of law, possibly revealed by a subsequent judicial decision which reverses earlier authority. There is some force in this argument which may at some stage attract the attention of the legislature, but it is not sufficient to dissuade me from giving s 27(c) an ambulatory construction. The same type of problem (although not to the same degree) potentially arises where proceedings are issued shortly before the expiration of the six year period.

397    I would reject the Bank's contention that recovery of Exception Fee 4 is statute-barred by reason of s 5 of the Limitation of Actions Act 1958 (Vic).

Associate:    

Dated:    8 April 2015

REASONS FOR JUDGMENT

MIDDLETON J:

Introduction

398    I have had the advantage of reading the draft reasons of Allsop CJ and Besanko J. I agree with those reasons and the orders proposed by Allsop CJ.

399    In relation to the issues of penalties and unconscionability, I make the following brief observations.

Penalties

400    The object and purpose of the penalty doctrine (controlling the use of extravagant or unconscionable terms) must always be kept in mind when determining the ultimate issue of whether a term is a penalty. Exceptions from freedom of contract, as the case law indicates, require good reason to attract judicial intervention in setting aside commercial bargains. This explains the high hurdle required in the case of a propounded penalty, such that it must be found to be "extravagant and unconscionable".

401    One starting point in considering whether a penalty has been imposed is to identify the commercial interests that are sought to be protected by the bargain reached between the parties. This can be achieved through a consideration of the language used by the parties, the circumstances addressed by the bargain, and the objects that the bargain intended to secure. For instance, even though a sum designated to be paid is not at all referable to any genuine pre-estimate of loss, if the sum is referable to an additional benefit, or part of the bargain for another right, and is not out of all proportion to the attainment of that benefit or right, then no intervention of the Court is necessary or appropriate to disturb that commercial bargain.

Statutory unconscionability

402    On the issue of statutory unconscionability, a rationally based system of law needs to set out the limits of acceptable commercial behaviour in order that persons can order their commercial affairs in advance. Such a system cannot depend on the personal approach of a judge, based upon his or her view of commercial morality. Worse still, if there is the perception that the judge makes the law in any individual case and then applies it retrospectively.

403    Commercial law must keep up with the development of commerce, and hard and fast rules may readily become out of date. As many contemporary judges have stated, commercial values, norms and community expectations evolve over time. Rigid rules (as distinct from general principles) are often unable to withstand the pressure of change. The European civil law codes recognise the need for general principles directed to commercial behaviour, although there is an attempt to strike a balance between specificity and generality. However, no legislator can predict every individual dispute situation, and must resort to legislating in a proactive manner.

404    Lord Mansfield appreciated that a systematic and principled system was required, although in some ways the articulated legal principles that were developed almost became a "code" of commercial law. However, the important aspect of the work of Lord Mansfield was the creation of a clearly articulated set of legal principles, informed by commercial values and standards. These principles provided the proper basis for a court's ability to decide a commercial dispute.

405    Similarly, in the context of determining the content of statutory unconscionable conduct, as described by Allsop CJ, the task of a court is to make an evaluation of the facts and an ultimate determination by reference to a statutory standard of conduct, guided by the text and structure of the statute and its purpose. This task is a familiar one undertaken in the course of the judicial process.

406    This approach is not to be seen as any particular judge imposing his or her perception of desirable social goals as the basis for his or her ultimate determination. Nor does this process involve the court in determining policy. The legislature has enacted the law in pursuit of the community standard or expectation of commercial behaviour, which the court then applies in any given factual scenario.

Associate:

Dated:    31 March 2015