Federal Court of Australia

AGL Retail Energy Limited v Australian Energy Regulator [2026] FCAFC 106

ORDERS

THE COURT ORDERS THAT:

1.    Leave be granted to the appellants to:

(a)    rely on grounds 4 and 5 of their notice of appeal filed on 7 February 2025; and

(b)    amend the amended defence filed on 16 May 2024 so as to withdraw the admission made at [41(a)] that the customers (as defined) were each, at all times, “small customers” within the meaning of s 5(1) of the National Energy Retail Law contained in the Schedule to the National Energy Retail Law (South Australia) Act 2011 (SA).

2.    The appeal be allowed.

3.    The cross-appeal be dismissed.

4.    The respondent’s interlocutory application filed on 5 August 2025 be dismissed.

5.    The orders made by the primary judge on 19 December 2024 be set aside and in lieu thereof the following orders be made:

(a)    the proceeding be dismissed; and

(b)    the applicant pay the respondents’ costs of the proceeding.

6.    Within 28 days, the respondent is to repay to the appellants the amount ($25,000,000) paid by the appellants on 16 January 2025, with interest calculated in accordance with s 51A and s 52 of the Federal Court of Australia Act 1976 (Cth).

7.    The respondent is to pay the appellants’ costs of the appeal, as agreed or taxed.

8.    If either the appellants or the respondent seek to vary Order 7 above:

(a)    that party or those parties may file submissions, not exceeding three pages in length, setting out the variation sought and the basis for it, together with any relevant affidavit by 26 August 2026;

(b)    the other party or parties may file any submissions in reply, not exceeding three pages in length, and any relevant affidavit by 2 September 2026; and

(c)    the question of whether Order 7 above should be varied will be determined on the papers.

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

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    By notice of appeal filed 7 February 2025, the appellants (AGL) appeal from orders of the primary judge made on 19 December 2024. Those orders relate to findings that AGL:

(1)    contravened the National Energy Retail Rules (as in force during the relevant periods of contravention) (Retail Rules) and the National Energy Retail Law (which is contained in the Schedule to the National Energy Retail Law (South Australia) Act 2011 (SA)) (Retail Law): Australian Energy Regulator v AGL Retail Energy Limited [2024] FCA 969 (liability judgment or LJ); and

(2)    was thus liable to pay a civil penalty for its contraventions: Australian Energy Regulator v AGL Retail Energy Limited (Relief Hearing) [2024] FCA 1500 (penalty judgment or PJ).

2    The primary judge published the liability judgment on 23 August 2024, concluding that AGL had “overcharged” 483 customers (affected customers) between 23 December 2016 and 2 November 2021 (relevant period) within the meaning of r 31 of the Retail Rules, thereby contravening the notification and remedial requirements under rr 31(1), 31(2) and 31(3), each of which is a civil liability provision. The primary judge also held that the appellants breached s 273 of the Retail Law by failing to implement policies, systems and procedures to enable them to monitor their compliance with r 31 of the Retail Rules.

3    On 19 December 2024, the Court exercised its discretion under subs 44AAG(1) and (2)(a) of the Competition and Consumer Act 2010 (Cth) (CCA) to make orders declaring that AGL had contravened the Retail Rules and Retail Law, and imposing a pecuniary penalty in the amount of $25 million.

4    AGL accepts that it lacked an adequate system to identify payments accumulating to inactive customer accounts. However, it denies that the impugned conduct falls within the scope of r 31 of the Retail Rules. The central issue on appeal is whether AGL “overcharged” its customers within the meaning of that rule.

The appeal and cross-appeal

5    AGL advances 14 grounds of appeal. Grounds 1 to 8 arise from the liability judgment, and allege errors of construction and in the application of r 31 of the Retail Rules. Grounds 4 and 5 concern a point that was not raised below, and so AGL requires leave to raise those grounds. Grounds 9 to 14 relate to the penalty judgment. Those grounds allege that the primary judge failed to have regard to critical evidence, which led her Honour to make findings that were not open. It is also said that the primary judge failed to have regard to relevant considerations, and that her Honour did not apply the proper approach to determining penalties.

6    The respondent, the Australian Energy Regulator (AER), filed a notice of cross-appeal on 5 March 2025, including also a notice of contention, which arise for consideration only if AGL succeeds on grounds 6 and 7 of the appeal which concern the primary judge’s finding that AGL became “aware” of an overcharge for the purposes of r 31(1) of the Retail Rules.

7    We have reached the conclusion that AGL should succeed on grounds 1 to 3, and ground 8. While we would grant AGL leave to raise grounds 4 and 5, we would dismiss those grounds noting that this does not affect the disposition of the appeal. Given the conclusion we have reached in relation to grounds 1 to 5 and 8 of the appeal, grounds 6 and 7 and the penalty grounds do not arise for consideration: Boensch v Pascoe [2019] HCA 49; 268 CLR 593 at [7]–[8] per Kiefel CJ, Gageler and Keane JJ, [101] per Bell, Nettle, Gordon and Edelman JJ. For the same reason, nor does the AER’s notice of cross-appeal and ground of contention, and the contingent interlocutory application filed by the AER to rely on further evidence.

8    The appeal should therefore be allowed with the necessary consequence that the AER must repay the penalty paid to it by AGL pursuant to the orders of the primary judge, with interest. Our reasons for reaching that conclusion follow.

Factual background

9    A precis of the factual background, including in relation to AGL’s relevant conduct giving rise to the proceeding is found at paragraphs [23]–[68] of the liability judgment and paragraphs [28]–[32] of the penalty judgment.

10    For the purpose of resolving the appeal, it is necessary only to set out the relevant conduct of AGL that gave rise to the proceeding, which was described by the primary judge at LJ [24]–[33] as follows:

(1)    the affected customers each entered into a contract, identified in Column A of Sch 1 and Sch 2 to the Further Amended Statement of Claim (FASOC), with one of the appellants (referred to by the primary judge as the Relevant AGL Entity or the AGL Entities). The Relevant AGL Entity which entered into the contract with the particular affected customer is identified in Column B of the schedules to the FASOC by reference to an identifying code. The affected customers were recipients of welfare payments through Services Australia;

(2)    the Relevant AGL Entity supplied the affected customers with electricity or gas and issued bills to them;

(3)    each of the AGL Entities had an agreement to use Centrepay which was governed by the terms of the Centrepay Policy and Terms, Procedural Guide for Businesses and an additional condition imposed by Services Australia on its approval to use Centrepay (AGL Centrepay Agreement): LJ [4];

(4)    before the end of each of the contracts between the Relevant AGL Entity and the affected customers, the latter had each authorised deductions to be made through the Centrepay service in favour of the Relevant AGL Entity to pay their respective bills for the supply of electricity or gas;

(5)    on the date identified in Column D of Sch 1 and Sch 2 to the FASOC, the affected customers ceased to obtain energy from the Relevant AGL Entity (Account Cessation Date). As a result, their accounts were either closed or became inactive and the Relevant AGL Entity issued a final bill;

(6)    after the Account Cessation Date and before the next scheduled payment by way of a deduction, neither the Relevant AGL Entity nor the customer had cancelled the deductions through Services Australia. The terms of the AGL Centrepay Agreement required the AGL Entities to do so; and

(7)    after the Account Cessation Date, the AGL Entities continued to receive payments pursuant to the deduction which was in place for each of the affected customers, and processed these payments even though the affected customers were no longer being supplied with energy and had fully paid all bills issued for energy supplied under their contract with the Relevant AGL Entity.

11    In order for the AGL Entities to reconcile the payments received from Services Australia with the relevant customer, Services Australia generated a deduction payment report (DPR) which was accessible to the AGL Entities on every business day that a Centrepay deduction was paid to one of them. DPRs contained, inter alia, customer names, the Relevant AGL Entity’s account number, deduction amounts from the relevant customer’s welfare payment, and dates that deductions were made and paid to the Relevant AGL Entity: LJ [42]–[45].

12    As DPRs were designed to be processed by a computer system (ie they were unintelligible to human readers), AGL developed and implemented an automated script within its information and communication technology system which “pulled” the DPRs from Services Australia’s file exchange system directly into AGL’s “SAP information system user interface” (SAP system). AGL also designed and implemented a batch processing program within the SAP system to automatically process the data contained within the DPRs. This process occurred within AGL’s SAP system each evening: see LJ [46]–[49].

13    It is unnecessary to address the more technical aspects of the SAP system, a synopsis of which is provided at LJ [47]–[59], save to note that it was configured such that the customer payment information pulled from DPRs was automatically allocated to the relevant customer accounts without any human involvement or interaction, even if the subject account was inactive and in credit or had a zero balance: LJ [47], [52], [59].

14    To the extent other findings of fact made by the primary judge are relevant to the resolution of the grounds of appeal, we refer to them in the course of our consideration of those grounds.

Legislative framework

15    Before proceeding further, it is convenient to set out the key legislative provisions and rules of interpretation that were considered by the primary judge, and which are at the heart of the appeal.

16    The Retail Rules are made under the Retail Law, and have the force of law: Retail Law s 15. They govern the sale and supply of energy (electricity and natural gas) from retailers and distributors to customers in New South Wales, Queensland, South Australia, Tasmania and the Australian Capital Territory: see Retail Law s 9.

Key provisions

17    Rule 31 of the Retail Rules was in the following terms during the relevant period:

31     Overcharging (SRC and MRC)

(1)     Where a small customer has been overcharged by an amount equal to or above the overcharge threshold, the retailer must inform the customer accordingly within 10 business days after the retailer becomes aware of the overcharging.

Note

This subrule is classified as a tier 2 civil penalty provision under the National Energy Retail Regulations. (See clause 6 and Schedule 1 of the National Energy Retail Regulations.)

(2)     If the amount overcharged is equal to or above the overcharge threshold, the retailer must:

(a)     repay that amount as reasonably directed by the small customer; or

(b)     if there is no such reasonable direction, credit that amount to the next bill; or

(c)     if there is no such reasonable direction and the small customer has ceased to obtain customer retail services from the retailer, use its best endeavours to refund that amount within 10 business days.

Note:

Money not claimed is to be dealt with by the retailer in accordance with the relevant unclaimed money legislation.

Note

This subrule is classified as a tier 2 civil penalty provision under the National Energy Retail Regulations. (See clause 6 and Schedule 1 of the National Energy Retail Regulations.)

(3)     If the amount overcharged is less than the overcharge threshold, the retailer must:

(a)     credit that amount to the next bill; or

(b)     if the small customer has ceased to obtain customer retail services from the retailer, use its best endeavours to refund that amount within 10 business days.

Note

This subrule is classified as a tier 2 civil penalty provision under the National Energy Retail Regulations. (See clause 6 and Schedule 1 of the National Energy Retail Regulations.)

(4)     No interest is payable on an amount overcharged.

(5)    If the small customer was overcharged as a result of the customer’s unlawful act or omission, the retailer is only required to repay, credit or refund the customer the amount the customer was overcharged in the 12 months before the error was discovered.

(6)    The overcharge threshold is $50 or such other amount as the AER determines under subrule (7).

(7)     The AER may from time to time determine a new overcharge threshold on its website

(8)    The AER must publish the current overcharge threshold on its website.

(9)    Application of this rule to standard retail contracts

This rule applies in relation to standard retail contracts.

(10)     Application of this rule to market retail contracts

This rule applies in relation to market retail contracts (other than prepayment meter market retail contracts).

18    The term “retailer” is defined in s 2 of the Retail Law to mean “a person who is the holder of a retailer authorisation” and the term “retailer authorisation” is defined to mean a “retailer authorisation issued under Part 5”. As the primary judge noted (LJ [70]), there was no dispute that each of the AGL Entities was a “retailer” as defined in s 2 of the Retail Law throughout the relevant period.

19    Section 5 of the Retail Law relevantly provides:

5—Meaning of customer and associated terms

(1)     A customer is a person—

(a)    to whom energy is sold for premises by a retailer; or

(b)    who proposes to purchase energy for premises from a retailer.

(2)     A small customer is a customer—

(a)    who is a residential customer; or    …

20    Section 2 of the Retail Law defines a “residential customer” as a customer who purchases energy principally for personal, household or domestic use at premises. Section 2(3) of the Retail Law confirms that “customer” (including a reference to a “small customer”) includes a reference to a “prospective customer”.

21    Section 273 of the Retail Law provides:

273—Obligation of regulated entities to establish arrangements to monitor compliance

(1)     A regulated entity must establish policies, systems and procedures to enable it to efficiently and effectively monitor its compliance with the requirements of this Law, the National Regulations and the Rules.

(2)     The policies, systems and procedures must be established and observed in accordance with the relevant provisions of the AER Compliance Procedures and Guidelines.

22    In this proceeding, the relevant requirements for the purposes of s 273(1) are those under r 31 of the Retail Rules.

Rules of interpretation

23    The words and expressions used in the Retail Rules have the same meaning as they have in the Retail Law, except so far as the contrary intention appears: note to r 3 of the Retail Rules.

24    Section 8 of the Retail Law is entitled “Interpretation generally” and provides in s 8(1) that Sch 2 to the National Gas (South Australia) Act 2008 (SA) (National Gas Law) (entitled “Miscellaneous provisions relating to interpretation”) applies to the Retail Law and the Retail Rules.

25    Section 13 of the Retail Law during the relevant period provided:

13—National energy retail objective

The objective of this Law is to promote efficient investment in, and efficient operation and use of, energy services for the long term interests of consumers of energy with respect to price, quality, safety, reliability and security of supply of energy.

26    Schedule 2 to the National Gas Law contains the following principles of interpretation to be applied in determining the proper construction of r 31.

27    Clause 4 of Sch 2 to the National Gas Law provides that a heading to a section (or sub-section), a note and an example, do not form part of the Retail Law (or the Retail Rules). However, the heading to a chapter, part, division or subdivision, and a schedule, is part of the Retail Law (and the Retail Rules).

28    Clause 7(1) of Sch 2 to the National Gas Law provides that in the interpretation of that law (and therefore the Retail Law), the interpretation that will best achieve the purpose or object is to be preferred to any other interpretation. This applies whether or not the purpose is expressly stated: cl 7(2).

29    Clause 8 in Sch 2 to the National Gas Law relevantly provided:

8—Use of extrinsic material in interpretation

(1)     In this clause—

Law extrinsic material means relevant material not forming part of this Law, including, for example—

…

ordinary meaning means the ordinary meaning conveyed by a provision having regard to its context in this Law and to the purpose of this Law;

…

(2)     Subject to subclause (3), in the interpretation of a provision of this Law, consideration may be given to Law extrinsic material capable of assisting in the interpretation—

(a)     if the provision is ambiguous or obscure, to provide an interpretation of it; or

(b)     if the ordinary meaning of the provision leads to a result that is manifestly absurd or is unreasonable, to provide an interpretation that avoids such a result; or

(c)     in any other case, to confirm the interpretation conveyed by the ordinary meaning of the provision.

(3)     Subject to subclause (4), in the interpretation of a provision of the Rules, consideration may be given to Law extrinsic material or Rule extrinsic material capable of assisting in the interpretation—

(a)     if the provision is ambiguous or obscure, to provide an interpretation of it; or

(b)     if the ordinary meaning of the provision leads to a result that is manifestly absurd or is unreasonable, to provide an interpretation that avoids such a result; or

(c)    in any other case, to confirm the interpretation conveyed by the ordinary meaning of the provision.

(4)     In determining whether consideration should be given to Law extrinsic material or Rule extrinsic material, and in determining the weight to be given to Law extrinsic material or Rule extrinsic material, regard is to be had to—

(a)     the desirability of a provision being interpreted as having its ordinary meaning; and

(b)     the undesirability of prolonging proceedings without compensating advantage; and

(c)     other relevant matters.

Primary decisions

Liability judgment

30    The primary judge held that, on a proper construction of r 31(1) of the Retail Rules, a customer “has been overcharged” within the meaning of that rule, and there is an “amount overcharged” for the purposes of r 31(2) and r 31(3), where a retailer has received, processed and retained a payment of an amount of money from a customer that exceeds the amount that the retailer is in fact entitled to charge the customer under any contract it has with that customer: LJ [126].

31    Applying that construction to the facts before the primary judge, her Honour found that the affected customers were “overcharged” within the meaning of r 31(1) of the Retail Rules because AGL had received, processed and retained payments for amounts which exceeded that which it was entitled to charge. On this construction, no assertion by AGL of entitlement to the payments was required.

32    The primary judge found that AGL had, through a deliberate design in its payment system methodology within its SAP system, treated each Centrepay deduction as payment for a bill, even in circumstances where the final bill had been paid. Rather than issuing a refund at this point, AGL, through its payment methodology, applied the payment as a credit towards a future bill (even when there was not going to be one). The effect was to increase the amount that the affected customer paid for energy consumed during the life of their contract with AGL. The AGL Entities had no entitlement to receive and retain these payments and were therefore obliged to notify the affected customers and return the excess amounts in accordance with r 31 of the Retail Rules: LJ [129].

33    The primary judge also found that if, contrary to the proper construction of “overcharged” and “overcharging” as found, an assertion of entitlement to the payment of an amount of money from a customer was necessary for the customer to be “overcharged”, this requirement was met as certain conduct by the AGL Entities constituted an express or implied assertion of entitlement to the Centrepay deductions: see LJ [130]. We refer to this conduct in more detail at [128] of these reasons.

34    Thus, the primary judge was satisfied, to the required standard, that the relevant conduct by AGL resulted in the affected customers being overcharged within the meaning of r 31(1) of the Retail Rules: LJ [131].

35    The primary judge next considered when AGL became aware of the overcharging within the meaning of r 31(1) of the Retail Rules. That required consideration of two sub-issues: first, the meaning of “aware” in the context of r 31(1); and secondly, how a retailer, which is a corporation and therefore an artificial person, can be deemed to have or be fixed with the “awareness” to which r 31(1) refers: LJ [133].

36    As to the first sub-issue, the meaning of “aware”, the primary judge observed that it was common ground that “aware” means actual knowledge: LJ [134]. In the context of the allegations of “overcharges” made by the AER against AGL, her Honour found (at LJ [135]) that knowledge of the essential matters giving rise to the overcharges comprises actual knowledge of the following facts:

(1)    receipt by the AGL Entity of a deduction in the form of a sum of money deposited into its bank account;

(2)    that the deduction was attributable to the account of an individual identifiable customer of the AGL Entity; and

(3)    that the relevant customer had:

(a)    fully paid any amounts owing to the relevant AGL Entity with whom they had contracted for the supply of energy; and

(b)    that the customer’s account with the AGL Entity was closed or inactive.

37    The primary judge considered the second sub-issue, the awareness of a corporation, to be a question of construction. Her Honour held that, in the context of r 31(1) of the Retail Rules, there is no basis in the text or purpose of the rule for imposing any requirement of actual knowledge on the part of a person with “sufficient authority or status in relation to the relevant AGL Entity” (as pleaded by AGL); nor did her Honour consider it appropriate to adopt the position stated in Lowes v Amaca Pty Ltd (formerly James Hardie & Co Pty Ltd) [2011] WASC 287 at [357] per Corboy J: LJ [153]. The primary judge considered the better approach to be as set out in Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; 39 WAR 1 at [6163] per Owen J (Bell Group), because whether the retailer, which is a corporation, is aware within the meaning of r 31(1) depends on the circumstances, and that approach takes into account relevant factors. One of these relevant factors is the policy and purpose of r 31(1) of the Retail Rules: LJ [153]–[154]. The primary judge then addressed the factors in Bell Group by reference to the facts before her and concluded, having regard to those factors, that the interpretation of r 31(1) that best achieves its purpose is that AGL became aware of the instance of the overcharge when each payment was received by it, the associated DPR was downloaded, the information in that report was processed and the payment was allocated to the particular customer’s account by the system (where that customer was an inactive final billed customer with an account in credit): LJ [156]–[160].

38    The primary judge considered that, if such an interpretation was not adopted, the policy of r 31(1) – viz, the efficient operation of energy services for the long-term interests of consumers of energy – would be defeated: LJ [160].

39    The primary judge found (at LJ [169]) that AGL committed, in total:

(1)    3,531 contraventions of r 31(1);

(2)    3,531 contraventions of r 31(2); and

(3)    9,094 contraventions of r 31(3).

40    As has been mentioned, the primary judge also considered s 273 of the Retail Law and found that during the relevant period AGL contravened that section by failing to implement policies, systems and procedures to enable it to monitor its compliance with r 31 of the Retail Rules: LJ [168].

Penalty judgment

41    The AER sought orders pursuant to s 44AAG of the CCA, which relevantly provides that the Court can make an order, on application by the AER on behalf of the Commonwealth, declaring that a person is in breach of the Retail Law and Retail Rules: sub-s (1). Section 44AAG(2)(a) of the CCA further provides that if an order is made declaring that a person is in breach of the Retail Law or the Retail Rules, the order may include an order that a person pay a civil penalty.

42    Section 294 of the Retail Law sets out the matters to which a Court must have regard when determining the amount of a civil penalty. Section 296 of the Retail Law provides that if the breach consists of a failure to do something that is required to be done, the breach is to be regarded as continuing until the act is done despite the fact that any period within which, or time before which, the act is required to be done has expired or passed.

43    The primary judge ordered declaratory relief in the terms sought by the AER. Her Honour then considered the appropriate pecuniary penalty, determining by reference to the factors in s 294 and other relevant factors that a penalty in the amount of $25 million was appropriate. The primary judge imposed that penalty against AGL on the basis that a substantial penalty was necessary to achieve specific and general deterrence.

Grounds of Appeal – Liability

44    There are eight grounds of appeal on liability, as follows:

Liability

1.    The primary judge erred in finding that a small customer “has been overcharged” within the meaning of rule 31(1) of the Retail Rules, and that there is an “amount overcharged” for the purposes of rules 31(2) and 31(3), where a retailer has received, processed and retained a payment of an amount of money from a customer that exceeds the amount that the retailer is in fact entitled to charge the customer under any contract which it has with that customer: Liability Reasons, [126]–[127], [129].

2.    The primary judge should have found that for a small customer to have been “overcharged” by a retailer within the meaning of rule 31(1), and for there to be an “amount overcharged” for the purposes of rules 31(2) and 31(3), there must have been a “charge”, constituting an assertion of an entitlement to payment by the retailer to the small customer, that exceeded the amount that the retailer was in fact entitled to “charge”: Liability Reasons, [88], [100], [107].

3.    The primary judge erred in finding that the matters in the Liability Reasons at [130] pertaining to the 483 recipients of Centrelink benefits who made payments to AGL via Services Australia’s Centrepay service after they ceased to obtain electricity or gas from AGL and in circumstances where they did not owe any money to AGL (Affected Customers) constituted an assertion of entitlement to payment by AGL such that they were “overcharged” within the meaning of rule 31(1) of the Retail Rules: Liability Reasons, [127]–[131].

4.    The primary judge ought to have found, and erred in failing to find that:

(a)    the Affected Customers were not “small customers” for the purposes of rule 31 of the Retail Rules in circumstances where, inter alia, they had ceased to obtain electricity or gas from AGL and their contracts with AGL had ended; and

(b)    they did not later become “small customers” by reason of payments being made via the Centrepay service to their closed or inactive accounts: Liability Reasons, [5], [23]–[29].

5.    The primary judge ought to have found, and erred in failing to find, that:

(a)    “small customers” for the purposes of rule 31 of the Retail Rules does not include a former or past customer of the retailer who has ceased to obtain electricity or gas from the retailer and whose contract with the retailer has ended; and

(b)    such persons do not later become “small customers” by reason of payments being made to their closed or inactive accounts.

6.    The primary judge erred in finding that for a retailer to “become aware of the overcharging” within the meaning of rule 31(1) of the Retail Rules, the rule did not require any person on behalf of the retailer to have knowledge of the overcharging: Liability Reasons, [151]–[153].

7.    The primary judge erred in finding that AGL became “aware” of an overcharge for the purposes of rule 31(1) by reason of the matters in the Liability Reasons at [160] in circumstances where no person on behalf of AGL had knowledge of those matters: Liability Reasons, [151]–[152], [159]–[160].

8.    By reason of the matters in grounds 1 to 7 above, in circumstances where there was no contravention of rule 31 of the Retail Rules, the primary judge erred in finding that AGL contravened s 273(1) of the National Energy Retail Law in the Schedule to the National Energy Retail Law (South Australia) Act 2011 (SA): Liability Reasons, [168].

45    Grounds 1 to 7 of the appeal raise three questions:

(1)    what does it mean to have been “overcharged” for the purposes of r 31(1)? (grounds 1 to 3);

(2)    what is a “small customer” for the purposes of r 31(1)? (grounds 4 and 5); and

(3)    what does it mean to become “aware of the overcharging” for the purposes of r 31(1)? (grounds 6 and 7).

46    All three questions raise issues of statutory construction. It is to be remembered that r 31 does not proscribe overcharging. It imposes an obligation to inform the customer of the overcharging. That obligation has three predicates. It arises once: (a) a “small customer”; (b) has been “overcharged” by an amount equal to or above the overcharge threshold; and (c) the retailer becomes “aware” of the overcharging.

47    Consequently, the first two issues arising on the appeal are threshold issues. The third issue is not reached if it is determined that the affected customers were not “small customers” or that they were not “overcharged”.

48    As we have said, given the view to which we have come in relation to the proper construction of r 31(1) of the Retail Rules, it is not necessary to address the grounds of appeal concerning the question whether AGL was “aware” of the “overcharging” (grounds 6 and 7), nor the grounds of appeal regarding penalty (grounds 9 to 14). Ground 8, however, is concerned with the consequences if AGL is successful in the construction of r 31(1) for which it contends. We therefore also deal briefly with ground 8 below.

Grounds 1 and 2: meaning of “overcharged” and “overcharging”

49    Grounds 1 and 2 of the notice of appeal concern the meaning of the term “overcharged” in r 31(1) and for the purposes of r 31(2) and r 31(3) of the Retail Rules, and the relevant findings of the primary judge at LJ [126]–[127] and [129] (ground 1) and LJ [88], [100] and [107] (ground 2). The primary judge found that a customer “has been overcharged” (and there is an “amount overcharged”) “where a retailer has received, processed and retained a payment of an amount of money from a customer that exceeds the amount that the retailer is in fact entitled to charge the customer under any contract which it has with that customer”. The primary judge was satisfied that no assertion of entitlement to payment on the part of the retailer is required for an overcharge to occur.

50    AGL submits that the primary judge misconstrued the meaning of “overcharged” and “overcharging” having regard to text, context and purpose. It contends that her Honour declined to apply the ordinary meaning of “overcharge”, contrary to the general rules of interpretation in the legislative scheme, which require (at cl 8(3) of Sch 2 to the National Gas Law) that the “ordinary meaning” be treated as significant unless it “leads to a result that is manifestly absurd or is unreasonable”. AGL submits that the primary judge’s reliance on an “outlier” in the dictionary definition of “charge” led her Honour to give overcharge a meaning that is not its ordinary meaning. AGL also contends that in failing to apply the ordinary meaning of “overcharge” (which incorporates an assertion of entitlement), her Honour made a constructional choice founded on an a priori assumption as to the underlying policy of the provision.

51    The AER raises four bases on which it says that the primary judge was correct in her interpretation of the word “overcharge”.

52    First, the AER submits that AGL is wrong to criticise the primary judge’s finding that dictionary definitions were of “limited assistance” in construing “overcharged” in the context of r 31 (and wrong to suggest that this involved some rejection of the “ordinary meaning” of that term). The AER observes that AGL suggests that the primary judge “relied” on one dictionary definition of “charge” consistent with the AER’s construction as an “expense or cost”, but contends that the primary judge expressly referred to this definition only as an “example” and, in any event, r 31 uses “overcharge” in both verb (“overcharged”) and noun forms (“the overcharging” and “overcharge threshold”). The AER submits that no dictionary definitions for “overcharge” were available and, in their absence, both parties identified multiple definitions for both verb and noun forms of “charge”.

53    The AER submits that the primary judge’s conclusion on the construction of those terms within the context of r 31 was wholly consistent with the established principles that dictionary definitions should be treated with caution because they specify a range of meanings, rather than the particular meaning of a word in its statutory context having regard to the relevant statutory purpose. The AER contends that AGL instead suggests the primary judge ought to have simply picked the dictionary definition of “charge” on which it relied, an approach which it submits is contrary to established principles of statutory construction. The AER also submits that it is not correct to suggest, as AGL does, that the primary judge’s construction extends to “mere overpayment”, which is not consistent with the primary judge’s actual construction of that term (in the context of the facts of this case).

54    Secondly, the AER submits that the various “contextual considerations” on which AGL relies do not assist it.

55    Thirdly, the AER submits that AGL strains the text of r 31(5) to criticise the primary judge’s reliance on that provision. It contends that the importance of r 31(5) is that it expressly acknowledges that an overcharge can arise as a result of a customer’s act or omission.

56    Fourthly, the AER submits that AGL’s submissions pass very lightly over statutory purpose, noting that AGL contends only that the national energy retail objective in s 13 of the Retail Law, which the primary judge found supported the AER’s construction of “overcharge”, is “not inconsistent with” AGL’s own construction. The AER submits that AGL offers no answer to the primary judge’s conclusion (at LJ [111]–[113]) that AGL’s construction would leave a “significant lacuna” in the Retail Rules, with the “absurd outcome” that the Rules have nothing to say about the present circumstances, and indeed about various other scenarios identified by the primary judge where there is a mismatch between the amount paid by a customer and the amount the retailer is entitled to charge, and the retailer retains a sum of money that rightly belongs to its customer.

57    Both parties relied on the “ordinary meaning” of the term “overcharged”. At times, it was not evident whether the “ordinary meaning” was proffered as a premise (to be affirmed or denied by the process of construction), or a conclusion (drawn as a result of that process). In the interpretive rules contained in Sch 2 of the National Gas Law, “ordinary meaning” is defined as “the ordinary meaning conveyed by a provision having regard to its context in this Law and to the purpose of this Law”. It is, therefore, artificial to speak of the “ordinary meaning” of a rule as something independent of the context and purpose of the relevant rule. It also leads to circularity in reasoning.

58    The definition of “ordinary meaning” in Sch 2 of the National Gas Law is consistent with well-established principles of statutory construction, which are in this respect no different in the construction of delegated legislation. The starting point is the text of the provision, having regard to its context and purpose: SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; 262 CLR 362 at [14] per Kiefel CJ, Nettle and Gordon JJ (SZTAL). The purpose is to be derived from the legislation: Esso Australia Pty Ltd v Australian Workers’ Union [2017] HCA 54; 263 CLR 551 at [71] per Gageler J; Certain Lloyd’s Underwriters Subscribing to Contract No IH00AAQS v Cross [2012] HCA 56; 248 CLR 378 at [26] per French CJ and Hayne J; Australian Education Union v Department of Education and Children’s Services [2012] HCA 3; 248 CLR 1 at [28] per French CJ, Hayne, Kiefel and Bell JJ.

59    Context is to be considered at the first stage, and in its widest sense to include the existing state of the law and the mischief which, by legitimate means, one may discern the statute was intended to remedy: CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; 187 CLR 384 at 408 per Brennan CJ, Dawson, Toohey and Gummow JJ; SZTAL at [14]. That the “ordinary meaning of a word, namely how it is ordinarily understood in discourse”, may be rejected if it is not consistent with the statutory purpose (SZTAL at [14]), is to acknowledge the limited utility of importing preconceived notions of a word into the process of construction. This is especially so in circumstances such as the present where the word in question has, in common parlance, and as reflected in dictionary definitions, different meanings in different contexts.

60    Dictionary definitions are to be treated with caution as they specify a range of meanings, rather than the particular meaning of a word having regard to its statutory context and purpose: see Thiess v Collector of Customs [2014] HCA 12; 250 CLR 664 at [23] per the Court; Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541 at 560 per Mahoney JA; Comcare v Martinez (No 2) [2013] FCA 439; 212 FCR 272 at [68] per Robertson J; 2 Elizabeth Bay Road Pty Ltd v Owners – Strata Plan No 73943 [2014] NSWCA 409; 88 NSWLR 488 at [81] per Leeming JA.

61    Expressing caution in the reliance on dictionary definitions, the primary judge found, in any event, that the definitions relied on by the parties were of “limited assistance”: LJ [96].

62    AGL submits that an “overcharge” requires there to have been an antecedent “charge” in respect of the same thing (here, energy supplied to a small customer), the ordinary meaning of which (in its verb form) involves an assertion of entitlement to payment. It follows, AGL submits, that in the context of r 31 the natural and ordinary meaning of “overcharge” must involve an anterior demand, express or implied, for an excessive payment for the supply of energy. Some conduct on the part of the retailer is required (eg the issue of a bill), and mere overpayment, without more, is insufficient. The assertion of entitlement triggers the obligation to inform the customer, irrespective of any payment for it.

63    Both parties accept that a retailer may become entitled to payment through the issue of a bill (which did not occur here). However, the point of distinction between them is whether, as AGL contends, being “overcharged” is limited to a situation where the excess has arisen from an assertion by the retailer of an entitlement to the amount. The AER argues that there is no basis for a such a limitation, although it accepts that consideration must be given to what the retailer is entitled to receive as a matter of fact.

64    We make two preliminary observations.

65    First, the statutory term to be construed is “overcharged”. As we have already noted, the primary judge accepted that dictionary definitions are of limited assistance in resolving the debate. To a degree, it is artificial to consider the ordinary meaning of a constituent term (“charge”), and then to extrapolate the meaning to the composite term (“overcharge”). The absence of a definition of “overcharge” directs attention to the statutory context.

66    Secondly, both parties sought to draw a distinction between an “overcharge” and an “overpayment”. While such a distinction may have an instinctive appeal, “overpayment” is not a term that appears in the Retail Rules or Retail Law. To seek to draw a distinction between an undefined statutory term and a term that does not appear in the legislative scheme lends itself to tendentious reasoning. This is evident, for example, in AGL’s criticism of the primary judge’s finding at LJ [100] that the meaning of “overcharge” in r 31(1) is “directed to the payment of any amount in excess of what is due, including by the customer’s own mistake, irrespective of whether that payment is preceded by a demand or request by the retailer”. To contend, as AGL does, that this is a description of an “overpayment” does not advance the analysis. The same may be said of the AER’s efforts to distinguish AGL’s conduct from accidental receipt of a “mere overpayment”. This may present a false dichotomy in circumstances where the relevant enquiry concerns the ordinary meaning of “overcharge” in r 31 of the Retail Rules, with reference to its context and purpose: National Gas Law Sch 2 cl 8; Retail Law s 8.

67    Ultimately, however, having regard to text, context and purpose, we have come to the view that the construction of “overcharge” for which AGL contends is to be preferred. There are several aspects to our reasoning in this regard.

68    Subject to a reservation as to the limited assistance provided by dictionary definitions (at LJ [96]), the primary judge found (at LJ [97]) that the ordinary meaning of “overcharge” is “typically a situation in which one party asserts an entitlement to be paid more than they are entitled to be paid (whether that entitlement arises pursuant to contract or something else) and the other party responds by paying more than they should”.

69    The requirement of an “anterior demand” (for an excessive payment for the supply of energy) is reinforced by the statutory context.

70    First, r 31 is in Pt 2, Div 4 of the Retail Rules which is headed “Customer retail contracts—billing”. That heading is part of the Retail Rules: see cl 4 of Sch 2 to the National Gas Law; s 8 of the Retail Law. There are other rules in Pt 2, Div 4 of the Retail Rules which are concerned with billing and the concept of overcharging, such as r 21(4) which relevantly provides:

Without affecting rule 20(2), if the retailer has issued the small customer with a bill based on an estimation and the retailer subsequently issues the customer with a bill that is based on an actual meter reading or on metering data:

(a)    the retailer must include an adjustment on the later bill to take account of any overcharging of the customer that has occurred; and

…

71    The primary judge addressed this rule and r 23, which concerns bill smoothing, at LJ [102], observing:

AGL also emphasises other rules in Div 4 which it contends are “singularly concerned” with billing such as rules 21(4) and 23 which, it submits, directly connect the concepts of “overcharging” and “billing”. However, that these rules refer to both bills and overcharging only serves to highlight that rule 31(1) does not contain the same connection between these concepts or refer to billing at all. This supports an interpretation that “overcharged” and “overcharging” within the meaning of rule 31(1) is not confined to a situation where a bill has been issued. Further, it is apparent from rule 32 (which deals with payment methods) and rule 33 (which deals with payment difficulties) that Div 4 is also concerned with the payment of bills.

(Emphasis in original.)

72    While the exclusion of the term “bill” from r 31(1) might suggest that the provision is not tethered to the issuing of a bill (or other demand), we consider it significant that one of the remedies for an “amount overcharged” is to credit that amount to the “next bill” (r 31(2)(b) and r 31(3)(a)). This is presumably on the basis that the “amount overcharged” arose since the last bill. In other words, the rule assumes a cycle of billing in circumstances where the small customer continues to obtain customer retail services from the retailer, and an amount is “overcharged”.

73    Secondly, Pt 3 of the Savings and Transitional Rules in Sch 3 to the Retail Rules (Transitional Rules) headed “Billing-related transitional rules” includes r 5, which describes r 31 as “the provisions of the Rules requiring a retailer to reimburse amounts the retailer has overcharged a small customer” (emphasis added).

74    The primary judge relied on use of the passive voice in the phrase “a small customer has been overcharged” in r 31(1), as distinct from the active voice in r 30(1) (“a retailer has undercharged”), to find an intention to impose obligations on the retailer irrespective of whether there has been some active step by the retailer: LJ [108]. Rule 5 of Pt 3 of the Transitional Rules undermines the utility of that distinction. When characterising r 31, the legislature chose to express its operation in the active voice, that is where the retailer has overcharged. Nothing about the use of the passive voice can be said to undermine the ordinary meaning of the term “overcharge”. That r 5 of Pt 3 of the Transitional Rules is aimed at particular circumstances which do not apply in this case, as the primary judge recognised at LJ [110], is not to the point and does not undermine the legislature’s choice of words in describing the circumstances in which r 31(1) operates.

75    Relatedly, while the primary judge relied on the use of the passive voice in r 31(1), the reference to the “retailer” in the rule makes it clear that it is the retailer who is the relevant subject. The same view was expressed in Ergon Energy Queensland Pty Ltd v Australian Energy Regulator [2025] FCA 541 (Ergon), where Moore J said the following in relation to r 31(1) of the Retail Rules, in the form it existed at the time of issue of a notice to produce documents and information pursuant to s 206 of the Retail Law by the AER to Ergon Energy Queensland Pty Ltd (Ergon Energy), at [35]:

The language of rule 31(1) (“Where a small customer has been overcharged by an amount equal to or above [$50], the retailer must inform the customer…”) identifies that “the retailer” must inform the customer, but does not identify the person who has engaged in the overcharging. However, it is implicit in the structure and language of the rule, particularly given the use of the words “the retailer”, that the relevant retailer who must inform the customer is the retailer who has overcharged the customer.

76    Thirdly, as AGL submits, the contrast between r 31(1), on the one hand, and r 30, on the other, is beneficial to its construction of “overcharging”. The clarification in r 30(3) that a reference to “undercharging by a retailer includes a reference to a failure by the retailer to issue a bill”, reinforces the assumption that there must be conduct involving the assertion of entitlement to payment for there to be an “amount overcharged” (whether or not that assertion comes in the form of a bill). That there is no equivalent provision in r 31 does not affect the construction for which AGL contends.

77    The AER embraces the primary judge’s finding that the starting point for construing the terms “overcharged” and “overcharging” in r 31 is the recognition that these terms are used to describe a circumstance where a retailer has received payment of an amount that properly belongs to a customer. The primary judge referred, as an example, to the direction in r 31(2)(a), observing that the “amount overcharged” speaks of an amount received by the retailer which has been paid by the customer and which must be returned to the customer. The primary judge concluded that “[t]he terms are therefore directed to the receipt of payments, not the issue of bills”: LJ [103].

78    True it is that the remedies provided for in r 31(2) and r 31(3) are predicated on receipt of payment. However, accepting that the customer has not been “overcharged” for the purposes of r 31 until the retailer has received payment of an amount that properly belongs to the customer, does not deny the proposition that the amount received would not be an “amount overcharged” in the absence of a bill or other demand for payment that exacts the excess.

79    The primary judge acknowledged that, by reference to the “overall scheme of Div 4”, the way in which a retailer becomes entitled to receive money from a customer is through the issue of a bill. However, her Honour reasoned that when one is considering money which is in the hands of a retailer that is more than it is entitled to receive (that is, “the amount overcharged”), the comparison must be between what has been billed, what is entitled to be billed and what has been paid: LJ [104].

80    The primary judge considered that this conclusion was fortified through other uses of the term “overcharging” in Div 4, which illustrate how “overcharging” can occur where a customer makes a payment for a bill that is based on an estimate of usage which results in the retailer having received an amount that exceeds (once actual usage is ascertained) that to which the retailer was entitled. Her Honour referred by way of example to r 21(4), which prescribes the steps a retailer must take if it issues a bill based on estimated usage (in accordance with r 21(1)) and subsequently issues a bill based on an actual meter reading or metering data. In those circumstances the retailer must include “an adjustment on the later bill to take account of any overcharging of the customer that has occurred”. Her Honour noted that if the first estimated bill had not been paid, no adjustment would be required but if the first bill has been paid, then the customer has been overcharged and an adjustment is required. Her Honour concluded that “[t]his emphasises that the term ‘overcharging’ is directed to the payment by a customer of more than the retailer is entitled to charge, and that ‘overcharging’ occurs through payment, not billing”: LJ [105(1)].

81    This example does not negate the role of billing in circumstances where a first (estimated) and later (final) bill was issued, and by reference to which the excess is ascertained. In the AER’s submission, it is not the assertion in an estimated bill when it is sent which gives rise to “overcharging”, it is the “mismatch” between what a retailer receives and what the retailer is entitled to receive such that once that is identified, any inquiry into why it happened or how it happened is irrelevant. If, as the primary judge accepts, the entitlement is ascertained or ascertainable a priori “under any contract” (LJ [126]–[127]), then it would follow that, if the first (estimated) bill is paid, and the subsequent (metered) bill reveals an overestimation in the first bill, the “overcharging” occurs at the point of payment of the first bill, even though this will not be apparent until the issuing of the metered bill. In those circumstances, it is difficult to deny the role of the assertion of entitlement (in the first and second bills) in the “mismatch”.

82    A similar conclusion is reached in relation to the example provided by the primary judge regarding the provision by the retailer of bills based on an estimation under a bill smoothing arrangement in r 23: LJ [105(2)]. A conclusion that the “overcharging” does not occur until payment of the excess does not negate the significance of billing, which defines and exacts the excess.

83    As AGL submits, the hypothetical scenarios relied on by the primary judge in relation to bills based on estimated usage and “bill smoothing arrangements” each involve a situation where the retailer asserts an entitlement to payment.

84    The same distinction inheres in the primary judge’s finding that the assumption in r 31(2) and r 31(3) that the money is in the hands of the retailer, supports a conclusion that the customer has not been “overcharged” until the retailer has received a payment that exceeds that which the retailer is entitled to receive from that customer (LJ [107]). That does not negate the role of the demand for payment.

85    Much is made of the fact that r 31(5) countenances the customer’s (unlawful) agency in being “overcharged”. The primary judge found that r 31(5) supports a construction of the term in r 31(1) as directed to the payment of an amount in excess of what is due, including by virtue of the customer’s own mistake, irrespective of whether that payment is preceded by a demand or request by the retailer: LJ [100]. The AER submits that r 31(5) expressly acknowledges that an overcharge can arise as a result of a customer’s act or omission. AGL submits that r 31(5) contains the same predicate as r 31(1), that the customer was “overcharged”, and does not advance the construction question. The question is whether the customer’s agency in bringing about an “overcharge”, which is countenanced by the Retail Rules, is antithetical to a prior demand or request by the retailer. It is not evident that this is so. For example, the demand or request may have been generated by information provided by the customer.

86    Rule 31(5) is directed at a situation where the customer’s own conduct results in that customer having been overcharged. AGL raised by way of example a situation where a customer has denied a retailer access so it cannot read a meter. That conduct means the retailer must estimate the energy consumed by the customer which may result in that customer having been overcharged. In Ergon, Moore J considered the primary judge’s reasoning in relation to the effect of r 31(5) on the construction of the term “overcharge” in r 31(1) at LJ [98]. His Honour said at [88]:

There is a potential difficulty with this reasoning. Rule 31(5) does not specify that a customer’s act or omission amounts to an overcharge. Rather, if there is an overcharge (in accordance with whatever is its proper meaning), rule 31(5) limits the recovery of amounts if the overcharge “results from” (i.e. is caused by) an unlawful act or omission by the customer. For example, an excessive bill could “result from” an unlawful act or omission (for example, if a customer unlawfully tampers with a meter). Rule 31(5) does not operate so as to render any payment which results from a customer act or omission (lawful or unlawful) to be an overcharge.

87    Thus, Moore J in Ergon did not consider that, because r 31(5) of the Retail Rules includes a requirement that the “customer was overcharged”, it operates so as to render any payment made as a result of a customer’s act or omission, whether lawful or unlawful, an overcharge.

88    The AER submits that the primary judge correctly approached the meaning of “overcharged” by: (1) identifying that the text of r 31 indicates that its purpose is to ensure money in the hands of the retailer is returned to the customer promptly and appropriately; (2) identifying from the statutory context that overcharging and undercharging are routine features of a retailer-customer relationship; and (3) properly taking into account the gap which would exist in the legislative scheme if the construction of r 31 was limited in the manner proposed by AGL.

89    It is not apparent how the first two factors favour the construction embraced by the primary judge. For example, it is not evident that her Honour’s construction would engender greater alacrity in the return of the “amount overcharged”. The third factor requires further consideration.

90    The primary judge considered that AGL’s construction would leave a “significant lacuna” in the operation of the Retail Rules, as there would be no rule which addresses the situation where a person has ceased to be a customer of AGL and received their final bill, but whose welfare payments continue to be diverted to and retained by AGL: LJ [111]. This was said to be an “absurd outcome” in circumstances where the Retail Rules are otherwise highly prescriptive and provide for retailers to use Centrepay. Her Honour referred to several examples where a customer can make arrangements for payment under the Retail Rules but where, on AGL’s construction, any payment in excess of what was due by that customer would not amount to an “overcharge” and would not engage r 31 of the Retail Rules: LJ [112]–[113].

91    The primary judge rejected AGL’s submission that there is no lacuna in the fact that excess amounts are not addressed under r 31 or otherwise in the Retail Rules because they are dealt with by the Centrepay Framework. Her Honour found that the Centrepay Framework is an agreement with Services Australia that could, the primary judge assumed, be amended and not a document that constitutes “Rule extrinsic material” under cl 8 of Sch 2 to the National Gas Law, and therefore could not be used in determining the proper construction of r 31. Her Honour also considered that it would subvert a proper analysis if the rule was construed more narrowly to conform to a private contractual agreement applicable in a particular case, whether because of inconsistency or otherwise: LJ [114]–[115].

92    Contrary to the primary judge’s finding, we do not think that our preferred construction results in any lacuna in the application of r 31(1) of the Retail Rules.

93    As set out above, r 31(1) of the Retail Rules is a civil penalty provision under the National Energy Retail Regulations. It requires the retailer to inform a small customer within 10 business days where that customer has been overcharged. That r 31(1) targets overcharging, namely an amount paid by a small customer in response to a demand by the retailer for an amount which is beyond the amount to which the retailer is otherwise entitled for energy previously supplied, does not create a lacuna or lead to an absurd outcome.

94    Parliament has determined that a civil penalty should be imposed where the retailer has failed to act within 10 business days after becoming aware of an overcharge. That is a serious matter, and seen in that context, one can understand that Parliament’s intention is to target overcharging where there has been an overcharge in the manner described. That is, where the retailer has demanded an amount from a customer for energy supplied and then retained that amount as revenue. As AGL submits, there may be a policy choice about how broadly r 31(1) is to operate and the nature of the conduct to be targeted and subject to a civil penalty.

95    AGL had contractual obligations under its arrangements with Services Australia to return money received by it from a customer where no energy had been supplied. The primary judge described the AGL Centrepay Agreement in the following way at LJ [34]:

The AGL Centrepay Agreement, in broad terms, allowed the AGL Entities to use Centrepay in accordance with the terms of that agreement so as to offer Centrepay as a payment option to customers of the AGL Entities. Deductions were obtained through Centrepay from customers on account of electricity or gas supplied by the AGL Entities to those customers. …

96    At LJ [35] the primary judge set out the relevant terms of the AGL Centrepay Agreement including:

(1)    Deduction Attribution Term: the AGL Entities were required to credit a customer’s account with the AGL Entity with the amount of any deduction as notified to the AGL Entity in Services Australia’s deduction and payment reconciliation reports, or as otherwise notified to the AGL Entity by Services Australia;

(2)    Valid Deduction Term: the AGL Entities could only claim a deduction from Centrepay where a valid consent and instruction from the customer was in place and had not been withdrawn;

(3)    Cancellation Term: the AGL Entities were required to cancel a deduction within three business days if the customer did not continue to receive the electricity or gas in relation to which the deduction had been established. The AGL Entities were not required to obtain the consent of a customer to cancel an existing deduction;

(4)    No Arrears Term: the AGL Entities were required not to use Centrepay to collect payments from a customer who was no longer an ongoing customer, and not to collect arrears from a customer who was not an ongoing customer;

(5)    Proper Process Term: the AGL Entities were required to take reasonable care and later, to have processes, to avoid them receiving any amounts deducted from a welfare payment that were more than the amount they should have received consistently with the Centrepay Policy;

(6)    Adequate Systems Warranty: from 10 December 2018, the AGL Entities represented and warranted that they had adequate arrangements, processes, documentation and systems in place to support their agreements with customers and participation in Centrepay in accordance with the Centrepay Policy.

97    The policy choice inherent in the construction of r 31(1) to which we have come is that “mere” overpayment (ie in the absence of a demand for payment) is to be addressed by the contractual obligations imposed on a retailer, while overcharging is to be addressed by the application of r 31(1) of the Retail Rules. When r 31 is considered in that way, there is no lacuna.

98    The primary judge illustrated the absurd outcome that she considered followed from a construction of the term “overcharge” in r 31(1) that depended on a prior charge or demand, by reference to several examples.

99    The first example was by reference to r 32(1) of the Retail Rules, which requires a retailer to accept payment for a bill by a small customer by, among other things, telephone. In relation to that rule, her Honour said at LJ [112(1)]:

If a customer telephoned a retailer to pay a bill of $50, but through the error of the retailer, the amount of $500 was charged to the customer’s credit card during the telephone call and processed through the retailer’s system, then on the AER’s construction, the amount charged in error of $450 would fall to be dealt with under rule 31, because it would be a payment that exceeds that which the retailer is entitled to receive from, or charge, the customer. However, the AGL Entities would contend that the retailer had not overcharged the customer, because, while it had received an amount of $450 to which it was not entitled, it had only issued a bill for $50.

100    However, as became apparent in argument before us, that is not what AGL would contend for the purposes of the hypothetical described by her Honour. AGL accepts that in those circumstances, where the customer telephoned to pay a bill of $50, there has been an “overcharge” by reason of the erroneous entry of $500 by the retailer.

101    The second example was r 32(5) of the Retail Rules, which requires a retailer to accept payments by a small customer for a bill in advance. In relation to that example, the primary judge said at LJ [112(2)]:

This allows a customer to make regular payments to a retailer in order to manage their expenses. If the payments made exceeded what was owed when a bill was issued, then on the AER’s construction there would be “an amount overcharged” which, if it was equal to or above the overcharge threshold, would require notification under rule 31(1) and then fall to be dealt with under rule 31(2). However, on the construction advanced by the AGL Entities, the retailer would not have to do anything about the excess, because no bill had been issued for that amount, and it would fall outside the scope of the Retail Rules.

102    The example used by her Honour involves a small customer prepaying a bill to be issued in the future which, in turn, involves that customer estimating likely usage and the quantum of the bill. There is a risk in that process that there will be an overpayment by the small customer. But if that occurs, it does not follow, and is not the case, that the retailer would not have to do anything about the excess paid by the small customer. The retailer would have obligations in both contract and at law to return the excess payment.

103    The third and final example given by the primary judge was r 72 of the Retail Rules, which permits a retailer to establish a payment plan for a “hardship customer” that, among other things, must include an offer for the customer to pay for their energy consumption by instalments in advance or arrears. In relation to that example, her Honour said at LJ [112(3)]:

If a customer on a payment plan was to pay in advance by instalment payments, and the sum of these instalments was to exceed that which was due when a bill was issued then, on the construction of the AGL Entities, this excess amount would not be an “overcharge” because no bill had been issued for that amount, and it would fall outside the scope of the Retail Rules.

104    However, the effect of payments made under a payment plan will depend on the terms of the payment plan. AGL accepts that if the payment plan is with a retailer and prescribes monthly payments in advance, there is a relevant demand for those payments in advance and, if less energy is consumed than that for which the customer has paid, there is an overcharge. On the other hand, if the payment plan does not include a specified monthly payment and leaves it to the customer to make a payment in accordance with his or her own estimate, then there is no “overcharge”, but it may transpire, at the time the bill is rendered, that there has been an overpayment. In those circumstances, the retailer will be obliged to repay the amount overpaid.

105    It follows that none of these examples illustrate any absurdity. They can each be addressed, depending on whether there has been an overcharge by the retailer or overpayment by the customer, either by r 31(1) of the Retail Rules or by other obligations owed by a retailer to its customers.

106    Further, it is well recognised that a court should not depart from the natural meaning of a penalty provision because it produces an inconvenient result: Body Corporate for Sun City Resort CTS 24674 v Sunland Constructions Pty Ltd [2010] QSC 463 at [31] per Applegarth J, citing Lord Reid in Jones v Director of Public Prosecutions [1962] AC 635 at 662 and Mason and Wilson JJ in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; 147 CLR 297 at 320. To do so is to reverse the process of statutory construction, and to assume that which is sought to be ascertained. It should not be assumed that the absence of regulation signifies a gap to be bridged. If there is a lacuna in the statutory text, which is ascertained through the ordinary process of construction, it is a question for Parliament whether any changes should be made to the law: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; 234 CLR 52 at [68] per Gleeson CJ, Gummow, Hayne and Crennan JJ. In that regard, under the Australian Energy Market Commission’s rule change process, stakeholders may submit a rule change request.

107    The suggestion that there may be a lacuna on AGL’s construction requires consideration of the statutory purpose.

108    As we have mentioned, s 13 of the Retail Law (see [25] above) sets out its objective or purpose, which is to promote efficiency in investment in energy services and the efficient operation and use of such services in the long term interests of consumers with respect to price, quality, safety, reliability and security of supply. The primary judge found that the construction advanced by the AER promoted that purpose because “it is consistent with the efficient operation and use of energy services for the long-term interests of energy consumers with respect to price and quality of energy supply for retailers to efficiently operate their businesses so that any amounts that they receive from customers that exceed the ‘price’ of the energy supplied are promptly given back or applied to the next bill, if any”: LJ [125].

109    As with most objectives, the stated statutory objective in s 13 of the Retail Law can be harnessed to promote a contrary construction. That is, as AGL submits, the national energy retail objective links the interests of consumers to the efficient operation of the energy system such that r 31, properly construed as targeting “true” overcharging, addresses the balance of matters to which it refers. In our assessment, there is real force in this construction, focusing as it does on “true” overcharging. On balance, therefore, we prefer AGL’s submissions on the question of statutory purpose.

110    For completeness, it is useful to consider the decision of Moore J in Ergon which was the subject of something of a “tug-of-war” between the parties. As we have mentioned, Ergon concerned the validity of a notice to produce documents in the context of an investigation of possible breaches of r 31 of the Retail Rules and s 273 of the Retail Law. His Honour adverted to the decision of the primary judge in this proceeding, noting that it did not deal with the constructional debate that arose in Ergon. That debate as to the proper construction of r 31 of the Retail Rules was described by Moore J as “a temporal one”, namely whether the words “[w]here a small customer has been overcharged …” requires the small customer to be a current customer receiving services from the retailer at the time of the act constituting the overcharge: Ergon at [37]. In that context his Honour made a number of pertinent observations about the operation of r 31.

111    First, Moore J relevantly said in relation to the construction of r 31 (at [49] and [52]):

49    I consider that the proper construction of Rule 31 is in accordance with its ordinary meaning. As a matter of ordinary language, a retailer can overcharge its “customer” after the customer has ceased receiving services from that retailer. … As a matter of ordinary language, one would describe the customer being overcharged as an Ergon customer because the very assessment of whether the person has been overcharged relates back to the person’s receipt of services from Ergon and whether the amounts charged to them are properly referable to those services. Put another way, Ergon has overcharged its customer if it sends an excessive demand to a customer previously receiving services from Ergon, which exceeds any amount that the customer is liable to pay Ergon.

…

52    If an Ergon customer is overcharged by Ergon after the customer ceases to receive services from Ergon, Ergon has still overcharged its customer. In that regard, focussing solely on whether the customer is a current customer distracts attention from the proper meaning of the rule as a whole, including the composite phrase “Where a small customer has been overcharged…”. The proper construction of Rule 31 is not driven by the meaning of “customer”, but rather by consideration of what it means to overcharge a customer. A retailer could overcharge its customer either while the customer was receiving services from that retailer, or after the customer ceases receiving services from that retailer.

112    Secondly, in addressing Ergon Energy’s submission that, on a proper construction of r 31, none of the conduct which the AER seeks to investigate by its notice could constitute a contravention of that rule, Moore J said (at [78]–[79]):

78    In its ordinary meaning, “overcharge” simply means to charge too much. Charging does not necessarily require a bill or a demand. For example, a customer can tender payment which is subsequently accepted, and thereby be “charged” for a product or service. However, I consider that overcharging requires some conduct on the part of the retailer, which could be inaction (including in circumstances where action is called for): for example, a failure to take any steps to return an overpayment. As the AER accepts, mere overpayment, without more, is insufficient. If a customer leaves a $20 note on the counter for a $10 item and walks out, the customer is unlikely by that fact alone to have been “overcharged” (unless potentially the retailer is aware that the customer is labouring under a mistake and takes no reasonable steps to rectify that), because the payment could include a tip or a gift (“keep the change”).

79    I also accept that conduct by the retailer that is consistent with the return to the customer of an overpayment as soon as is practicable is unlikely to amount to an overcharge...

113    At [80] of Ergon, Moore J expressed the view that the question of whether someone has been overcharged may involve a process of characterisation. After referring to the allegations made before the primary judge, the different factual context, the different (and more extreme) constructional debate between AGL and the AER to that adopted before him, and the primary judge’s analysis, Moore J ultimately expressed an inconclusive view at [98]:

In light of this, I do not accept that overcharging can only arise where a retailer has expressly or impliedly asserted an entitlement to the money overpaid by the customer. Conduct falling short of an assertion of entitlement to be paid might result in a customer being overcharged.

114    The AER relies on Ergon at [98]. AGL submits that reliance is misplaced. That is because of Moore J’s observation at [78] of Ergon, where his Honour held that “overcharging” requires some conduct on the part of the retailer, which could be inaction in circumstances where action is called for, eg a failure to take any steps to return an overpayment. In our view, that conduct may be consistent with an assertion of entitlement to the overpayment. However, as was the AER’s position in Ergon, “mere overpayment” is insufficient.

115    The primary judge concluded that a customer “has been overcharged” within the meaning of r 31(1) of the Retail Rules, and there is an “amount overcharged” for the purposes of r 31(2) and r 31(3) of the Retail Rules, where a retailer has “received, processed and retained” a payment of an amount of money from a customer that exceeds the amount that the retailer is in fact entitled to charge the customer under any contract which it has with that customer. The determination is not limited to the payment of a bill. Rather, as the primary judge found, one looks to the “economic substance of the relationship between the retailer and the customer”, and whether the retailer has “received and is in possession of” a sum of money that the retailer does not have any contractual entitlement to retain: LJ [126].

116    Her Honour observed that it “would suffice” for a retailer to assert an entitlement to the payment of an amount of money from a customer (not confined to the issue of a bill) in circumstances where the retailer has “received, processed and retained” a payment that exceeds the amount that the retailer is in fact entitled to charge: LJ [127].

117    It is not evident what distinction is drawn between an amount that is “received”, “processed” and “retained”. In other words, it is not clear what “processed and retained” adds to the notion of receipt of payment. It appears to suggest some conduct on the part of the retailer in relation to the payment, which is at odds with the primary judge’s finding that “overcharging” occurs through payment, but is consistent with the finding that it does not occur (exclusively) through billing. In the present case, by reference to LJ [160], “processed” may be a reference to processing by the SAP system of the information in the DPR.

118    AGL submits that being “overcharged” is to be defined not by reference to the receipt of payment, but by reference to a charge that is excessive.

119    The AER embraces a notion of “overcharged” in which it is sufficient that an excessive payment for the supply of energy is made in the result. The AER contends that the AGL Centrepay Agreement was not an agreement to pay upon receipt of a bill. Rather, there was a payment arrangement in place under which amounts were regularly deducted from the customer to go towards a past or future bill. AGL failed to terminate that arrangement, and the deductions continued such that the amount taken for the customer’s bill exceeded that which AGL was entitled to charge. In the AER’s submission, the overpayment was the overcharge. This may be what the primary judge had in mind by reference to the payment being “received, processed and retained”.

120    To break the deadlock, the simple example given by Moore J in Ergon at [78] of the customer who leaves a $20 note on the counter for a $10 item and walks out is instructive. We agree that such a customer is unlikely by that fact alone to have been “overcharged”.

121    In this example, if the intention of the customer is unknown, then it is not possible for the retailer to ascertain whether or not there has been payment of an excess. This means that, on the view that “overcharging” occurs through payment, it is not possible to ascertain the point at which “overcharging” occurs. It also means that “overcharging” occurs at the behest of the customer: that is, it is necessary to ascertain the intention of the customer in order to identify the excess, and the point at which it is charged.

122    By proscribing the failure to inform the customer (within 10 business days) after the retailer becomes aware of the “overcharging”, r 31 anticipates that the retailer may not be aware of the “overcharging” at the point at which it occurs. That is not the point here. It is that the construction preferred by the primary judge means that the assessment of “overcharging” for the purposes of r 31 relies on the conduct (and intention) of the customer. As explained above, neither the text nor context of r 31 supports this.

123    This is so even though r 31(5) anticipates that the customer may be “overcharged as a result of” the customer’s unlawful act or omission. The customer may cause an amount to be paid, which, in the result, exceeds that to which the retailer is entitled, but the customer does not cause the excess. That is a function of the entitlement to payment. The “cause of the overcharge” (LJ [108]) should be understood in this way.

124    Justice Moore in Ergon leaves open the possibility that the customer has been “overcharged” where the retailer is aware that the customer is labouring under a mistake and takes no reasonable steps to rectify the error. It is not evident why a “failure to take any steps to return an overpayment”, should constitute “overcharging” under r 31, unless, by virtue of retaining the overpayment, the retailer is effectively asserting an entitlement to it. It is not enough to say that there has to be some conduct on the part of the retailer. That conduct must be consistent with an exaction of (excessive) payment so as to constitute “overcharging”.

125    In that regard, it is not merely sufficient, but necessary for the retailer to assert an entitlement to payment of an amount of money from a customer that exceeds that for which it is entitled to charge, in order for the customer to have been “overcharged” for the purposes of r 31 of the Retail Rules: cf LJ [127]. We accept that the assertion is not confined to billing but encompasses exaction of payment in some way.

126    It follows from the foregoing that we would allow grounds 1 and 2.

Ground 3: was there an assertion of entitlement to payment for the supply of energy?

127    Having regard to the additional findings of the primary judge that particular conduct of AGL constituted an express or implied assertion of an entitlement to payment, it is also necessary to address ground 3.

128    Ground 3 of the appeal contends that the primary judge erred at LJ [130] in finding that the following conduct of AGL constituted an express or implied assertion of entitlement to payment by AGL such that the affected customers were “overcharged” within the meaning of r 31(1) of the Retail Rules:

(1)    the failure by the AGL Entities to cancel the deductions as they were required to do when the customer closed their account;

(2)    the continued receipt and processing of the deductions as payments for energy when nothing was owed to the AGL Entities by the affected customers (to the knowledge of the AGL Entities, which, through senior management, had caused the SAP system to be designed so as to achieve this result) and therefore they had no ongoing entitlement to receive any money from the affected customers;

(3)    the ongoing failure by the AGL Entities to (a) cancel the deductions after each new deduction was received; and (b) cause the SAP system to be designed in a manner so that it took the steps identified in r 31; and

(4)    the holding on to these excess amounts for months or, in some cases, years before any attempt was made to return them to the affected customers, especially in the circumstances described in section 4.5 of the liability judgment.

129    The primary judge made these findings on the contingent or alternative basis that she was wrong about the construction of “overcharge” and “overcharging” in r 31(1) of the Retail Rules, and it is necessary for a retailer to assert an entitlement to the payment of a sum of money for a customer to be overcharged: LJ [130].

130    These alternative findings include a finding (see [128(2)] above) that the continued receipt and processing of the deductions as payments for energy occurred “to the knowledge” of AGL, which had caused the SAP system to be designed so as to achieve this result, and a finding (see [128(4)] above) that AGL held on to the excess amounts for some time before attempting to return them to affected customers. This occurred in circumstances where AGL implemented reporting solutions in response to notification from Services Australia on 14 June 2013 that AGL had been obtaining deductions through Centrepay in circumstances where customers had ceased to be a current customer or use any services provided by it: LJ [60]–[65].

131    As we have said, given our determination that grounds 1 and 2 of the appeal should succeed, it is unnecessary to determine whether (and when) AGL became “aware” of the “overcharging” for the purposes of r 31 (grounds 6 and 7). That question arises only if we had determined that the customer has been “overcharged”. In light of our view as to the meaning of “overcharge” and “overcharging”, determining that customers had been “overcharged” would require this Court to accept the findings of the primary judge that AGL expressly or impliedly asserted entitlement to payment of the excess amounts. We consider that her Honour erred in so finding.

132    Although it is unnecessary to resolve the question of attribution arising from the design of the SAP system, which emerges from grounds 6 and 7 of the appeal, the findings of the primary judge as to the design of the system are relevant to the question whether there was an assertion of entitlement to payment for the supply of energy, so as to satisfy the definition of “overcharging” in r 31.

133    In that regard, there was no factual dispute as to the “essential facts” (LJ [135]), viz:

(1)    receipt of a deduction in the form of money deposited into AGL’s bank account;

(2)    attribution of the deduction to the account of an individual identifiable customer;

(3)    in circumstances where the relevant customer had fully paid any amounts owing to AGL; and

(4)    the customer’s account was closed or inactive.

There was, however, a dispute about the characterisation of those facts.

134    The AER did not contend that the deductions (over the “overcharge threshold”) constituted an “overcharge” for the purposes of r 31 when they accumulated in anticipation of a future bill. The question, therefore, is whether the deductions (made after the supply of energy ceased, a final bill had been issued and the affected customer no longer owed any money to AGL) became an “amount overcharged” for the purposes of r 31: see Ergon at [79]. Importantly, the definition of “small customer” makes plain that any charge is (and can only be) for the supply of energy.

135    AGL submits that none of the factual matters relied upon by the primary judge (at LJ [130]) amounts to an express or implied assertion to the affected customers of entitlement by AGL to payment of the excess amounts for the supply of energy: see Ergon at [91].

136    AGL argues that the deductions were not allocated to the affected customers’ accounts for the purpose of being applied to a future bill. That was not a proposition put to any witness, and there is no such “supposition” in the SAP system. AGL submits that the payments were applied as credits (ie debts owed by AGL to the customer), and had no connection to any past or ongoing supply of energy to a small customer.

137    The AER submits that the terms of the AGL Centrepay Agreement are relevant to AGL’s knowledge of its obligations and the characterisation of the amounts received after the final bill was paid and supply of energy ceased. Those terms, set out by the primary judge (at LJ [35]), are not in dispute. They included the requirement to cancel a deduction within three business days if the customer did not continue to receive the electricity or gas in relation to which the deduction had been established (LJ [35(3)]). They also included the requirement to take reasonable care to avoid receiving amounts exceeding their entitlement, and to represent and warrant that they had adequate arrangements in place to support their obligations under the agreement (LJ [35(5)]–[35(6)]).

138    The AER submits that AGL’s failure to act (in accordance with its obligations under the Centrepay agreement) constitutes relevant conduct to be considered in assessing whether there was any express or implied assertion of entitlement to retain the deductions as, in effect, credits for future bills.

139    The AER submits that a deduction as defined under the AGL Centrepay Agreement is money taken from a customer’s welfare payment that is paid to a business for amounts that the customer owes for the supply of energy. The AER argues that the payments occur pursuant to the deduction authority, which characterises those payments as being for the supply of energy. This characterisation endures throughout the contract, and afterwards while the deductions continue. As a deduction must relate to the supply of energy, when that supply has ceased the deduction can only relate to the energy supplied prior to the end of the contract.

140    Whilst it may be that this is the purpose of the deduction under the agreement, it cannot make good the proposition that the money credited was in fact for the supply of energy, when that supply had ceased. This appeal is not concerned with whether the payments qualify as a “deduction” for the purposes of the Centrepay agreement. It is not to resolve any contractual dispute. Ground 3 requires the ascertainment of the purpose of the payments credited to the affected customers’ accounts so as to determine whether or not the conduct of AGL in retaining those payments qualifies as an assertion of an entitlement to those payments.

141    The AER submits that AGL knows that when it receives a payment under the Centrepay arrangement, that it is for the sole purpose of paying a bill. Rule 32(1) expressly identifies that payments from a small customer to a retailer are for bills, and r 32(2) refers to Centrepay as an option for payment. The AER submits that this is because payments can either be made by using Centrepay for a bill, or for a bill in advance under r 32(5). Accordingly, the AER submits that all payments from customers which come through the Centrepay arrangement are for a bill that has been received or one that is to be received.

142    There is no suggestion by the AER that any accumulation of credits (over the “overcharge threshold”) on the customer’s account prior to the final bill being issued, constitutes an “amount overcharged”. Yet, the AER maintains that after the final bill is issued, the continued deductions accumulating as credits on the customer’s account qualify as “overcharging”. It is not evident, however, what qualifies as the assertion of entitlement to payment of the “amount overcharged” above and beyond receipt and retention of payment.

143    The AER relied on an example customer “account statement”, which it submitted shows that the deductions made after the final bill is paid continue to be processed as payments, reflecting an assertion of entitlement to payment. Prior to the final bill being issued, payments in advance were appropriately treated in accordance with r 32(5). Once the final bill is paid, however, the AER submits that the payments made after that date cannot be characterised as payments for a bill in the future; they can only be characterised as amounts overcharged by reference to energy supplied during the life of the contract.

144    AGL explained that this customer “account statement” was compiled pursuant to a statutory notice and was never issued to the customer. AGL contends that the statement demonstrates nothing more than that every input was treated as a credit and every charge was treated as a debit. That is, the inputs are treated the same way by AGL at every point, irrespective of the issue of a final bill. This is in contradistinction to the picture painted by the AER, which is that the credits that build up constitute an “amount overcharged” as they are not yet subject of a bill.

145    The AER submits that the customer paid more for energy than they should have, and that money “functionally increased” the amount paid for the energy they received. AGL failed to cancel the deductions and the AER maintains that AGL continued to treat them as payments for bills (despite the final bill being paid) for some time (the process of remediation of affected customers taking almost two years).

146    The AER submits that AGL’s conduct in this regard is distinguishable from that described by Moore J in Ergon at [92], where the conduct of receipt and processing of a mistaken overpayment and the crediting of a closed customer account with that payment was described as not necessarily amounting to “overcharging” because those steps were “preparatory to the refunding of the overpayment to a customer”. The AER submits that, contrary to AGL’s submissions, the retention and processing of deductions were not preparatory steps to arranging refunds or alerting customers as to the existence of the amounts in credit. Rather, the AER asserts that the facts in this proceeding are more akin to those described by Moore J in Ergon at [93] and [97], being circumstances where there has been a failure by the retailer to take reasonable steps to “prevent erroneous deductions” and “to take reasonable and prompt steps to return overpayments received” to the detriment of the customer and to the benefit of the retailer.

147    AGL contends that the comparison by the AER (and the primary judge) between what has been billed and what has been paid “invokes the speculative concept of a future bill”, and eliminates any distinction between a customer’s overpayment and a retailer’s overcharging, such that both expose the retailer to a penalty under r 31.

148    The distinguishing feature of “overcharging” is the assertion of entitlement to payment. There is little in the AER’s argument distinguishing it from a submission that receipt of payment gives rise to, and is coterminous with, an assertion of entitlement to that payment. This is at odds with the finding of the primary judge that the overcharge occurred where there was an assertion of entitlement and the retailer has received, processed and retained a payment exceeding the amount it is entitled to charge (LJ [127]). It is also at odds with the evidence of the treatment of the Centrepay deductions.

149    In that regard, the AER relies on the finding of the primary judge (which is not disputed) that AGL deliberately configured its SAP system such that the deductions were allocated to inactive accounts, which circumstance (together with AGL’s retention of payments) is, in effect, an implied assertion of entitlement to those deductions. The AER submits that the automated processing system was able to be programmed to identify whether a customer had already been issued a final bill, whether the customer had paid their final bill and if they were in credit or debit, and yet AGL elected not to set up an alert which would identify those payments for review by a person within AGL. The AER asserts that there was a deliberate decision in the set-up of the processing system to continue to allocate the deductions to relevant customer accounts with no step being taken to cancel the deductions or refund the money to the customers.

150    The AER submits that AGL should have set up a different processing methodology for amounts received after the payment of a final bill, by either an automated refund process or escalation to a human employee to take appropriate action. The AER argues that AGL was on notice of the issue from 2013, and had then implemented an effective manual process which it cancelled without explanation in January 2016. The AER submits that AGL’s conduct contributed to the accumulation of Centrepay deductions from that point onwards.

151    In addition to its automated payment allocation system, AGL relied on: (1) the final bill process, which notified the customer that their (closed) account was in credit and advised them to call AGL to arrange a refund; and (2) the unclaimed money process, which occurred when an account was inactive for more than 60 days. The automated process was designed to attribute any credit to the correct customer. It did not distinguish between active and inactive accounts. As such, payments were allocated to inactive accounts. If an account was inactive for more than 60 days, it was closed and a final bill issued. The credit balance indicated that AGL owed that amount to the customer (unless and until it was offset by a debit).

152    That AGL could have better designed a system to distinguish between active and inactive accounts, and should have acquitted its obligation under the AGL Centrepay Agreement to cancel the deductions, does not make the accumulation of credits a constructive “overcharge”. Furthermore, as AGL submits, the purpose of the deduction reflects the scope of the authority of the customer. It does not characterise the deductions (in the form of deposits made by Services Australia to AGL) as payments for energy. The deductions were not processed by AGL as payments for past or future supply of energy.

153    AGL submits that the payments received were always treated as money belonging to the customer. It was not in dispute that AGL was contractually obliged to return the payments to the affected customers.

154    The AER maintains that AGL’s submission that it did not treat the payments as revenue fails to engage with the detailed findings of the primary judge in this regard, and that AGL’s treatment of payments internally (ie as credits allocated to a customer’s account) is immaterial. It is difficult to see why this is immaterial to the assessment of AGL’s conduct, and whether that conduct constituted an assertion of entitlement to payment for energy supplied by AGL.

155    AGL submits that the payments were retained only because the “system error” was not discovered until May 2020. That error or failure was the system’s indication that amounts were still being transmitted by Centrepay, and linked to a customer, but not that they should be identified as credits and returned to the customer. AGL submits that the allocation of payments as credits was a required step properly to account for the payments and facilitate their return.

156    In Ergon at [79], Moore J considered that retention of an overpayment for an “unnecessarily long period” could be characterised as overcharging the customer insofar as the retailer is obtaining the economic benefit of the overpayment at the customer’s expense. In our view, it is not the fact of a benefit alone that characterises an assertion of entitlement to payment, nor is it the length of retention. The reference to an “unnecessarily” long period suggests conduct on the part of the retailer that is consistent with an assertion of entitlement to payment, but it does not characterise the assertion. It is an inference drawn from such conduct.

157    We do not accept that the design of the SAP system amounts to an express or implied assertion or demand for payment for energy supply: cf LJ [130(3)(b)]. There is no evidentiary basis for the supposition that the credits were payments for energy supplied by AGL. This supposition undergirds the primary judge’s reasoning at LJ [128(4)], [129], and [130(2)]. In that regard, we accept that her Honour erred by inferring such an assertion from the matters outlined at LJ [130].

158    It follows that ground 3 must also succeed.

Grounds 4 and 5: were the affected customers “small customers”?

Should AGL have leave to raise grounds 4 and 5?

159    Grounds 4 and 5 present an issue which AGL concedes it did not raise before the primary judge: viz, the meaning of “small customer” in r 31(1). As such AGL requires leave to raise these grounds in the appeal.

160    The AER objects to these grounds being raised for the first time on appeal. It contends that they are inconsistent with the express admission made by AGL in its defence below, and no notice of withdrawal was filed, as required by r 26.11 of the Federal Court Rules 2011 (Cth). The AER also submits, correctly, that new issues cannot be raised where evidence could have been given which “by any possibility” could have prevented the point from succeeding: Coulton v Holcombe [1986] HCA 33; 162 CLR 1 at 7–8 per Gibbs CJ, Wilson, Brennan and Dawson JJ.

161    In its FASOC at [40]–[45], the AER relevantly alleged that:

40.    Before 2 November 2021, the AGL Entity identified in Column B of Schedules 1 and 2 (the Relevant AGL Entity) entered into a contract with one of the customers identified in Column A of Schedules 1 and 2 for the supply of energy at the customer’s premises principally for personal, household or domestic use.

41.    The customers referred to in paragraph 40 above were each:

(a)    at all times, “small customers” within the meaning of s 5(1) of the [Retail Law]; and

(b)    at least for part of the period while their contracts with the relevant AGL Entity were on foot, the recipients of welfare payments through Services Australia,

(the Affected Customers).

42.    During the period in which the Relevant AGL Entity had a contract on foot with each of the Affected Customers, the Relevant AGL Entity:

(a)    supplied the Affected Customer with energy;

(b)    issued bills to the Affected Customer for energy that had been consumed in their home (AGL Bills).

43.    Before the end of the contract between the Relevant AGL Entity and the Affected Customer, each of the Affected Customers:

(a)    had authorised Deductions to be made in favour of the Relevant AGL Entity to pay in whole or in part one or more AGL Bills issued to the Affected Customer by the Relevant AGL Entity;

(b)    had not authorised Deductions to be paid to the Relevant AGL Entity for any purpose other than to pay AGL Bills.

44.    In receiving and dealing with Deductions in relation to the Affected Customers, each of the AGL Entities was required to comply with its obligations under its AGL Centrepay Agreement, including the Deduction Attribution Term, the Valid Deduction Term, the Cancellation Term, the No Arrears Term and the Proper Process Term.

45.    On the date identified in Column D of Schedules 1 and 2, each of the Affected Customers:

(a)    ceased to obtain electricity and/or gas from the Relevant AGL Entity;

(b)    either:

(i)    closed their account with the Relevant AGL Entity; or

(ii)    their account became inactive,

(the Account Cessation Date).

162    In its amended defence, AGL admitted [41(a)] of the FASOC, and thus that the affected customers were each at all times “small customers” within the meaning of s 5(1) of the Retail Law; and [45] of the FASOC.

163    There is considerable force in the AER’s submission that AGL should not be permitted to raise grounds 4 and 5 for the first time on appeal. As the Full Court has recently observed, the trend where those drafting appeals, especially in regulatory proceedings, appear to feel unconstrained by the way the matter was conducted at first instance is to be deprecated: see Australian Securities and Investments Commission v H C F Life Insurance Company Pty Limited [2026] FCAFC 81 at [2] per Derrington J, [15], [24] per Halley and McEvoy JJ.

164    Nonetheless, while the argument which AGL seeks to make for the first time on appeal could, and should, have been raised below, we accept AGL’s submission that grounds 4 and 5 relate to a question of law which, given AGL’s admission of [45] of the FASOC, is based on undisputed facts. Because grounds 4 and 5 of the appeal concern the construction of the composite phrase used in r 31(1), “where a small customer has been overcharged”, and is a question of some regulatory significance for both parties, in our view it is expedient in the interests of justice for the Court to determine these grounds on appeal: Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418 at 438 per Latham CJ, Williams and Fullagar J, citing Lord Watson in Connecticut Fire Insurance Co. v. Kavanagh (1892) AC 473 at 480; Branir v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 117 FCR 424 at [38] per Allsop J, Drummond and Mansfield JJ agreeing.

165    Any prejudice to the AER in raising these grounds for the first time on appeal and, to the extent it is necessary to do so, by the withdrawal by AGL of its admission at [41] of its defence, is: (a) mitigated by the fact that AGL’s challenge is limited to the temporal operation of the term “small customer” and it does not rely on any further evidence to support its contention; and (b) outweighed by the significance of the issue to the proper construction of r 31(1).

166    Accordingly, leave is granted to AGL to raise grounds 4 and 5 for the first time on appeal and, to the extent it is necessary to do so to raise the question of construction of the composite phrase, to withdraw any admission made in [41] of its amended defence before the primary judge that the affected customers were, “at all times, ‘small customers’” for the purposes of r 31.

What is a “small customer”?

167    As indicated above, words and expressions used in the Retail Rules have the same meaning as they have, from time to time, in the Retail Law, except so far as the contrary intention appears in the Rules. The definitions of customer and small customer are found in s 5 of the Retail Law (see [19] above).

168    By grounds 4 and 5, AGL contends that the primary judge erred in failing to find that the affected customers were not “small customers” in circumstances where, inter alia, their contracts with AGL had ended and they had ceased to obtain electricity or gas from AGL, and they did not later become “small customers” by reason of there being payments made via the Centrepay service to their closed or inactive accounts.

169    AGL reasons that the definition of “customer” under s 5(1)(a) of the Retail Law is expressed in the present tense. AGL submits that the definition “refers to proposed customers, and is extended to prospective customers, but not to former customers”, which is indicative of a legislative intention to exclude them. There are references to former customers in the Retail Law and Retail Rules which, AGL submits, would not be necessary if the term “customer” already encompassed former customers, reinforcing that such customers are not covered by the definition of “customer” and therefore “small customer”, unless the text, context and purpose of a provision so requires.

170    AGL submits that the term “small customers” in r 31 of the Retail Rules does not encompass former customers who are no longer being sold energy by a retailer and that the text, context and purpose of r 31 indicate that it only applies to current customers for the following reasons:

(1)    rule 31 is contained in Div 4 (Customer retail contracts–billing) of Pt 2 (Customer retail contracts) of the Retail Rules. A customer retail contract is defined as “a contract between a small customer and a retailer of a kind referred to in s 20 of the Retail Law for the provision of customer retail services for particular premises”. Customer retail service is defined as “the sale of energy by a retailer to a customer at premises”. Accordingly, the provisions of Pt 2, including r 31, apply to customers who are being sold energy by a retailer;

(2)    the term “small customer” is used in r 31(1) as part of the composite expression “a small customer has been overcharged”. Overcharging involves the assertion of an entitlement to payment in connection with energy supplied by the retailer. As the relevant “overcharging” relates to energy supplied to the customer, it logically follows that such conduct must relate to persons who are being “sold” energy by the retailer; and

(3)    that r 31(2) and r 31(3) contemplate circumstances where a small customer has “ceased to obtain customer retail services from the retailer”, is consistent with these rules applying where the “overcharging” occurs in respect of energy “sold” to the customer without the retailer “becoming aware” of the overcharging until after the customer has “ceased to obtain customer retail services from the retailer”.

171    AGL submits that, in this case, a customer who is issued a final bill claiming payment in relation to energy supplied by the retailer is still engaged in a transaction by which the customer is being “sold” energy by the retailer, even though they are no longer “presently consuming energy from a retailer”, relying on Ergon at [45]–[46] and [58]–[61].

172    AGL therefore submits that, at the time of the alleged “overcharging”, each of the affected customers had ceased being “sold” energy from AGL in that they had been issued their final bill and did not owe money to AGL, and so they were not “small customers” for the purposes of r 31 of the Retail Rules; nor did those customers later become “small customers” by reason of deductions paid to the Relevant AGL Entity via Centrepay.

173    These grounds raise the temporal operation of the term “small customer”, an issue that was considered in Ergon. As we have mentioned, Moore J held (at [49]) that, on its proper construction and as a matter of ordinary language, a retailer can overcharge its “customer” after that customer no longer receives services from the retailer (see [111] above). Contrary to AGL’s submissions, at [49]–[50] of Ergon, Moore J does not purport to decide the issue as to whether the word “customer” has broad temporal operation such that it includes all prospective, current and former customers. Rather, his Honour accepted that the word “overcharged” in r 31 “supplies its own temporal operation and connection”, and that a customer can be overcharged after the person ceases to receive services from the retailer, but any assessment of whether a customer has been overcharged will inherently involve an assessment of proper charges for services supplied while that person was receiving services.

174    That finding raises a novel issue in the present case, where services were not being supplied at the time that the customers were said to be “overcharged”.

175    Section 5 of the Retail Law defines a small customer as a residential customer to whom energy is sold for premises by a retailer. As the AER submits, there are no temporal restrictions. The cessation of the supply of energy does not necessarily denote cessation of the relationship for the purposes of regulation under statute. As Moore J articulated in Ergon at [44], discerning the requisite temporal relationship may require consideration of the provision in the context of the regulatory scheme as a whole, rather than adopting a fixed and literal meaning of the word “is”.

176    There are other textual indications that a “customer” for the purposes of the Retail Rules is not limited to a person presently consuming energy from a retailer: eg r 45, which proceeds on the basis that a small customer could still be a “customer” of a retailer for at least 10 business days after the person transfers to another retailer, and therefore is no longer “presently in a relationship of purchasing energy” from the retailer (Ergon at [45]–[46]).

177    This construction is supported by the statutory context, viz, r 31(2)(c) and r 31(3)(b), which expressly contemplate that “the small customer has ceased to obtain customer retail services from the retailer”. This suggests that any temporal limit operates outside, and is not inherent in, the term “small customer”. In Ergon, the temporal limit was supplied by the word “overcharge”. Although there is merit in AGL’s submission that this word forms a composite phrase with the term “small customer” in r 31, that does not thereby inherently qualify the term in the manner suggested by AGL.

178    For these reasons we consider that for the purposes of r 31, a “small customer” may be a person who has ceased to obtain customer retail services from the retailer. Accordingly, grounds 4 and 5 fail.

Ground 8: was there a contravention of s 273(1) of the Retail Law?

179    By ground 8, AGL contends that in circumstances where, by reasons of grounds 1 to 7, there was no contravention of r 31 of the Retail Rules, the primary judge erred in finding that AGL contravened s 273(1) of the Retail Law. It follows, given our findings in relation to grounds 1 to 3, that this ground is made out.

180    As we have found that there is no contravention of r 31 of the Retail Rules, there is no basis on which to find that AGL did not establish policies, systems and/or procedures to enable it to efficiently and effectively monitor its compliance with the Retail Rules.

181    This does not mean that s 273(1) of the Retail Law is predicated on a demonstration of non-compliance with the Law (the National Regulations and Rules).

182    However, given that the only pleaded contravention is that in relation to r 31 of the Retail Rules, and even accepting the acknowledged deficiency in the SAP system regarding the allocation of credits to inactive accounts and the failure of AGL to notify Services Australia that it should cancel deductions, there is no evidentiary basis on which it might be found that the system does not enable AGL to efficiently and effectively monitor its compliance with the Law.

183    Accordingly, the primary judge erred in finding that AGL contravened s 273(1) of the Retail Law (cf LJ [168]).

Conclusion

184    In summary, we have determined that the affected customers were “small customers”, notwithstanding that energy was no longer supplied to them at the relevant time, but they had not been overcharged by AGL as there was no assertion by AGL of entitlement to the payments credited to their accounts for the supply of energy. There was therefore no relevant contravention of s 273(1) of the Retail Law.

185    The appeal should be allowed and the orders made by the primary judge should be set aside. The cross-appeal and the respondent’s interlocutory application to rely on further evidence should be dismissed. An order will be made requiring the AER to repay to AGL the amount of the penalty paid pursuant to the primary judge’s orders, with interest.

186    The appellants should have their costs of the appeal, and of the proceeding below. However, any party wishing to vary the costs order in relation to the appeal may file submissions, not exceeding three pages in length, and any affidavits in support notifying the proposed variation to the order and reasons why the variation should be made. We will determine any such application on the papers.

Associate:

Dated:    19 August 2026

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