FEDERAL COURT OF AUSTRALIA Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 Citation: Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 Parties: LUCIO ROBERT PACIOCCO and SPEEDY DEVELOPMENT GROUP PTY LTD (ACN 006 835 383) v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) File number: VID 196 of 2013 Judge: GORDON J Date of judgment: 5 February 2014 Catchwords: BANKING AND FINANCIAL INSTITUTIONS – law of penalties – penalties at law – penalties in equity – genuine pre-estimate of damage – breach of contract – collateral or accessory stipulation – security for, and in terrorem of, satisfaction of primary stipulation – further accommodation – alternative mode of performance – inherent circumstances – extravagant and unconscionable – loss and damage – late payment fee – honour fee – dishonour fee – overlimit fee – non-payment fee – card accounts – saving accounts – business accounts – unconscionable conduct – unjust transactions – unfair contract terms – limitation defences Legislation: Australian Securities and Investments Commission Act 2001 (Cth) Competition and Consumer Act 2010 (Cth) Federal Court of Australia Act 1976 (Cth) National Consumer Credit Protection Act 2009 (Cth) Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth) Australian Consumer Law and Fair Trading Act 2012 (Vic) Fair Trading Act 1999 (Vic) Fair Trading (Amendment) Act 2003 (Vic) Fair Trading Amendment (Australian Consumer Law) Act 2010 (Vic) Fair Trading Amendment (Unfair Contract Terms) Act 2010 (Vic) Fair Trading and Other Acts Amendment Act 2009 (Vic) Limitation of Actions Act 1958 (Vic) Cases cited: Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 Air Express v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249 AMEV-UDC Finance Limited v Austin (1986) 162 CLR 170 Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 Andrews v Australia and New Zealand Banking Group Ltd (2011) 211 FCR 53 Ange v First East Auction Holdings Pty Ltd (2011) 284 ALR 638 Australian Competition and Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491 Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 2) (2009) 253 ALR 324 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] ATPR 42-447 Australian Competition and Consumer Commission v Simply No-Knead Franchising Pty Ltd (2000) 104 FCR 253 Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 Baltic Shipping Company v Dillon ("Mikhail Lermontov") (1991) 22 NSWLR 1 Baltic Shipping Company v Dillon (1993) 176 CLR 344 BMP Global Distribution Inc v Bank of Nova Scotia [2009] 1 SCR 504 Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 Clydebank Engineering and Shipbuilding Company v Don Jose Ramos Yzquierdo Y Castaneda [1905] AC 6 Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Commonwealth Trading Bank of Australia v Sydney Wide Stores Proprietary Limited (1981) 148 CLR 304 Concut Pty Ltd v Worrell (2000) 75 ALJR 312 Custom Credit Corporation Ltd v Lupi [1992] 1 VR 99 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Devaynes v Noble (1816) 1 Mer 529 (Clayton's case) Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 168 Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited [1915] AC 79 Elberg v Fraval [2012] VSC 342 English Hop Growers v Dering [1928] 2 KB 174 Farmer v Arundel (1772) 96 ER 485 Fink v Fink (1946) 74 CLR 127 Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 French v Macale (1842) 2 Drury and Warren 269 Godfrey v National Australia Bank (2001) NSWSC 977 Hardy v Martin (1783) 1 Cox Eq Cas 26 Hurley v McDonald's Australia Ltd (2000) ATPR 41-741 Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292 Jetstar Airways Pty Ltd v Free [2008] VSC 539 Johnes v Johnes (1814) 3 ER 969 Kedem v Johnson Lawyers Legal Practice Pty Ltd [2013] FCA 432 Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 Knezevic v Perpetual Trustees Victoria Ltd [2013] NSWCA 199 Knowles v Victorian Mortgage Investments Ltd [2011] VSC 611 La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd (2011) 190 FCR 299 Leduva Pty Ltd v NM Structural Engineering Pty Ltd [2010] NSWSC 1164 Limpgrange Ltd v Bank of Credit and Commerce International SA [1986] FLR 36 Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 Mackenzie v Albany Finance Ltd [2003] WASC 100 May v Brahmbhatt [2013] NSWCA 309 Mayne Nickless Ltd v Multigroup Distribution Services Pty Ltd (2001) 114 FCR 108 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 Merck Sharp & Dohme (Australia) Pty Ltd v Peterson [2009] FCAFC 26 Metro-Goldwyn-Mayer Pty Ltd v Greenham [1966] 2 NSWR 717 Murray v Leisureplay plc [2005] EWCA Civ 963 National Bank of Commerce v National Westminster Bank [1990] 2 Lloyd's Rep 514 Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 587 O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) l52 CLR 359 Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm) Perdaman Chemicals and Fertilisers Pty Ltd v ICICI Bank Ltd [2013] FCA 175 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 Provident Capital Ltd v Papa [2013] NSWCA 36 Radin v Commonwealth Bank of Australia [1998] FCA 1361 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 Robophone Facilities v Blank [1966] 1 WLR 1428 Rolfe v Peterson (1772) 2 Bro PC 436 Roumanus v Orchard Holdings (NSW) Pty Ltd (in liq) (2012) 90 ACSR 677 Sent v Jet Corporation of Australia Pty Ltd (1986) 160 CLR 540 Sony Computer Entertainment Australia Pty Ltd v Stirling [2001] FCA 1852 Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360 Tonto Home Loans Australia Pty Ltd v Tavares (2011) 15 BPR 29,699 Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCR 581 Wardley Australia Limited v Western Australia (1992) 175 CLR 514 Waterside Workers' Federation of Australia v Stewart (1919) 27 CLR 119 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Yarra Capital Group Pty Ltd v Sklash Pty Ltd [2006] VSCA 109 Mason, "'I'll have my bond; speak not against my bond': Constructive trusts and surplus proceeds from performance bonds" (2012) 6 Journal of Equity 74 Pomeroy JN, A Treatise on Equity Jurisprudence (5th ed, The Lawyers Co-operative Publishing Company 1941) Story J, Commentaries on Equity Jurisprudence as Administered in England and America, (13th ed, Boston: Little, Brown and Company, 1886) Date of hearing: 2-4 and 8-9 December 2013 Date of last submissions: 11 December 2013 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 379 Counsel for the Applicants: MBJ Lee SC with JF Richardson and WAD Edwards Solicitor for the Applicants: Maurice Blackburn Counsel for the Respondent: AC Archibald QC with MH O'Bryan SC, RG Craig and C Van Proctor Solicitor for the Respondent: Ashurst Australia IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION 196 of 2013 BETWEEN: LUCIO ROBERT PACIOCCO First Applicant SPEEDY DEVELOPMENT GROUP PTY LTD (ACN 006 835 383) Second Applicant AND: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) Respondent JUDGE: GORDON J DATE OF ORDER: 5 FEBRUARY 2014 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The parties are directed to bring in orders to give effect to these reasons for judgment by 4:00pm on 12 February 2014. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth). IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION 196 of 2013 BETWEEN: LUCIO ROBERT PACIOCCO First Applicant SPEEDY DEVELOPMENT GROUP PTY LTD (ACN 006 835 383) Second Applicant AND: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) Respondent JUDGE: GORDON J DATE: 5 FEBRUARY 2014 PLACE: MELBOURNE INDEX Part 1: OVERVIEW [1] Part 2: SCOPE OF INITIAL TRIAL [7] Part 3: STRUCTURE OF BALANCE OF REASONS FOR JUDGMENT [11] Part 4: APPLICABLE LEGAL PRINCIPLES – PENALTIES [13] A. Introduction [13] B. Common Law [17] C. In Equity [22] D. Further Accommodation / Additional Stipulation / Alternative Mode of Performance [33] E. Extravagant, Exorbitant and Unconscionable [39] F. Loss and Damage [46] Part 5: SPECIFIC CONTRACTS AND TERMS [49] A. Introduction [49] B. Pre-December 2009 [51] (1) Card Accounts 9522 and 9629 [51] (a) Card Account 9522 – Late Payment Fee (Exception Fees 4-11) [52] (b) Card Account 9629 – Overlimit Fee (Exception Fee 12) and Card Account 9522 – Overlimit Fee (Exception Fee 13) [59] (2) Saving Account 156 (Exception Fees 1, 2 and 3) [63] (a) Honour Fee (Exception Fee 1) [65] (b) Saving Account 156 – Non-Payment Fees (Exception Fees 2 and 3) [67] (3) Business Account 58555 [69] C. Post December 2009 [70] (1) Saving Account 156 [70] (2) Card Accounts 9522 and 9629 [71] (a) Late Payment Fees (Exception Fees 14, 16-18, 23, 27, 28, 31, 34, 36, 37, 38, 41, 42, 45, 46, 47 and 49) [72] (b) Overlimit Fees (Exception Fees 15, 19-22, 24-26, 29, 32, 33, 35, 39, 40, 43, 44, 48 and 50) [76] (3) Business Account 58555 [82] (a) Honour Fees (Exception Fees 51 and 52) [83] (b) Other Honour Fees (Exception Fees 53-61 and 72) [86] (c) Dishonour Fees (Exception Fees 62-71) [89] D. Other Relevant Considerations - The Wider Framework [92] Part 6: THE EXCEPTION FEE, THE EXCEPTION FEE EVENT AND IS IT A PENALTY? [103] A. Introduction [103] B. Pre-December 2009 – Late Payment Fees [108] (1) Exception Fee 4 [108] (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 [109] (b) Exception Fee Events – step 2 [111] (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 [113] (d) Extravagant and Unconscionable – step 5 [117] (i) Relevant facts and matters [117] Aspects of the Late Payment Fee Provision [119] The "inherent circumstances" [122] ANZ's State of Mind [124] (ii) Quantitative assessment [131] Introduction [131] Issues with the Inglis Reports [138] Finch Report [169] (e) Loss and damage – step 6 [170] (f) ANZ's other submissions [175] (2) Exception Fees 5-11 [177] (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 [178] (b) Exception Fee Events – step 2 [179] (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 [180] (d) Extravagant and Unconscionable – step 5 [183] (e) Loss and damage – step 6 [184] C. Pre-December 2009 –- Honour, Overlimit and Non-Payment Fees [188] (1) Saving Honour Fee (Exception Fee 1) [188] (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 [189] (b) Exception Fee Events – step 2 [190] (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 [196] (d) Extravagant and Unconscionable – step 5 [205] (e) Loss and damage – step 6 [212] (2) Overlimit Fees on the Card Accounts: Exception Fees 12 and 13 [213] (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 [213] (b) Events or transactions giving rise to the imposition of Exception Fees 12 and 13 – step 2 [214] (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 [220] (d) Extravagant and Unconscionable – step 5 [228] (e) Loss and damage – step 6 [229] (3) Non-Payment Fees: Exception Fees 2 and 3 [230] D. Post December 2009 – Late Payment Fees [234] (1) Exception Fees 14, 16-18, 23, 27, 28, 31, 34, 36-38, 41, 42, 45-47 and 49 [235] (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 [235] (b) Exception Fee Events – step 2 [236] (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 [239] (d) Extravagant and Unconscionable – step 5 [240] (e) Loss and damage – step 6 [241] E. Post December 2009 – Overlimit, Honour and Dishonour Fees [243] (1) Overlimit Fees (Exception Fees 15, 19-22, 24-26, 29, 30, 32, 33, 35, 39, 40, 43, 44, 48 and 50) [243] (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 [243] (b) Exception Fee Events – step 2 [244] (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 [246] (d) Extravagant and Unconscionable – step 5 [252] (e) Loss and damage – step 6 [253] (2) Business Honour Fees (Exception Fees 51-61 and 72) [254] (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 [254] (b) Exception Fee Events – step 2 [255] (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 [258] (d) Extravagant and Unconscionable – step 5 [265] (e) Loss and damage – step 6 [266] (3) Business Dishonour Fees (Exception Fees 62-71) [267] (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 [267] (b) Exception Fee Events – step 2 [268] (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 [270] (d) Extravagant and Unconscionable – step 5 [273] (e) Loss and damage – step 6 [274] Part 7: UNCONSCIONABLE CONDUCT [275] A. Introduction [275] B. Applicable legal principles [279] C. Applicants' submissions [286] D. Analysis [289] (1) Introduction [289] (2) ANZ had all or most of the bargaining power in its relationship with the Applicants [292] (3) Exception Fees imposed by standard form contracts drafted by ANZ and other terms of those standard form contracts [294] (4) Contracts for essential services where termination attended by significant inconvenience [298] (5) Fees more likely paid by low-income customers in financial difficulty [299] (6) Quantum of Exception Fees out of proportion to ANZ's loss from Exception Fee Event [300] (7) Applied fee waiver inconsistently between customers [302] (8) ANZ took advantage of fact that Applicants initiated Exception Fee Events irrationally, inadvertently and unintentionally and as the result of accident, oversight or mismanagement of finances [304] (9) ANZ uniquely placed to prevent customers inadvertently triggering most if not all exception fees [305] (10) Exception Fees charged regardless whether caused by ANZ's payment systems and thus incurred beyond the control or understanding of the customer [307] (11) Honour and Overlimit Fees – ANZ fully compensated by interest on overdrawn sum (which included a profit margin) [308] (12) December 2009 redrafting of the contracts [309] (13) Conclusion [310] Part 8: UNJUST TRANSACTIONS UNDER THE CREDIT CODES [311] A. Introduction [311] B. Applicable law [314] C. Analysis [322] Part 9: UNFAIR CONTRACT TERMS [326] A. Introduction [326] (1) Phase 1 – 9 October 2003 to 11 June 2009 [328] (2) Phase 2 – 11 June 2009 to 1 July 2010 [332] (3) Phase 3 – 1 July 2010 to 31 December 2010 [336] (4) Phase 4 –- 1 January 2011 to 1 July 2012 [339] B. Areas of dispute [342] C. Analysis [352] Part 10: LIMITATION DEFENCES [354] A. Penalty claims [356] B. Unconscionable conduct under the ASIC Act and the FTA [367] C. Unjust Transactions under the New Code [371] D. Unfair Terms under the FTA and the ASIC Act [372] PART 11: REMEDIES AND ORDERS [373] REASONS FOR JUDGMENT Part 1: OVERVIEW 1 The Applicants, Mr Paciocco and one of his companies, Speedy Development Group Pty Ltd (SDG), held accounts with the Australia and New Zealand Banking Group Limited (ANZ). Mr Paciocco held a consumer deposit account and two consumer credit card accounts. SDG held a business deposit account. 2 The contractual terms for both the consumer deposit account and the business deposit account entitled ANZ to charge honour, dishonour and non-payment fees. The contractual terms for the consumer credit card accounts entitled ANZ to charge late payment fees and overlimit fees. Mr Paciocco and SDG alleged that the contractual terms that entitled ANZ to charge these fees (the Exception Fee Provisions) constituted penalties at common law and in equity. The 72 fees in issue (the Exception Fees), including the Exception Fee Provision(s) applicable to each Exception Fee, are listed in Annexure 1. 3 If the Court found that an Exception Fee did not constitute a penalty at common law or a penalty in equity, Mr Paciocco and SDG then contended that: 1. By including the Exception Fee Provision in the contract and giving effect to it, ANZ engaged in unconscionable conduct within ss 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and/or ss 8 and 8A of the Fair Trading Act 1999 (Vic) (FTA). 2. The consumer credit card accounts were unjust under the National Credit Code found in Sch 1 to the National Consumer Credit Protection Act 2009 (Cth) (the New Code). 3. The Exception Fee Provisions in Mr Paciocco's consumer deposit account and consumer credit card accounts were unfair contract terms within s 32W of the FTA and/or s 12BG of the ASIC Act. 4 For the reasons that follow, the Late Payment Fees charged by ANZ on Mr Paciocco's consumer credit cards constituted a penalty at common law and a penalty in equity. The liability to pay the Late Payment Fee was contingent upon a breach of contract and further or alternatively, was collateral (or accessory) to a primary stipulation (to make a payment by a particular date) in favour of ANZ. That collateral stipulation, upon failure of the primary stipulation, imposed upon the customer an additional detriment in the nature of a security for, and in terrorem of, the satisfaction of the primary stipulation which was extravagant, exorbitant and unconscionable. 5 The honour, dishonour, non-payment or overlimit fees charged to the Applicants by ANZ were of a different character. None of them constituted a penalty at common law or a penalty in equity. The liability to pay each of those fees was not contingent upon a breach of contract, nor collateral (or accessory) to a primary stipulation in favour of ANZ. The liability to pay each arose as a result of, and in exchange for, something more than and different from what had been agreed in the primary stipulation. They were not penal in nature. Further, none of the Exception Fee Provisions that entitled ANZ to charge the Applicants the Honour, Dishonour, Non-Payment or Overlimit Fees contravened any of the other statutory provisions earlier identified. 6 Finally, Exception Fee 2 and Exception Fee 3 are different. ANZ accepted that Mr Paciocco is entitled to common law damages for breach of contract in the sum of the amount of Exception Fee 2 and Exception Fee 3 from the date of the charging of each Exception Fee together with interest. Mr Paciocco's entitlement to those damages arises because ANZ admitted that the applicable contractual arrangements between ANZ and Mr Paciocco did not permit ANZ to charge each of the Exception Fees. Part 2: SCOPE OF INITIAL TRIAL 7 This is a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth): Merck Sharp & Dohme (Australia) Pty Ltd v Peterson [2009] FCAFC 26 at [6]-[9]. 8 By consent, this trial was limited to the determination of: the entirety of each of the applicants' claims in relation to Exception Fees … charged by ANZ during the following periods: (a) in the case of Saving Accounts, May 2004 to 14 December 2009; (b) in the case of Card Accounts, after March 2004; and (c) in the case of Business Accounts, after August 2004. 9 The Saving Account was Mr Paciocco's Access Advantage Account number xxx-xxl56 (Saving Account 156) opened on 10 June 1997 and which, from June 2009, had an Assured Overdraft Facility with an approved overdraft limit of $500. There were two Card Accounts. Mr Paciocco's first Card Account was Low Rate MasterCard Account number xxxx-xxxx-xxxx-9522 (Card Account 9522) opened in June 2006 with a credit limit of $15,000 which increased to $18,000 in November 2009. His second Card Account was Low Rate MasterCard Account number xxxx-xxxx-xxxx-9629 (Card Account 9629) opened in July 2009 with a credit limit of $4,000. 10 SDG's claims related to Exception Fees charged on Business Classic Account number xxxx-58555 (Business Account 58555) opened in December 2008. From April 2011, that account had an overdraft of $10,000 which increased in November 2011 to $49,999. Part 3: STRUCTURE OF BALANCE OF REASONS FOR JUDGMENT 11 These reasons for judgment will introduce the penalty doctrine at common law and in equity (Part 4, Section A), address the principles for a penalty at common law (Part 4, Section B) and for a penalty in equity (Part 4, Section C), and then turn to consider the "alternative mode of performance" line of authorities (Part 4, Section D), the requirement of extravagance and unconscionability (Part 4, Section E) and the question of loss and damage (Part 4 Section F). Next, these reasons will identify the contracts and terms by which ANZ charged each Exception Fee (Part 5) and then consider each Exception Fee (Part 6). 12 The balance of these reasons will address the alternative statutory causes of action relied upon by the Applicants (Parts 7-9) and finally the question whether some of the Applicants' claims were statute barred (Part 10). Part 4: APPLICABLE LEGAL PRINCIPLES – PENALTIES A. Introduction 13 The Applicants alleged that the Exception Fee Provisions were penalties at common law and, further or alternatively, penalties in equity. The need to consider them separately was said by both sides to arise from the decision of the High Court in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 (Andrews High Court). The penalty doctrine in equity has not been subsumed into the common law: Andrews High Court at [51]. 14 Although it is said now by both sides to be necessary to consider the penalties question at law and in equity separately, the principles, and the relief, are not unconnected. While the circumstances necessary to enliven the common law doctrine are different from those necessary to enliven equity, a stipulation (to pay a sum or other property) will not constitute a penalty at law or in equity unless it is "extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved": Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited [1915] AC 79 at 87. 15 To assist in understanding the form and substance of the following analysis, a particular stipulation may (not must) be considered by reference to the following steps: 1. Identify the terms and inherent circumstances of the contract, judged at the time of the making of the contract: Dunlop at 86-87 and AMEV-UDC Finance Limited v Austin (1986) 162 CLR 170. 2. Identify the event or transaction which gives rise to the imposition of the stipulation: Dunlop at 86-87 and Andrews High Court at [12]. 3. Identify if the stipulation is payable on breach of a term of the contract (a necessary element at law but not in equity). This necessarily involves consideration of the substance of the term, including whether the term is security for, and in terrorem of, the satisfaction of the term. 4. Identify if the stipulation, as a matter of substance, is collateral (or accessory) to a primary stipulation in favour of one contracting party and the collateral stipulation, upon failure of the primary stipulation, imposes upon the other contracting party an additional detriment in the nature of a security for, and in terrorem of, the satisfaction of the primary stipulation. 5. If the answer to either question 3 or 4 is yes, then further questions arise (at law and in equity: see Andrews High Court at [77]) including: 5.1 Is the sum stipulated a genuine pre-estimate of damage? 5.2 Is the sum stipulated extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved? 5.3 Is the stipulation payable on the occurrence of one or more or all of several events of varying seriousness? These questions are necessarily interrelated. 6. If the answer to question 5 is that the sum stipulated is not a genuine pre-estimate of damage and is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have been sustained by the breach, or the failure of the primary stipulation upon which the stipulation was conditioned, then the stipulation is unenforceable to the extent that the stipulation exceeded that amount. Put another way, the party harmed by the breach or the failure of the primary stipulation may only enforce the stipulation to the extent of that party's proved loss: Andrews High Court at [10]. 16 Consideration of the matters listed in [15(5) and (6) above] (namely, is the stipulated sum "extravagant and unconscionable", and if so, what is the party's proved loss?) are addressed last because they are applicable at law and in equity. B. Common Law 17 The principles set out in Dunlop at 86-87 (confirmed in Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at [12]) remain applicable. Those principles were not in issue, and were not considered or affected by, the decision in Andrews High Court. The High Court did not disapprove of any aspect of Dunlop and observed that Dunlop was a case in which "legal and equitable remedies were sought by the plaintiff and the defendant raised the penalty doctrine in its defence, illustrat[ing] the place of the penalty doctrine in a court where there is a unified administration of law and equity but equitable doctrines retain their identity": at [77]. 18 The starting point therefore is Lord Dunedin's speech in Dunlop at 86-87 (cited by the High Court in Ringrow): 2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage. 3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach. 4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are: (a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid. … (c) There is a presumption (but no more) that it is penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage". On the other hand: (d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make a precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties. (Citations omitted.) 19 In addition to those propositions, the following emerges from Dunlop: 1. The exercise involves an enquiry into the substance and the reality of the thing and the real nature of the transaction to determine the object of the obligee in stipulating for the sum: Lord Atkinson at 92. 2. Where the damages which may arise out of a breach of contract are of their nature uncertain, the law permits the parties to agree beforehand on the amount to be paid on breach in determining whether the sum being paid is a penalty. It will not be a bona fide pre-estimate of damage if the sum stipulated is in excess of any actual damage which could possibly or probably arise from the breach or if the parties have stipulated for the payment of a larger sum in the event of a breach of an agreement for the payment of a smaller sum: Lord Parker at 97. 3. Where the damage for the breach of a covenant to pay a fixed or definitely ascertainable sum is capable of exact definition, the substitution of a larger sum for that smaller ascertainable sum will not be a pre-estimate of damage, but a penalty: Lord Parmoor at 101-102. 20 Furthermore, as Mason and Wilson JJ stated in AMEV at 193-194, the question of whether a clause is penal will depend on a number of circumstances including: 1. The degree of disproportion between the stipulated sum and the loss likely to be suffered by the plaintiff, a factor relevant to the oppressiveness of the term to the defendant; and 2. The nature of the relationship between the contracting parties, a factor relevant to the unconscionability of the plaintiff's conduct in seeking to enforce the term. Their Honours noted that the Courts should not, however, be too ready to find the requisite degree of disproportion, lest they impinge on the parties' freedom to settle for themselves the rights and liabilities following a breach of contract: at 193-194. 21 Again, it is worth emphasising two propositions: (1) Whether a provision is a penalty at law is a question of construction that must be determined as a matter of substance, viewing the contract as a whole: O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) l52 CLR 359 at 368, 375 and 399; and (2) The provision is judged at the time the contract was made, not at the time of the breach: Dunlop at 86-87, O'Dea at 368; Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 at 762; Ringrow at [12]; Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360 at [22]. C. In Equity 22 This aspect of the judgment must be framed (initially) by reference to the decision in Andrews High Court. It is necessary to understand what Andrews High Court decided and what it did not decide. Indeed, what the Court decided is dictated by the way the separate questions had been framed. The separate questions were cast as they were having regard to the decision in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292 both at first instance and on appeal to the New South Wales Court of Appeal. In particular, as the High Court pointed out, the substance of the questions was to ask whether the exception fees were payable on breach and, in the alternative, to ask whether it had been the responsibility of the applicants to see that the circumstances occasioning the imposition of the exception fees did not arise. If there was an affirmative answer to either question, it was then asked whether the fees were capable of being characterised as a penalty by reason of that fact. 23 The questions that had been framed in Andrews v Australia and New Zealand Banking Group Ltd (2011) 211 FCR 53 (Andrews Trial), and were the subject of the appeal in Andrews High Court, did not ask whether the fees were incapable of characterisation as penalties because under pre-existing terms agreed between banker and customer the fees were charged in consequence of the bank's decision to afford or decline provision of further accommodation to the customer. Because the separate questions were not framed to ask that last mentioned question, the High Court did not decide that question. That conclusion is reinforced by the form and content of paragraph 3 of the Orders in Andrews High Court which relevantly stated (at 238-239): set aside orders 1 and 2 of the orders made by the Federal Court of Australia on 13 December 2011, and in their place declare that the circumstances: (a) that the honour, dishonour, non-payment and over limit fees were not charged by the [ANZ] upon breach of contract by its customers, and (b) that the customers had no responsibility or obligation to avoid the occurrence of events upon which these fees were charged, do not render these fees incapable of characterisation as penalties. (Emphasis added.) 24 What then did the High Court decide? 25 First, the penalty doctrine in equity has not been subsumed into the common law: Andrews High Court at [51] and see also [13] above. 26 Second, the law of penalties was not confined to payments (or other obligations) imposed upon breach of contract: Andrews High Court at [78]. As the Court explained at [10], in general terms: [A] stipulation prima facie imposes a penalty on a party (the first party) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. See also Waterside Workers' Federation of Australia v Stewart (1919) 27 CLR 119 at 128-129, 131-132 and Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514. 27 Third, as a matter of substance, the collateral or accessory stipulation operates "in the nature of a security for, and in terrorem of, the satisfaction of the primary stipulation": Andrews High Court at [10] citing Rolfe v Peterson (1772) 2 Bro PC 436 at 442 [1 ER 1048 at 1052]; Dunlop at 86 ("search for truth"); cf, as to irrevocable letters of credit and "performance bonds", the proceeds of which are in substitution for performance by a contractor, Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812; Mason, "'I'll have my bond; speak not against my bond': Constructive trusts and surplus proceeds from performance bonds" (2012) 6 Journal of Equity 74, at 81-83. 28 In other words: 1. The primary stipulation carries the substantive objective of the contract. 2. The collateral stipulation is engaged on the failure of the primary stipulation and fulfils the function of acting as a security for, and in terrorem of, the satisfaction of that primary stipulation. 3. The objective of the contract is achieved by payment of the money sum not being made rather than by being made. The second party wants the primary stipulation observed, not the payment of the penalty sum; the first party is so averse to paying the exorbitant sum that it will observe the primary stipulation. 29 Fourth, if compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are only enforced to the extent of that compensation; the first party is relieved to that degree from liability to satisfy the collateral stipulation: Andrews High Court at [10]. 30 Fifth, the penalty doctrine is not engaged if the prejudice or damage to the interests of the second party by the failure of the primary stipulation is insusceptible of evaluation and assessment in money terms: Andrews High Court at [11]. This is not relevant in the present case. ANZ does not contend that the prejudice or damage to it by the failure of the primary stipulation is insusceptible of evaluation and assessment in money terms. 31 Sixth, the primary stipulation may be the occurrence or non-occurrence of an event which need not be the payment of money: Andrews High Court at [12] and Story J, Commentaries on Equity Jurisprudence as Administered in England and America, (13th ed, Boston: Little, Brown and Company, 1886), vol 2 at [1314]. Seventh, the penalty imposed upon the first party upon failure of the primary stipulation need not be a requirement to pay to the second party a sum of money: Andrews High Court at [12]. 32 Eighth, the distinction between a penalty and a genuine pre-estimate of liquidated damages made by Lord Dunedin in Dunlop (see [18] above) was a product of equity and remained applicable: Andrews High Court at [15]. In other words, equity will operate and equally the law will operate so as to ensure that the only money that the second party gets is that which would compensate for the financial prejudice occasioned by the actual failure of the stipulation. Notions of extravagance and exorbitance are as much a part of equity as they are of the law itself. D. Further Accommodation / Additional Stipulation / Alternative Mode of Performance 33 The analysis of the decision in Andrews High Court is not complete without reference to a further issue identified by the Court. The further relevant issue was whether the requirement to pay the fees was (in effect) to be regarded as security for performance by the customer of other obligations to ANZ or was a fee charged in accordance with pre-existing arrangements according to whether ANZ chose to provide further accommodation to the customer by ANZ authorising payments upon instructions by the customer upon which ANZ otherwise was not obliged to act, or refused that further accommodation. The Court described this as an "operative distinction": Andrews High Court at [80]. 34 The High Court identified the operative distinction as that considered by the New South Wales Court of Appeal in Metro-Goldwyn-Mayer Pty Ltd v Greenham [1966] 2 NSWR 717 at 723-724 and 727. There, Jacobs and Holmes JJA contrasted a stipulation attracting the penalty doctrine with one giving rise consensually to an additional obligation. 35 As pointed out in Andrews High Court at [80], that operative distinction had been earlier identified by Lord St Leonards in French v Macale (1842) 2 Drury and Warren 269 at 275-276: [I]t appears, that the question for the Court to ascertain is, whether the party is restricted by covenant from doing the particular act, although if he do it a payment is reserved; or whether according to the true construction of the contract, its meaning is, that the one party shall have a right to do the act, on payment of what is agreed upon as an equivalent. If a man let meadow land for two guineas an acre, and the contract is, that if the tenant choose to employ it in tillage, he may do so, paying an additional rent of two guineas an acre, no doubt this is a perfectly good and unobjectionable contract; the breaking up the land is not inconsistent with the contract, which provides, that in case the act is done the landlord is to receive an increased rent. See also Lord Loughborough in Hardy v Martin (1783) 1 Cox Eq Cas 26 at 27. 36 The distinction was adopted in Metro-Goldwyn-Mayer. In that case, the contract for the hiring of films to exhibitors for public showing conferred the right to one screening only. The exhibitor was obliged to pay for each additional screening a sum equivalent to four times the original fee. Properly construed, the penalty doctrine had no application to the contract in issue. Jacobs JA concluded at [723]: There is no right in the exhibitor to use the film otherwise than on an authorised occasion. If he does so then he must be taken to have exercised an option so to do under the agreement, if the agreement so provides. The agreement provides that he may exercise such an option in one event only, namely, that he pay a hiring fee of four times the usual hiring fee. Neither Metro-Goldwyn-Mayer nor Macale has been since cited or considered elsewhere. 37 The High Court referred to Pomeroy's treatise under the heading "Stipulations not Penalties – Alternative Stipulations" as having collected and discussed the English and United States authorities in which the distinction thereafter was applied: see Pomeroy JN, A Treatise on Equity Jurisprudence (5th ed, The Lawyers Co-operative Publishing Company, 1941) vol 2 at [437]. In that section of the treatise, Pomeroy stated: Such being the general test by which to determine the nature of a penalty, there are certain kinds of stipulations not unfrequently inserted in agreements which have been judicially interpreted and held not to be penalties, and therefore not subject to be relieved against by courts of equity. The nature and effect of these stipulations I shall briefly explain. The first instance is that of a contract by the terms of which the contracting party so binds himself that he is entitled to perform either one of two alternative stipulations, at his option; and if he elects to perform one of those alternatives, he promises to pay a certain sum of money, but if he elects to perform the other alternative, then he binds himself to pay a larger sum of money. To state the substance of the agreement in briefer terms, the contracting party may do either of two things, but is to pay higher for one alternative than for the other. In such a case equity regards the stipulation for a larger payment, not as a penalty, but as liquidated damages agreed upon by the parties. It will not relieve the contracting party from the payment of the larger sum, upon his performance of the latter alternative to which such payment is annexed; nor, on the other hand, will it deprive him of his election by compelling him to abstain from performing whichever alternative he may choose to adopt. (Citations omitted and emphasis in original.) 38 The question therefore remains – as a matter of construction of the relevant contract, was the requirement to pay the fee to be regarded as security for performance by the customer of other obligations to ANZ or was it a fee charged in accordance with pre-existing arrangements according to whether ANZ chose to provide something more and further to the customer; for example, by ANZ authorising payments upon instructions by the customer upon which ANZ otherwise was not obliged to act, or refusing further accommodation. E. Extravagant, Exorbitant and Unconscionable 39 As noted at [14] above, there is a further and essential element for there to be a penalty at common law and in equity – a stipulated sum will only be regarded as a penalty if it is extravagant (or exorbitant) and unconscionable in amount: Dunlop at 86-87; Ringrow at [31]-[32]; see also Story J, (1886), vol 2 at p 650-651; AMEV at 197 and 201 and Clydebank Engineering and Shipbuilding Company v Don Jose Ramos Yzquierdo Y Castaneda [1905] AC 6 at 10 and 17. 40 In assessing whether a stipulation is a penalty, the difficulty in establishing the quantum of the loss that might be suffered by reason of the breach (or failure of the primary stipulation) is relevant. A stipulated payment is more likely to be regarded as a bargain between the parties pre-estimating loss or compensation, and not as a penalty, when the consequences of the breach (or failure of the primary stipulation) upon which the payment is due are difficult or impossible to estimate: Clydebank at 11; Dunlop at 87-88, 95-96 and 104; Waterside at 128-129 and 132; Yarra Capital Group Pty Ltd v Sklash Pty Ltd [2006] VSCA 109 at [13]. 41 There is a distinction between a stipulation which is "extravagant and unconscionable" in amount and one which is a "genuine covenanted pre-estimate of damage". The latter expression does not invite an inquiry into the parties' states of mind at the time of the contract. The requisite inquiry is objective. It necessitates an objective assessment of the possible loss that might be incurred, not the subjective views or calculations of the parties prior to entering into the contract: Yarra Capital at [13]; Leduva Pty Ltd v NM Structural Engineering Pty Ltd [2010] NSWSC 1164 at [109]. "Genuine covenanted pre-estimate of damage" is a descriptive phrase used to explain that it is lawful for a contract to stipulate an amount payable upon the failure of a primary stipulation as agreed damages or compensation, provided the amount is not penal in character: Murray v Leisureplay plc [2005] EWCA Civ 963 at [111]. In Dunlop (at 86), the phrase was used in contradistinction to the concept of "penalty", not to suggest that that is where the focus of the enquiry is. 42 As was said in Ringrow at [31]-[32]: The law of contract normally upholds the freedom of parties, with no relevant disability, to agree upon the terms of their future relationships. As Mason and Wilson JJ observed in [AMEV]: [T]here is much to be said for the view that the courts should return to … allowing parties to a contract greater latitude in determining what their rights and liabilities will be, so that an agreed sum is only characterised as a penalty if it is out of all proportion to damage likely to be suffered as a result of breach. Exceptions from that freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed. That is why the law on penalties is, and is expressed to be, an exception from the general rule. It is why it is expressed in exceptional language. It explains why the propounded penalty must be judged "extravagant and unconscionable in amount". It is not enough that it should be lacking in proportion. It must be "out of all proportion". (Footnotes omitted and emphasis added.) 43 How then does equity and the common law distinguish between provisions that are penal rather than compensatory? In AMEV, after acknowledging that equity and the common law have long maintained a supervisory jurisdiction not to rewrite contracts imprudently made but to relieve against provisions which are so unconscionable or oppressive that their nature is penal rather than compensatory, the High Court stated that the test to be applied in drawing that distinction (at 193): is one of degree and will depend on a number of circumstances, including (1) the degree of disproportion between the stipulated sum and the loss likely to be suffered by the plaintiff, a factor relevant to the oppressiveness of the term to the defendant, and (2) the nature of the relationship between the contracting parties, a factor relevant to the unconscionability of the plaintiff's conduct in seeking to enforce the term. That test was subject to an important qualification that "[t]he courts should not, however, be too ready to find the requisite degree of disproportion lest they impinge on the parties' freedom to settle for themselves the rights and liabilities following a breach of contract": at 193-194. 44 In assessing whether the stipulated sum is extravagant and unconscionable in amount in comparison to the maximum loss that might be suffered from the breach (or failure of the primary stipulation), the Court may receive evidence addressing the quantum of loss that may have been suffered, assessed as at the date of contract: Elberg v Fraval [2012] VSC 342 at [99]ff citing Robophone Facilities v Blank [1966] 1 WLR 1428. 45 That task is simply stated but not necessarily straightforward. It is for the Applicants to prove that the stipulated sum was extravagant and unconscionable but, as ANZ sought to do here, that does not prevent ANZ from seeking to establish that the stipulated sum was not extravagant and unconscionable: Clydebank at 16 and Ringrow at [27]. A calculation of the maximum loss that might be suffered from the non-performance of a primary stipulation involves a forward-looking or hypothetical assessment. F. Loss and Damage 46 If a stipulation is found to be a penalty, the Court will relieve the burdened party of the penalty provided the prejudice or damage to the interests of the other party is susceptible of evaluation and assessment in money terms: Andrews High Court at [11] and [12]. The "equity" upon which a Court will intervene is generated by the availability of compensation to the party in whose favour the stipulation is made. In Andrews High Court, the High Court observed that the principle was illustrated by Waterside. Here, ANZ did not contend that the losses or costs that might be suffered by ANZ from the transactions or events that gave rise to its entitlement to charge the Applicants the Exception Fees (Exception Fee Events) were impossible to assess. It did contend that such an assessment, on an ex ante basis, would have been very complex and expensive. But that is no answer. 47 Moreover, ANZ accepted that damages will not be refused merely because the calculation or estimation of loss is difficult or because the circumstances do not permit the loss to be assessed with certainty: Fink v Fink (1946) 74 CLR 127 at 143; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411; Air Express v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249 at 284 and Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83; see also Sony Computer Entertainment Australia Pty Ltd v Stirling [2001] FCA 1852 at [7] and La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd (2011) 190 FCR 299 at [90], [95] (value of the loss must be estimated no matter how difficult the task and even if some guesswork and speculation required) and [110] (sufficient for a party to prove on the balance of probabilities that it suffered some loss or damage and the quantum of the loss or damage to be calculated even where it is impossible to be precise). 48 Next, a stipulation that is found to be a penalty is unenforceable only to the extent that the amount stipulated to be paid exceeded the quantum of the relevant loss or damage which can be proved to have been sustained by the breach, or the failure of the primary stipulation, upon which the stipulation was conditioned: AMEV at 199-203. Put another way, the party harmed by the breach or the failure of the primary stipulation may enforce the stipulation that is found to be a penalty to the extent of that party's loss: Andrews High Court at [10]. Equity assesses the quantum of loss or compensation based on what is just and equitable, or fair and reasonable, in all the circumstances. The loss may include costs incurred in securing payment of the amount owing, including costs of the proceeding: Johnes v Johnes (1814) 3 ER 969 at 975. Here, ANZ charged the Exception Fees to the Applicants. The Applicants seek repayment of those Exception Fees. It was common ground that (1) the Applicants, as the parties seeking to resist the enforcement of the Exception Fee Provisions, bear the onus of proving on the balance of probabilities that the Exception Fee Provisions are a penalty; but (2) if the Exception Fee Provisions are found to be penalties, ANZ bears the onus of establishing that it has suffered loss from the Exception Fee Events and the quantum of that loss. Part 5: SPECIFIC CONTRACTS AND TERMS A. Introduction 49 For each Exception Fee, the contractual documents are listed in the column entitled "Contracts" in Annexure 1 and set out in detail in Annexure 2. The specific provision or provisions by which each Exception Fee was charged is identified in the column entitled "Extract of Specific Exception Fee Provision" in Annexure 1. It was common ground that those contractual documents comprised a contract between ANZ and the relevant Applicant. 50 There were two relevant time periods – prior to December 2009 and after December 2009. The two time periods were relevant because ANZ amended the Exception Fee Provisions in December 2009. Within each period, there are three sub-categories – Card Accounts, Saving Accounts and a Business Account. B. Pre-December 2009 (1) Card Accounts 9522 and 9629 51 Mr Paciocco was charged 10 Card Exception Fees – eight Late Payment Fees (on 4 September 2006, 4 March 2007, 5 August 2007, 4 November 2007, 6 April 2008, 6 July 2008, 4 August 2008 and 4 February 2009) and two Overlimit Fees (on 12 August 2009 and 6 September 2009). (a) Card Account 9522 – Late Payment Fee (Exception Fees 4-11) 52 The Late Payment Fee of $35 charged on 4 September 2006 on Card Account 9522 (Exception Fee 4) was the first Exception Fee charged. 53 The relevant contractual documents comprised a Letter of Offer dated 16 June 2006 (para 4 of Annexure 2), 'ANZ Credit Card Conditions of Use' dated September 2006 (para 5 of Annexure 2) (September 2006 Conditions of Use) and 'ANZ Personal Banking Account Fees and Charges' dated August 2006 (August 2006 Fees and Charges Booklet) (para 6 of Annexure 2). 54 The Letter of Offer dated 16 June 2006, under the heading "Minimum Repayment", stated: Each month you are required to pay [the amount] by the Due Date shown on [the] statement of account. 55 The September 2006 Conditions of Use similarly stated: The account holder must make the 'Minimum Monthly Payment' shown on each statement of account by the 'DUE DATE' shown on that statement of account. 56 Under the heading "Credit Fees and Charges", the Letter of Offer went on to state: Late Payment Fee: A fee of $35 will be charged to your credit card account if the "Monthly Payment" plus any "Amount Due Immediately" shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement. 57 The Late Payment Fee was imposed by the August 2006 Fees and Charges Booklet: Late Payment Fee $35 Charged to ANZ Low Rate MasterCard … if the "Monthly Payment" plus any "Amount Due Immediately" shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement. 58 The other Late Payment Fees charged to Mr Paciocco prior to December 2009 (Exception Fees 5-11) were charged pursuant to different contractual documents. There is no dispute that the terms in those documents were not materially or substantively different from those applicable to Exception Fee 4. (b) Card Account 9629 – Overlimit Fee (Exception Fee 12) and Card Account 9522 – Overlimit Fee (Exception Fee 13) 59 For the Overlimit Fee on Card Account 9629 and the Overlimit Fee on Card Account 9522, the contractual documents comprised: 1. in relation to the Exception Fee on 12 August 2009 on Card Account 9629 (Exception Fee 12), a Letter of Offer dated 24 July 2009 (para 7 of Annexure 2); and 2. in relation to the Exception Fee on 6 September 2009 on Card Account 9522 (Exception Fee 13), the Letter of Offer dated 16 June 2006 (para 4 of Annexure 2); 3. in relation to both Exception Fees: (a) 'ANZ Credit Cards Conditions of Use' dated July 2009 (July 2009 Conditions of Use) (para 8 of Annexure 2); and (b) 'ANZ Personal Banking Account Fees and Charges' dated July 2009 (July 2009 Fees and Charges Booklet) (para 9 of Annexure 2). 60 The July 2009 Conditions of Use stated in cl 2: The Credit Limit (a) Your credit limit is set out in the Letter of Offer and is for the credit card account. If ANZ issues more than one credit card for use on your credit card account no separate limit applies for each credit card. The account holder can ask ANZ to increase or decrease the credit limit at any time. ANZ is not required to agree to any request to increase the credit limit. ANZ is not required to agree to any request to decrease the credit limit if the decrease would result in the outstanding balance exceeding the credit limit. (b) You must not exceed the credit limit unless ANZ has consented in writing or ANZ otherwise authorises the transaction which results in the account holder's outstanding balance exceeding the credit limit. By authorising a transaction which results in the account holder's outstanding balance exceeding the credit limit, ANZ is not increasing the account holder's credit limit. If you exceed your credit limit, you must pay the amount by which the outstanding balance exceeds the credit limit immediately. (c) Any withdrawal, transfer or payment from the credit card account will be made firstly from any positive (Cr) balance and secondly from any available credit in the credit card account. (Emphasis added.) 61 Both Letters of Offer, under the heading "Credit Fees and Charges", stated: Overlimit Fee: A fee of $35 will be charged to your credit card account at the end of the "Statement Period" shown on the statement of account if the balance of the account exceeds the "Credit Limit" during that statement period. Charged at a maximum of once per statement period. [Note that the Letter of Offer dated 24 July 2009 stated that "A fee of $35* will be charged…" and "… account exceeds the "Credit Limit"# during that statement period…". Neither party contended that the matters referred to in the "*" or "#" had any substantive relevance to this case.] 62 The July 2009 Fees and Charges Booklet imposed the fee: Overlimit Fee $35 • Charged at the end of the "Statement Period" shown on the statement of account if the balance of the account exceeds the "Credit Limit" during that statement period … • Charged at a maximum of once per "Statement Period" (2) Saving Account 156 (Exception Fees 1, 2 and 3) 63 Mr Paciocco was charged three Exception Fees on Saving Account 156 – a Saving Honour Fee on 15 September 2008 (Exception Fee 1), a Non-Payment Fee on 26 September 2008 (Exception Fee 2) and a Non-Payment Fee on 27 January 2009 (Exception Fee 3). All three Exception Fees were charged pursuant to the same contractual documents: A Signature Card for opening Saving Account 156 dated 10 June 1997 (para 1 of Annexure 2), 'ANZ Saving & Transaction Products – Terms and Conditions dated August 2008' (August 2008 Terms and Conditions) (para 2 of Annexure 2) and 'ANZ Personal Banking Account Fees and Charges' dated August 2008 (August 2008 Fees and Charges Booklet) (para 3 of Annexure 2). 64 The Honour Fee and then the Non-Payment Fees will be considered. (a) Honour Fee (Exception Fee 1) 65 Clause 2.12 of the August 2008 Terms and Conditions for Saving Account 156 provided: Provision of Credit ANZ does not agree to provide any credit in respect of your account without prior written agreement. Depending on your account type, credit can be provided through an ANZ Equity Manager facility, an Overdraft facility or an ANZ Assured facility. It is a condition of all ANZ accounts that you must not overdraw your account without prior arrangements being made and agreed with ANZ. … If a debit would overdraw your account, ANZ may, in its discretion, allow the debit on the following terms: • interest will be charged on the overdrawn amount at the ANZ Retail Index Rate plus a margin (refer to 'ANZ Personal Banking Account Fees and Charges' booklet for details); • an Honour Fee may be charged for ANZ agreeing to honour the transaction which resulted in the overdrawn amount (refer to 'ANZ Personal Banking Account Fees and Charges' booklet for details); • the overdrawn amount, any interest on that amount and the Honour Fee will be debited to your account; and • you must repay the overdrawn amount and pay any accrued interest on that amount and the Honour Fee within seven days of the overdrawn amount being debited to your account. … (Emphasis added.) 66 The imposition of the Honour Fee was also addressed in the August 2008 Fees and Charges Booklet: Honour Fee • Payable on each occasion that ANZ honours a drawing where sufficient cleared funds are not available in the account or when the credit limit on your account is exceeded. $35 … The Honour Fee is payable on the date of the excess and drawings include those made at a branch, by cheque, or electronic banking. Electronic banking includes Internet, Phone, EFTPOS, Periodical Payments, Direct Debits and ATMs. (b) Saving Account 156 – Non-Payment Fees (Exception Fees 2 and 3) 67 Clause 2.7 of the August 2008 Terms and Conditions provided: A Periodical Payment Non-Payment Fee is charged if you have authorised a Periodical Payment that is not made because there are insufficient cleared funds in your account. 68 The imposition of the Non-Payment Fee was also addressed in the August 2008 Fees and Charges Booklet. For "Periodical Payments", it stated that the "Non-payment fee" was $35. (3) Business Account 58555 69 SDG did not claim any Exception Fees on Business Account 58555 before December 2009. C. Post December 2009 (1) Saving Account 156 70 Mr Paciocco does not claim any Exception Fees on Saving Account 156 after December 2009. (2) Card Accounts 9522 and 9629 71 Mr Paciocco was charged 37 Card Exception Fees – 18 Late Payment Fees on different dates between 12 January 2010 and 12 August 2013 and 19 Overlimit Fees on different dates between 12 May 2010 and 4 September 2013. (a) Late Payment Fees (Exception Fees 14, 16-18, 23, 27, 28, 31, 34, 36, 37, 38, 41, 42, 45, 46, 47 and 49) 72 For the Late Payment Fee on 12 January 2010 on Card Account 9629 (Exception Fee 14), the contractual documents comprised the Letter of Offer dated 24 July 2009 (para 10 of Annexure 2), 'ANZ Credit Cards Conditions of Use' dated December 2009 (December 2009 Conditions of Use) (para 11 of Annexure 2) and 'ANZ Personal Banking Account Fees and Charges' dated December 2009 (December 2009 Fees and Charges Booklet) (para 12 of Annexure 2). 73 The 24 July 2009 Letter of Offer, under the heading "Credit Fees and Charges", stated: Late Payment Fee A fee of $35* will be charged to your credit card account if the "Monthly Payment" plus any "Amount Due Immediately" shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement. [Note that the material referred to in the asterisk had no substantive relevance to this case.] 74 The fee level was set in the December 2009 Fees and Charges Booklet: Late Payment Fee $20 • Charged to your credit card account if the "Minimum Monthly Payment" plus any amount "Payable Immediately" shown on the statement of account is not paid by the "Due Date" shown on that statement. 75 The other Late Payment Fees charged on the Card Accounts after December 2009 were charged pursuant to different contractual documents. There is no dispute that the terms in those documents were not materially or substantively different from those applicable to Exception Fee 14. (b) Overlimit Fees (Exception Fees 15, 19-22, 24-26, 29, 32, 33, 35, 39, 40, 43, 44, 48 and 50) 76 For the Overlimit Fee charged on 12 May 2010 on Card Account 9629 (Exception Fee 15), the contractual documents comprised the Letter of Offer dated 24 July 2009 (para 10 of Annexure 2), 'ANZ Credit Cards Conditions of Use' dated March 2010 (March 2010 Conditions of Use) (para 13 of Annexure 2) and the December 2009 Fees and Charges Booklet (para 12 of Annexure 2). 77 Clause 2 of the March 2010 Conditions of Use stated: The Credit Limit (a) Your credit limit is set out in the Letter of Offer and is for the credit card account. If ANZ issues more than one credit card for use on your credit card account no separate limit applies for each credit card. The account holder can ask ANZ to increase or decrease the credit limit at any time. ANZ is not required to agree to any request to increase the credit limit. ANZ is not required to agree to any request to decrease the credit limit if the decrease would result in the outstanding balance exceeding the credit limit. (b) From time to time, there may be a debit made to your credit card account which, if processed, would temporarily result in the outstanding balance exceeding your credit limit. ANZ has an Informal Overlimit service to help you in these circumstances. (c) When a debit is initiated which, if processed, would result in the outstanding balance temporarily exceeding your credit limit, you make a request for an Informal Overlimit amount. ANZ will consider your request for an Informal Overlimit amount and, if both the debit and the account holder satisfy ANZ's credit criteria for Informal Overlimit amounts, ANZ will allow the debit to be processed as an Informal Overlimit amount, on the following terms: • interest will be charged on the Informal Overlimit amount at the applicable interest rate for purchases, cash advances and other payments (see Condition (19)); • an Overlimit Fee will be charged (refer to the Letter of Offer for details); • the Informal Overlimit amount, any interest on that amount and any Overlimit Fees will be debited to your credit card account; and • you must repay the Informal Overlimit amount on the earlier of: - the time shown for payment of 'Overdue/Overlimit' amount on the next statement of account after the Informal Overlimit amount is debited to your credit card account; and - the day that is 60 days after the day on which the Informal Overlimit amount is debited to your credit card account. (d) By processing a debit as an Informal Overlimit amount, ANZ is not increasing the account holder's credit limit. (e) Any withdrawal, transfer or payment from the credit card account will be made firstly from any positive (Cr) balance and secondly from any available credit in the credit card account. An Informal Overlimit amount will only be provided if there is no available credit in the credit card account and both the debit and the account holder satisfy ANZ's criteria for Informal Overlimit amounts. (f) If you want to avoid exceeding your credit limit, you should ask ANZ: - how to have ANZ decline transactions you initiate that will take you over your credit limit – please note that this service is not available for all transaction types (for example, it is not available for a transaction that is not electronically authorised such as a purchase that is manually debited to your credit card account if EFTPOS is not available). Please ask for our Overlimit Credit Card Opt Out Form; - about ways in which you can monitor the balance of your credit card account; or - if you have longer-term, ongoing borrowing needs, how to apply for an increase to the account holder's credit limit or for information about other products that may suit your needs. (Emphasis added.) 78 The 'ANZ Personal Banking Account Fees and Charges' dated November 2011 (November 2011 Fees and Charges Booklet) set the fee for Overlimit Fees 19-22 and 24-26. There was no dispute that the relevant Exception Fee Provisions in the December 2009 Fees and Charges Booklet and the November 2011 Fees and Charges Booklet were not materially or substantively different. They provided: Overlimit Fee $20 • Charged to your credit card account at the end of the "Statement Period" shown on the statement of account if we agree to provide an Informal Overlimit amount during that statement period. The Overlimit Fee is charged at a maximum of once per statement period. 79 The other Overlimit Fees charged on the Card Accounts in this period were charged pursuant to different contractual documents. Some of the provisions were redrafted. In the 'ANZ Credit Cards Conditions of Use' dated June 2010 (para 14 of Annexure 2) (and in all subsequent versions) a preamble was added to the document under the heading "Important things to know about using your ANZ credit card", which included the following: Fees We tell you which fees can apply to your credit card account in the Letter of Offer that we sent to you, and you can also find these in the ANZ Personal Banking Account Fees and Charges booklet which is available on anz.com or at any ANZ branch. Some of the key fees you need to know are below: … Fees that apply when you do something, or request us to do something for you We provide you with services on your credit card account and sometimes there are fees for doing so. The most common service fees are: … • Late Payment Fee • Overlimit Fee (not applicable to ANZ Visa PAYCARD and ANZ Rewards Visa PAYCARD accounts, or if you hold an ANZ Access Basic Account) You can avoid some of these fees: You can avoid a Late Payment Fee by paying the Minimum Monthly Payment shown on your statement by the due date • We have convenient services available to you that make it easy to make your minimum payment on time such as CardPay Direct – please ask us for details. You can avoid an Overlimit Fee by staying within your approved credit limit • We tell you what your credit limit is on your Letter of Offer that we sent you, and it's also shown on your monthly account statement • Sometimes you might have a transaction that temporarily causes you to exceed your credit limit. In this situation, we want to help you avoid embarrassing moments such as being declined while purchasing your groceries. Where you and the transaction which would exceed your credit limit satisfy our criteria, we will provide you with a convenient service to cover your payment needs – we call this service an Informal Overlimit facility. An Overlimit Fee will be charged for this service. • You can also ask us to decline certain transactions so that you don't exceed your credit limit. Please see clause 2 in this booklet for further information. 80 For some of the Overlimit Fees (Exception Fees 29, 30, 32, 33 and 35), the Fees and Charges Booklet was amended with effect from June 2012 (para 15 of Annexure 2) as follows: Overlimit Fee $20 A. Charged to your credit card account at the end of the "Statement Period" shown on the statement of account where: • any type of debit is initiated on your credit card account that would cause you to exceed your credit limit during the Statement Period; and • we agree to provide you with an Informal Overlimit amount to allow this debit to be charged to your credit card account. 81 For Exception Fees 39, 40, 43 and 44, the Fees and Charges Booklet was amended with effect from March 2013 and for the balance of the Overlimit Fees (Exception Fees 48 and 50), the Fees and Charges Booklet was amended with effect from July 2013. No party suggested that there was any material or substantive difference between the documents. (3) Business Account 58555 82 SDG was charged 22 Business Exception Fees – 12 Business Honour Fees (charged on different dates between 4 March 2010 and 23 July 2013) and 10 Business Dishonour Fees (charged on different dates between 8 January 2013 and 18 April 2013). (a) Honour Fees (Exception Fees 51 and 52) 83 For the Business Honour Fees charged on 4 March 2010 and 9 July 2010 (Exception Fees 51 and 52), the contractual documents comprised a Signature Card regarding the opening of Business Account 58555 dated 15 December 2008 (para 16 of Annexure 2), a Company/Formal Trust Account Authority for the account dated 15 December 2008 (para 17 of Annexure 2), 'Business Transaction Accounts Terms and Conditions – ANZ Business Banking' dated December 2009 (December 2009 Terms and Conditions) (para 18 of Annexure 2) and 'Transaction Accounts Fees and Charges – ANZ Business Banking' dated December 2009 (December 2009 Business Fees and Charges Booklet) (para 19 of Annexure 2). 84 One of the applicable provisions in the December 2009 Business Terms and Conditions provided: If you satisfy ANZ's credit criteria for an Informal Overdraft facility, ANZ will agree to your request by allowing the debit to be processed as an Informal Overdraft, on the following terms: • If the balance of your Informal Overdraft facility exceeds $50 at the time of your request, or will exceed $50 once the debit requested is processed, you will be charged an Informal Overdraft Assessment Fee on the day on which the debit is processed (or if that day is not a business day, on the next business day). The Informal Overdraft Assessment Fee (referred to in your bank statements and in the 'ANZ Business Banking Transaction Accounts Fees and Charges' booklet as an 'Honour Fee') is payable immediately. 85 The Honour Fee was set by the December 2009 Business Fees and Charges Booklet as follows: Honour Fee $37.70 Charged for considering a request for an Informal Overdraft where you satisfy ANZ's credit criteria for an Informal Overdraft, and the balance of your Informal Overdraft facility exceeds $50 at the time of your request or will exceed $50 after the debit requested has been processed. (b) Other Honour Fees (Exception Fees 53-61 and 72) 86 For Exception Fees 53-61 and 72, the contractual documents comprised the documents at [83] above (or materially and substantively the same documents) as well as 'Finance Conditions of Use – ANZ Business Banking' dated August 2011 (para 22 of Annexure 2) (or a later version which was materially and substantively the same) and 'Finance Fees and Charges – ANZ Business Banking' dated December 2009 (or a later version which was materially and substantively the same). 87 For Exception Fees 53 and 54, the applicable provisions included the two provisions extracted at [84]-[85] above as well as the terms of an Overdraft Facility Letter of Offer for $10,000 dated 28 April 2011 (para 20 of Annexure 2) which stated: A fee is charged if the balance of your Overdraft facility exceeds $50 or will exceed $50 after a requested debit has been processed. This fee is for considering a request for an Informal Overdraft where you satisfy ANZ's credit criteria. 88 For Exception Fees 55-61 and 72, the applicable provisions again included the two provisions extracted at [84]-[85] above. The Overdraft increased to $49,999 pursuant to an Overdraft Facility Letter of Offer dated 29 November 2011 (para 21 of Annexure 2). The relevant provision from that Letter of Offer provided that "[a]n Honour Fee of $37.70 is payable if ANZ pays drawings on your account in excess of the Facility Limit. This fee is payable on the date of the excess drawing". (c) Dishonour Fees (Exception Fees 62-71) 89 For Exception Fees 62-71, the contractual documents comprised the documents at [86] above (or materially and substantively the same documents) as well as the Overdraft Facility Letter of Offer dated 29 November 2011 at [88] above. 90 The parties accepted that the contractual documents were materially and substantively similar to the December 2009 Terms and Conditions and the December 2009 Business Fees and Charges Booklet: see [83] above. The December 2009 Terms and Conditions provided: At the Bank's discretion, a cheque may be dishonoured or payment refused where: • there are insufficient funds in the account of the drawer; … ANZ may charge a dishonour fee. … If you do not satisfy ANZ's credit criteria for an Informal Overdraft, ANZ will decline your request and will not allow the debit to be processed. You will be charged an Informal Overdraft Assessment Fee (referred to in your bank statements and in the 'ANZ Business Banking Transaction Accounts Fees and Charges' booklet as an 'Outward Dishonour Fee') and this fee is payable immediately. 91 The December 2009 Business Fees and Charges Booklet provided: Outward Dishonour Fee $37.70 per dishonour Charged for considering a request for an Informal Overdraft where you do not satisfy ANZ's credit criteria for an Informal Overdraft. D. Other Relevant Considerations - The Wider Framework 92 It was common ground that the contractual documentation in issue in these proceedings operated in, and formed part of, a wider framework. Aspects of that wider framework (the applicable regulatory framework) were considered in Andrews Trial at [87]-[134]. It is unnecessary to repeat that analysis. 93 However, as part of the wider framework, reference also must be made to the established principles concerning the relationship of banks and their customers. These were summarised in Andrews Trial at [81]-[82] (see also BMP Global Distribution Inc v Bank of Nova Scotia [2009] 1 SCR 504 at [47]-[48]) as follows: It is trite that the relationship between a banker and a customer is in contract: Foley v Hill (1848) 2 HL Cas 28. Such contracts have been described as: … ordinary commercial contracts to be construed and applied according to their terms, and in accordance with a 'basic principle of the common law of contract … that parties to a contract are free to determine for themselves what primary obligations they will accept'. Williams and Glyn's Bank v Barnes [1981] Com LR 205 at 209 (quoting Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848) cited with approval in Narni Pty Ltd v National Australia Bank [2001] VSCA 31 at [19]. Unsurprisingly, the contractual terms are important; it is a contract usually with many terms (Joachimson v Swiss Bank Corporation [1921] 3 KB 110 at 127) but from which the following core banking law principles derive: 1. A savings or deposit account is in law a loan to the banker: Pearce v Creswick (1843) 2 Hare 286; Dixon v Bank of New South Wales (1896) 17 LR (NSW) Eq 355; Khan v Singh [1936] 2 All ER 545. The bank borrows the money and proceeds from the customer and undertakes to repay them on demand. The bank's undertaking includes a promise to pay any part of the amount due against the written order of the customer addressed to the branch of the bank where the account is kept: Joachimson at [127]. Conversely, the bank will not pay any part of the amount due to the customer without such an order or some other compulsion or entitlement recognised by law; 2. The issue of a cheque by a customer, or the giving of a payment instruction or withdrawal request to its bank, which would have the effect of overdrawing a customer's account, is construed as a request by the customer for an advance or loan from the bank, and the bank has a discretion to approve or disapprove the loan: Cuthbert v Robarts, Lubbock & Company [1909] 2 Ch 226 at 233; Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677 at 699-700; Ryan v Bank of New South Wales [1978] VR 555 at 577; Narni Pty Ltd v National Australia Bank Ltd [1998] VSC 146 at [37] and Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 at [21]; 3. A written order by a customer which requires the bank to pay a greater amount than the balance standing to the credit of the customer may be declined. There is no obligation on the bank to pay a cheque unless there is a sufficient balance in the account to pay the entire amount or unless overdraft arrangements have been made which are adequate to cover the amount of the cheque: Bank of New South Wales v Laing [1954] AC 135 at [154]; Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm) at [45] and Narni [2001] VSCA 31 at [12]; 4. If a customer with no express overdraft facility draws a cheque which causes his account to go into overdraft, the customer, by necessary implication, requests the bank to grant an overdraft on its usual terms as to interest and other charges: Lloyds Bank plc v Voller [2000] 2 All ER (Comm) 978 at 982. See also Weaver GA and Craigie CR, The Law Relating to Banker and Customer in Australia, (Thompson Lawbook Co) at [2.140] (update 62). 94 The Applicants accepted that characterisation of the relationship between banker and customer but contended that its relevance was merely historical. The contention that these established principles concerning the relationship of banks and their customers are merely historical is rejected. It is rejected because the proper construction of the relevant terms of each contract is in accordance, and entirely consistent, with those established principles. It is therefore unnecessary to imply any contractual term into the applicable contractual terms to incorporate these established principles. Thirdly, these findings, described as "significant findings" by the High Court in Andrews High Court were not the subject of challenge in, or disturbed by, the High Court in Andrews High Court. 95 The Applicants also placed reliance on what they described as the "inherent circumstances" of each contract including that: 1. When each contract was made (see [9]-[10] above), the terms were not negotiated between either of the Applicants and ANZ, but were contained in documentation provided unilaterally by ANZ. 2. When each contract was made, other banks charged fees similar to the Exception Fees. (A summary of the exception fees charged by the other banks was tendered by agreement. That summary establishes that other banks charged what appeared to be fees substantively similar to the Exception Fees.) 3. Under each contract between ANZ and either of the Applicants, ANZ had the right unilaterally to vary the terms and conditions of each contract (including the amount of any Exception Fee, and the circumstances which defined the entitlement to charge it): see paras 2, 4, 5, 7, 18 and 22 of Annexure 2. ANZ admitted that it unilaterally varied the terms relatively frequently. 4. ANZ determined the quantum of each Exception Fee included in each contract and did not do so by reference to the amount that would have been recoverable as unliquidated damages. 96 That list was, and is, not complete. ANZ accepted that these circumstances existed but referred to the following additional facts and matters, that while specific to ANZ, necessarily arise out of the inherent relationship between banker and customer. The other inherent circumstances extended to (1) the manner in which the relevant accounts or contracts were offered, entered into and administered by ANZ and (2) the other accounts or facilities available to ANZ's customers. 97 The nature and size of ANZ's business dictated the nature and manner in which the relevant contracts were offered, entered into and administered. As at July 2011, ANZ had approximately 6 million retail deposit accounts; in August 2011, ANZ had around 2 million consumer credit card accounts; and as at June 2011, over 520,000 transaction, saving, investment and lending accounts were held by ANZ's business customers. 98 Customers were able to open accounts with ANZ at a branch and could apply to open most accounts over the phone or online. ANZ offered accounts on standard terms and conditions. ANZ provided the customer with documentation containing information on the terms and conditions relating to the account. That documentation typically included a welcome letter, a statement of the relevant terms and conditions for the account type and a statement of the fees and charges applicable to the account. Similarly, the saving, card and business accounts were terminable at will by the customer. There was no obligation upon the customer to retain the account or to undertake transactions on the account. If the account was in a debit position at the time of termination, the outstanding balance would need to be repaid. However, that circumstance would not require the customer to continue to undertake transactions on the account. 99 In relation to exception fees, ANZ addressed them in the account terms and conditions and fees and charges booklets provided at the time the account was opened, in leaflets provided to account holders with statements of account and if an account holder incurred an honour fee, in a letter sent to that account holder explaining the fee and how to avoid future fees. 100 Customers who did not wish to incur exception fees on their accounts from an overdraw transaction could take steps to avoid the fees. Customers could monitor their account balance and avoid undertaking transactions that would overdraw the account: cf Commonwealth Trading Bank of Australia v Sydney Wide Stores Proprietary Limited (1981) 148 CLR 304. Customers with saving accounts and business accounts could "switch off" or opt out of the ability to overdraw their account. The "switch off" or opt out mechanism prevented a customer from being able to overdraw their account when using ANZ's internet and phone banking, ATMs and EFTPOS. Transactions that would overdraw the account would be automatically declined and no dishonour fee would be charged. The switch off facility did not operate if the transaction was an offline EFTPOS or ATM transaction or in the case of direct debits, cheques or periodic payments. 101 Since 1 December 2007, card account customers could opt out of the ability to exceed the credit limit on their card account. This switched off the monetary limit on overdrawing known as the "shadow limit". Two shadow limits apply to a transaction account at any one time – the Batch Excess Shadow Limit (which applies to direct debit, cheque and certain periodical payment transactions) and the Online Excess Shadow Limit (which applies to ATM, EFTPOS, internet banking and phone banking transactions). Shadow limits are recalculated at an account's monthly cycle point and additionally upon the occurring of a 'trigger event' such as the overdrawing of an account. If a customer adopted the opt out facility, transactions that would exceed the customer's credit limit would be automatically declined at the time that an electronic authorisation request was received by ANZ. It was not however a complete solution. The opt out facility was not available for transactions not authorised online by ANZ and or some recurring payment arrangements. If those latter transactions resulted in the account exceeding the credit limit, an overlimit fee could still be charged. 102 Consistent with the nature and size of ANZ's business, it offered different types of accounts and facilities. For saving accounts, ANZ offered a number of accounts that did not permit or limited the ability to overdraw, for example the Access Limited account. ANZ also offered various loan and credit facilities, including overdraft facilities, to both retail and business customers. So, for example, the primary loan products to retail customers were ANZ Assured, ANZ Personal Overdrafts and ANZ Temporary Overdrafts. ANZ Assured was an overdraft product that provided the customer with a credit limit of $500 or $1,000 which attached to the customer's account. As at August 2011, the credit facility fee for the ANZ Assured product was $60 per year (in addition to interest charges). The Personal Overdraft product was a line of credit that attached to the customer's account, being a minimum overdraft of $1,000. ANZ charged both a loan approval fee and a credit facility fee (in addition to interest for the personal overdraft). The Temporary Overdraft product was a line of credit that was limited to 30 days. The charges for a Temporary Overdraft comprised a loan approval fee (and interest). For business account deposit accounts, ANZ supplied two types of overdraft: the ANZ Business Overdraft and the Temporary Overdraft. The minimum amount of credit extended for a Business Overdraft was $2,000. ANZ charged a loan application fee and an annual credit facility fee (in addition to interest) for the Business Overdraft. The Temporary Overdraft was limited to 30 days and was subject to a loan application fee and interest. Card account customers could apply to ANZ for an increase of the credit limit on their account and for temporary credit limit increases in certain circumstances. Part 6: THE EXCEPTION FEE, THE EXCEPTION FEE EVENT AND IS IT A PENALTY? A. Introduction 103 The 72 Exception Fees in issue are listed in Annexure 1. The Exception Fee Events were not in dispute. They are set out in the column entitled "Transaction(s)/Event(s)" in Annexure 1. 104 Was each Exception Fee a penalty at law and further or alternatively, a penalty in equity? It is necessary to divide the Exception Fee Provisions into two time periods – pre-December 2009 and post December 2009. 105 For the pre-December 2009 period, the Applicants alleged that ANZ's entitlement to impose each Exception Fee involved, or had as an essential pre-requisite, a breach of the relevant Exception Fee Provision. Put another way, the Applicants contended that each Exception Fee was payable upon breach of contract. ANZ's position was that none of the Exception Fees was payable on breach of contract. In particular, ANZ contended that none of the Exception Fees was payable upon any element of the contract which viewed, as a matter of substance, involved breach and therefore a critical initial integer for the claim at law was missing. However, ANZ maintained only "formally" a submission that a Late Payment Fee was not payable on breach of contract. 106 For the period post December 2009, the position was different. The Applicants' contention was that the only Exception Fees payable upon breach were the Late Payment Fees. Again, ANZ maintained its "formal" submission that a Late Payment Fee was not payable on breach of contract. Of course, if the Court determined that any Exception Fee was payable on breach of contract, ANZ contended that the second and vital element of Dunlop was absent; the Exception Fees were not extravagant and unconscionable compared with the maximum conceivable loss that might flow from the breach assessed at the time of entry of the contract. As noted earlier, consideration of that vital element is addressed later in these reasons. 107 The Exception Fees fall into two broad groups – Late payment fees and then honour, overlimit, dishonour and non-payment fees. Late Payment Fees will be considered first. As noted, it may be of assistance to consider each by reference to the steps listed in [15] above. B. Pre-December 2009 – Late Payment Fees (1) Exception Fee 4 108 It is appropriate to consider the first Late Payment Fee charged, Exception Fee 4. It was common ground that the contractual terms for the other Late Payment Fees were not materially or substantively different. (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 109 The contractual documents are not in dispute: see the column entitled "Contracts" in Annexure 1 and [53] above. The Exception Fee Provisions are not in dispute: see the column entitled "Extract of Specific Exception Fee Provision" in Annexure 1 and [54]-[57] above. The Letter of Offer provided that "Each month you are required to pay [the amount] by the Due Date shown on [the] statement of account": see [54] above. The September 2006 Conditions of Use stated that "[t]he account holder must make the 'Minimum Monthly Payment' shown on each statement of account by the 'DUE DATE' shown on that statement of account": see [55] above. Next, the Letter of Offer went on to say "A fee of $35 will be charged to your credit card account if [the amount] shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement": see [56] above. This was repeated in the August 2006 Fees and Charges Booklet: see [57] above. 110 The other inherent circumstances of the contract included the matters identified as relevant in Part 6, Section B(1)(d) above. (b) Exception Fee Events – step 2 111 These were also not in dispute: see the column entitled "Transaction(s)/Event(s)" in Annexure 1. In the case of Exception Fee 4, the account statement dated 6 August 2006 had a closing balance of $8,201.75 (Dr), and required a 'Monthly Payment' of $163 by the 'Due Date' of 31 August 2006. No such payment was made. As a result, Exception Fee 4 was charged on 4 September 2006. 112 On 15 September 2006, a member of ANZ's Collections Team made an outbound call to Mr Paciocco, during which Mr Paciocco promised to pay $163 on 15 September 2006 and $165 on 29 September 2006. The operator told Mr Paciocco that his account might be closed if payment was not made, advised him of his next monthly payment and advised him to call back if he had any problems. The next payment was $500 on 18 September 2006. (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 113 In respect of each Late Payment Fee (Exception Fee 4 and Exception Fees 5-11 discussed at [177]ff below), ANZ maintained its "formal" submission that each Late Payment Fee was not payable on breach but was a fee charged by ANZ, as part of the operation of the account, in respect of credit extended to the customer for a period of time beyond that previously agreed with the customer and for the increased risk of default in repayment of the amounts borrowed: see Andrews Trial at [244]-[249]. ANZ maintained that position before this Court and again contended that each Late Payment Fee was a fee payable upon a further period of credit necessarily extended by the bank to the customer because of the absence of timely payment. ANZ stated that it "mark[ed] out the argument" but did not seek to develop it further noting that ANZ "fully expect[ed]" this Court to arrive at the same conclusion on this point, as the Court did in Andrews Trial when dealing with "parallel terms". 114 It is both necessary and appropriate to identify and construe the relevant stipulations for Exception Fee 4. The Letter of Offer of 16 June 2006 contained a stipulation that Mr Paciocco was required, each month, to pay an amount by the "Due Date shown on [the] statement of account", and a similar stipulation was contained in the September 2006 Conditions of Use: see [54]-[55] above. The "late payment fee" was payable if Mr Paciocco failed to comply with that stipulation, namely "if [the amount] shown on the statement of account [was] not paid within 28 days of the end of the "Statement Period" shown on that statement": see [56]-[57] above. A plain reading of the contractual documents and the applicable Exception Fee Provisions leads to the conclusion that the Late Payment Fee was payable upon breach by the customer of his contractual obligation to make payment by a stated date: see [53]-[57] above. Contrary to the submission of ANZ, the stipulation was not a fee payable upon a further period of credit necessarily extended by the bank to the customer because of the absence of timely payment. The credit had already been extended. It was the repayment of the credit, or at least part of the credit, already extended that ANZ was seeking. Put another way, no further credit was extended. 115 Even if, contrary to the view just expressed, the Late Payment Fee was not payable upon breach by the customer of his contractual obligation to make payment by a stated date (a view I do not hold), then as a matter of substance, the stipulation in the Letter of Offer and the August 2006 Fees and Charges Booklet (see [56]-[57] above) (namely, that a fee of $35 would be charged "if [the amount] shown on the statement of account [was] not paid within 28 days of the end of the "Statement Period" shown on that statement") was collateral to the primary stipulation in favour of ANZ that required Mr Paciocco to make a minimum monthly payment by a due date: see [54]-[55] above. 116 At law and in equity, the collateral stipulation was, as a matter of substance, to be viewed as security for, or in terrrorem of, the satisfaction of the primary stipulation. That conclusion flows from the express language of the provision (see [56]-[57] above), the subject matter of the stipulation (stipulation arose only in not paying a sum of money) (see [18(4)(b)] above) and the fact that the stipulation was not a fee payable upon a further period of credit necessarily extended by the bank to the customer because of the absence of timely payment. The credit had already been extended. ANZ was seeking repayment of the credit, or at least part of the credit, it had already extended. (d) Extravagant and Unconscionable – step 5 (i) Relevant facts and matters 117 This section addresses the further, and essential, element for there to be a penalty at law and in equity – whether the stipulated sum is extravagant and unconscionable: see [14] above. The applicable principles have been addressed earlier: see Part 4, Sections E and F above. The Applicants submitted that the Exception Fees were extravagant and unconscionable. ANZ rejected that contention. 118 The Applicants submitted that in determining whether the Late Payment Fee was extravagant and unconscionable specific facts and matters were required to be considered. The specific facts and matters may usefully be divided into three general categories; aspects of the specific Exception Fee Provisions, the "inherent circumstances" and finally, a category that might be labelled "ANZ's state of mind". Each category will be considered. Aspects of the Late Payment Fee Provision 119 The first category – aspects of the specific Exception Fee Provision – is important in the context of a Late Payment Fee. The same fee was payable regardless of whether the customer was one day or one week late (or longer), and regardless of whether the amount overdue was $0.01 (trifling), $100, $1,000 or even some larger amount: see [56]-[57] above. That fact alone engaged the third rule of construction in Dunlop that there is a presumption (but no more) that the stipulation is a penalty. Why? Because there was "a single lump sum … made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage": see [18(4)(c)] above. As a result, there necessarily was a degree of disproportion between the stipulated sum and the loss likely to have been suffered by ANZ: cf AMEV at 193 extracted at [43] above. 120 That degree of disproportion cannot be considered in isolation. Other contractual terms must be considered. In particular, it must be recalled that, in addition to the late payment fee, the same contractual documents entitled ANZ, amongst other things, to charge (which it did) annual interest of 12.24% on the specific outstanding amount. 121 That leads to the second rule of construction referred to by Lord Dunedin in Dunlop and described by him as conclusive: see [18(4)(b)] above. The first part of that rule of construction was applicable to the Late Payment Exception Fees – the breach (or failure of the stipulation) consisted only in not paying a sum of money. The question which then arose was whether the second part of that rule was met – is the sum stipulated a sum greater than the sum which ought to have been paid? The Applicants said it was, ANZ said it was not. Before turning to that aspect, it is necessary to consider the other categories of facts and matters identified by the Applicants. The "inherent circumstances" 122 The second category – the "inherent circumstances" – have been considered at [92]-[102] above. They necessarily inform the nature of, and circumstances of entry into, each contract. They include the fact that the terms were not negotiated but were contained in documentation provided unilaterally by ANZ; that at the time of contracting, other banks also charged a similar late payment fee; that ANZ had the right unilaterally to vary the terms and conditions of each contract (including the amount of the late payment fee, and the circumstances which defined the entitlement to charge it) and did so relatively frequently. Of course, those matters must not themselves be considered in isolation. The flip side of the nature of the contract was that the account was terminable at will by Mr Paciocco. He was under no obligation to retain the account or undertake transactions on the account. 123 However, taken as a whole, these circumstances provide further support for the conclusion that, at least on its face, the late payment provision and fee is penal. ANZ was able to impose these fees because of the inequality of bargaining power between the Bank and its customer (here Mr Paciocco). The terms were contained in printed forms, which the customer had no opportunity to negotiate. There was no agreement between "people contracting on equal terms": English Hop Growers v Dering [1928] 2 KB 174 at 181. ANZ's State of Mind 124 The third category of material – material relevant to ANZ's state of mind – is in a different category. In the present case, that material does not assist. That statement needs unpacking. 125 In determining whether a late payment fee is penal a distinction is to be drawn between a stipulation which is "extravagant and unconscionable" in amount and one which is a "genuine covenanted pre-estimate of damage". Here, it was common ground that: 1. ANZ determined the quantum of the late payment fee in each contract. 2. ANZ "did not determine the quantum of each Exception Fee by reference to a sum that would have been recoverable as unliquidated damages". 3. There was no "genuine" determination by ANZ of the amounts to be charged by way of the Exception Fee. That necessarily left the question – was the fee "extravagant and unconscionable" in amount? That question is addressed in Part B below. This third category of material does not assist in answering that question. 126 There is another reason, not unconnected to the first, as to why this material is not relevant. The phrase "genuine covenanted pre-estimate of damage" does not invite an inquiry into the parties' states of mind at the time of the contract. The inquiry is objective. It necessitates an objective assessment of the possible loss that might be incurred, not the subjective views or calculations of the parties prior to entering into the contract: see [41] above. The material was not directed to that question. 127 That leads to considering the nature, and substance, of the material itself upon which the Applicants sought to rely. In large part, the Applicants relied upon internal ANZ documentation which covered a six year period and included discussion papers, briefing papers, reviews, minutes of meetings, presentations and emails. A summary of that material is set out in Annexure 4. (The passages relied upon by the Applicants are not in italics.) The Applicants submitted that the following contentions (not necessarily limited to late payment fees) were able to be drawn from that material: 1. ANZ frequently turned its mind to the conditions which would give rise to exception fees becoming payable and what the quantum of each fee ought to be. 2. ANZ operated in a framework where it regarded exception fees as a part of its revenue which contributed significantly to profit (and, therefore, not merely covering costs arising from the Exception Fee Events) – indeed (critically) it well knew that the level of Exception Fees was well above "cost recovery". 3. ANZ regarded exception fees as arising when accounts were otherwise not "in order" or being properly managed, or as capable of effecting "behavioural control" over how customers dealt with accounts. 4. ANZ wanted to encourage customers to "avoid" exception fees (because, it should be inferred from the evidence, it did not want customers' accounts to be "out of order"). 5. ANZ was aware that if customers were presented with a reminder of the exception fee before finalising a transaction, a significant percentage of them would not proceed with the transaction (and would not overdraw their accounts, but rather maintain them in an orderly state). 6. In terms of the level at which ANZ set exception fees, ANZ was conscious that the fees were not set at an amount "limited to cost recovery only" and that ANZ set the level of fees by reference "to market". That is, the exception fees were set by reference to what other banks were charging, and by extension, the maximum ANZ thought it could get away with charging, and bore no relation whatsoever to the costs to ANZ of the relevant events giving rise to the exception fees. (The Applicants submitted that this arbitrary process of setting the amount showed, without more, that the amount was "extravagant and unconscionable".) 7. ANZ, on the other hand, contended that the material evidenced the response by ANZ staff to the changing competitive and regulatory environment affecting exception fees in the period from 2006 to 2009 and that the changes ultimately adopted reflected the nature of the fees and the events that gave rise to those fees. The passages relied upon by ANZ are italicised in Annexure 4. 128 A difficulty with the material was that both the Applicants and ANZ simply selected (or, more bluntly, cherry picked) sentences, or even parts of sentences, in aid of their general thesis. That was of limited use. It was of limited use because there were other problems with the documentation. It was incomplete. A number of the documents were drafts with significant sections blank. Other material rose no higher than proposals which were neither implemented nor accepted by ANZ. 129 That documentation does not assist in the resolution of the question to be answered in this case. Having determined that the Exception Fee Provisions relating to Late Payment Fees were prima facie a penalty at law and in equity and given that ANZ admitted that the Late Payment Fee was not a genuine pre-estimate of damage, the question left to be determined is to what extent (if any) did the amount stipulated to be paid exceed the quantum of the relevant loss or damage which can be proved to have been sustained by the breach, or the failure of the primary stipulation, upon which the stipulation was conditioned: see [48] above. Again, none of those matters identified answered or assisted in answering that question. 130 For those reasons, this third category of material may be put to one side in the present case because it does not assist in answering the question left to be determined – to what extent (if any) did the amount stipulated to be paid exceed the quantum of the relevant loss or damage which can be proved to have been sustained by the breach, or the failure of the primary stipulation, upon which the stipulation was conditioned? (ii) Quantitative assessment Introduction 131 The applicable principles have been addressed earlier: see Part 4, Sections E and F above. 132 The parties adopted fundamentally different approaches. They were like ships passing in the night. ANZ engaged Mr Inglis, a chartered accountant. Until 31 May 2012, Mr Inglis had been a partner in the Forensic department of the United Kingdom firm of Deloitte LLP. He is now a forensic accounting consultant. Mr Inglis had in fact been retained by ANZ during, and for, the Andrews Trial and Andrews High Court litigation. 133 The questions he was instructed to consider by ANZ are important, namely: 1. the costs that may have been incurred by ANZ in connection with the occurrence of Exception Fee Events; and 2. the maximum amount of costs that ANZ could conceivably have incurred as a result of an Exception Fee Event. 134 Mr Inglis prepared four initial reports: Late Payment Event Report dated 16 May 2013 (Inglis Late Payment Event Report), Supplemental Late Payment Event Report dated 5 July 2013 (Inglis Supplemental Late Payment Event Report), Overlimit Event Report dated 31 July 2013 (Inglis Overlimit Event Report) and Demand Deposit Account Exception Event Report dated 3 September 2013 (Inglis DDA Report) (collectively, the Inglis Reports). 135 The Applicants responded by engaging Mr Regan, a certified public accountant in California and the Chairman of Hemming Morse LLP, an accounting firm. Mr Regan is also a forensic consultant. The task he was given was fundamentally different. He was instructed to identify the amounts needed to restore ANZ to the position it would have been in had the events giving rise to the Exception Fee not occurred. Mr Regan prepared three reports: Report dated 3 October 2013 in response to the Inglis Overlimit Event Report, Report dated 10 October 2013 in response to the Inglis Late Payment Event Report and Supplemental Late Payment Event Report and Report dated 22 October 2013 in response to the Inglis DDA Report (collectively, the Regan Reports). 136 In response, Mr Inglis prepared a reply to the Regan Reports dated 12 November 2013 (Inglis Reply Report). Finally, at the direction of the Court, Mr Inglis and Mr Regan met privately and prepared a joint report which identified their areas of agreement, their areas of disagreement and, where they disagreed, the reason or reasons for that disagreement. 137 Unsurprisingly, the amounts arrived at by each expert were vastly different. This was due, in part, to their different instructions and different approaches. However, there were other specific issues with the Inglis Reports. Issues with the Inglis Reports 138 As noted, the Inglis Reports were directed to seeking to establish that ANZ's greatest conceivable loss exceeded the amount of each Exception Fee: see [133] above. This approach had a number of problems. Instead of calculating ANZ's loss or damage from each separate Exception Fee Event, Mr Inglis' calculated ANZ's "costs" for the 2009 Financial Year, and then extrapolated that to other years. The reason why he adopted that approach was because this was the only material ANZ provided to Mr Inglis. Mr Regan's position was that the 2009 Financial Year was an inappropriate period on which to base the calculations, or to use as a proxy for other years, because of the peculiarities of that year, impacted as it was by the Global Financial Crisis. I agree. 139 Next, Mr Inglis' enquiry was done ex post facto. As the Applicants submitted this: (a) did not inform any genuine pre-estimate of damage (a fact already admitted against ANZ); and (b) did not rebut the presumption that the Late Payment Fee was a penalty. If the Late Payment Fee was prima facie a penalty, the ensuing enquiry was to what extent (if any) did the amount stipulated to be paid exceed the quantum of the relevant loss or damage which can be proved to have been sustained by the breach, or the failure of the primary stipulation, upon which the stipulation was conditioned: see [48] and [126]-[130] above. 140 In fact, Mr Inglis did not seek to calculate loss or damage. Instead, he was asked to (and did) engage in a broad ranging exercise of identifying "costs" in a theoretical accounting sense that might be affected by an Exception Fee Event. That exercise does not assist in answering the question just identified – to what extent (if any) did the amount stipulated to be paid exceed the quantum of the relevant loss or damage which can be proved to have been sustained by the breach, or the failure of the primary stipulation, upon which the stipulation was conditioned. Whether that exercise might assist as a step in answering that question is an issue which will be addressed later. Categories of Costs 141 One further aspect of the broad ranging approach of cost identification adopted by Mr Inglis requires separate consideration. In calculating "the maximum amount of costs that ANZ could conceivably have incurred as a result of an event giving rise to an entitlement to charge an exception fee", Mr Inglis identified, and quantified, three main types of cost that ANZ incurred in relation to Exception Fee Events. These three cost categories were important because, if relevant, their size was in most instances significantly greater than the Exception Fee in issue. The general cost categories were: 1. an increase in loss provisions; 2. an increase in the costs of regulatory capital (resulting from an increase in regulatory capital); and 3. the occurrence of operational costs. 142 Operational costs were comprised of a number of sub-categories. Mr Inglis accepted that a number of sub-categories were not relevant to Late Payment Fees. The irrelevant sub-categories were transaction costs (relevant to honour, dishonour and overlimit fees) and decision costs (relevant to honour, dishonour, overlimit and non-payment fees). According to Mr Inglis, the remaining sub-categories of operational costs – collections costs, enquiry costs and product costs – were relevant to Late Payment Fees. 143 Mr Regan did not accept that these categories of costs should be included. It is necessary to consider each cost category. Increase in loss provisions 144 In accordance with International and Australian Generally Accepted Accounting Principles (GAAP), ANZ uses provisioning to estimate the impairment of its financial assets (including, for example, the partial or complete loss of balances advanced to its customers by way of loans, overdrafts or credit cards). ANZ is required to hold such provisions under Australian Accounting Standards Board (AASB) 139. AASB 139 is concerned with the measurement of a present or current loss; that is, a cost of ANZ to be recognised now and not an estimate of any future losses that may be expected or anticipated, in order to ensure that the financial statements present a fair value of what is likely to be collected from ANZ's receivables. 145 When accounting for a provision, two changes are reflected in the accounts. First, the asset ANZ is currently recognising on its balance sheet (the amount the customer owes) is reduced to the level that ANZ expects to recover, that is, to its fair value. Second, a loss is recorded in ANZ's profit and loss account as an expense or cost, representing the reduction (impairment) in the asset value. It is concerned with measurement of a present or current cost, not a future cost. 146 ANZ uses a collective approach to provisions in respect of the Basel Retail Asset Class, being exposures less than $500,000. This class includes credit cards, retail deposits, mortgages, personal loans and private banking accounts and various business accounts. The movement in the collective provision is recorded in the profit and loss account. If an individual customer account is written off, ANZ records the cost of write off at that time on that account and therefore no longer uses the collective provision to estimate the loss. The cost to ANZ of the impaired or lost asset is transferred from the collective provision to an individual provision in the profit and loss account. The overall cost to ANZ in any given year (the Impaired Asset Expense) is therefore the sum of the write off expense and the change in the individual provision and collective provisions between the beginning and end of the year. 147 ANZ's calculation of the collective provision is based upon, in part, account behaviour. That is not surprising. Account behaviour is an indicator of the risk associated with repayment of borrowings and therefore of the impairment of the loan asset. Account behaviour by which customers initiate transactions that would overdraw the account beyond approved credit limits, and late payment in the case of card accounts, increase the calculation of risk associated with the borrowings on the account and increase ANZ's collective provision. As Mr Regan described it, a provision is much like a fuel gauge. If the fuel gauge indicates that you are low, you are going to need to refuel if you are going to finish your journey. However, the fuel gauge is not responsible for the need to go to the petrol station. The provision, like the fuel gauge, merely indicates that there may be in the future the inability to collect a specific balance. 148 Mr Inglis gave evidence that a cost to ANZ occurs when the provision is made. At that time, the provision is recorded as an expense or cost in the profit and loss account. The provision is not recording a future loss. It is a present loss, being the reduction in value of a loan to a customer by reason of the customer's behaviours (here, Exception Fee Event behaviour). In Mr Inglis' view, the reduction in value of a loan asset was an accepted category of loss. Consistent with that view, Mr Inglis performed a number of calculations demonstrating the effect of overdraw transactions and late payment on ANZ's provisions. According to these calculations, the increase in the loss provision resulting from an Exception Fee Event would often exceed the amount of the Exception Fee. 149 On the other hand, Mr Regan disregarded these provision costs. ANZ submitted that this was as a result of the instructions he was given, not because he disagreed with Mr lnglis as a matter of accounting theory or practice. ANZ submitted that given the backward looking nature of the question he was asked, Mr Regan took as his starting point the present fact that the Applicants had not, to date, defaulted in the repayment of their borrowings and they had not caused ANZ to write off amounts owed by them. However, that is not a complete answer. As Mr Regan accepted in cross-examination, at the time of making the provision ANZ would not know whether a customer (including the Applicants) would or would not default in repayment; the provision is based on the information available to ANZ at the time the provision is made. Indeed, looking forward from today, ANZ does not know whether or not the Applicants will default in repayment of their borrowings and therefore maintains a loss provision reflecting the risk that they will default. 150 Are loss provisions then a cost to be considered in assessing the extravagance or otherwise of an Exception Fee? While a loss provision may well be a "cost" in an accounting sense, it does not represent a loss or damage incurred as a result of an Exception Fee Event. A provision is merely an accounting entry, which is made to reflect the fact that it is estimated that some proportion of a group of outstanding loans will be unable to be collected. As Mr Regan said in evidence, a bank in the credit card business knows when advancing funds on behalf of cardholders that not all of those cardholders are going to be paying the balances. A provision is no more than a probability that not all of the recorded amount will be received by the institution. In the case of Mr Paciocco, he was not among the population of cardholders that were not paying the cardholder balances to ANZ. ANZ was not writing off the balances due from him. He may have been paying late, but he was paying. There was and remains a distinction between the statistical estimate of a future loss (general in nature) and what in fact occurred. Moreover, if assets are ultimately received at their full value, a provision will be written down to zero. 151 Provision costs were not relevant to the cost of the Exception Fee Event. Increase in the cost of regulatory capital 152 ANZ's expected losses in any financial year are reflected in its accounting provisions: see [144]-[149] above. As an authorised deposit-taking institution (ADI), ANZ is required to hold Regulatory Capital to cover unexpected losses: for example, see Prudential Standard APS 110 which requires an ADI to maintain adequate capital to act as a buffer against the risk associated with its activities. 153 An ADI's capital adequacy is measured by the ratio of the ADI's capital base to its risk weighted assets (RWA) (the "capital ratio"). The RWA is calculated as the value of ANZ's assets weighted for credit risk by means of a risk-weight function (K). The risk-weight function increases as the risk of default increases. If the risk increases, the RWA increases and the capital ratio declines, requiring the ADI to hold additional Regulatory Capital. Account behaviour such as overdraw transactions and late payment adversely affect the risk-weight function in a similar manner to the collective provision, thereby increasing the Regulatory Capital required to be held. 154 Regulatory Capital has a cost to ANZ. It is the loss of the additional return, over and above the return ANZ is actually able to earn on that Regulatory Capital, ANZ is required to earn from its customers to provide an adequate return to the providers of its capital. Mr Inglis calculated the cost of the different components of ANZ's regulatory capital as 10% for Core Tier 1 Capital (shareholder funds), 0.8% for Residual Tier 1 Capital (typically hybrid instruments such as convertible notes and preference shares) and 0.3% for Tier 2 Capital (subordinated debt instruments). 155 Mr Inglis calculated the effect of overdraw transactions and late payment on the amount of Regulatory Capital required to be held by ANZ and the cost of that additional Regulatory Capital. In many instances, the cost of additional Regulatory Capital alone would exceed the applicable Exception Fee. Mr Regan disregarded regulatory capital cost for the same reason he disregarded provision costs. He considered that the regulatory capital cost was a follow on cost from the provision costs. As such, the costs of regulatory capital were not relevant to the question that he was asked. ANZ submitted that because the question he was asked was not relevant to the issue of "extravagant quantum" to be determined by the Court, his view on this topic should be disregarded. I reject the contention that the alleged increase in cost of regulatory capital is to be taken into account in calculating loss or damage. Put another way, provisions and regulatory capital are part of the costs of running a bank in Australia. No increase in them can be directly or indirectly related to any of the late payments by Mr Paciocco. As the Applicants submitted, there are many cases each year by banks against customers and guarantors where the principal debtor has defaulted. In those cases, the banks seek damages limited to the sums outstanding, enforcement costs and interests. No one has suggested that a bank would be entitled to recover an increase in provisioning or the cost of its regulatory capital. Operational Costs 156 ANZ incurs operational costs associated with late payment of card accounts (as well as overdraw transactions on deposit and card accounts). Presently, it is necessary to consider operational costs associated with late payments. 157 Late payment of card accounts may trigger collections activity by ANZ. Collections activity is the action taken by ANZ to recover amounts owed by customers. In the case of Exception Fee 4, there were steps taken by the collections section of ANZ: see [112] above. Mr Inglis calculated the cost to ANZ of collections activity ("collections costs") in various scenarios. In many scenarios, the collections costs associated with a late payment of a card account exceeded the amount of the Exception Fee. 158 Next, ANZ incurs operational costs in responding to enquiries from customers who have incurred Exception Fees ("enquiry costs"). Customers typically query the reason for the imposition of the fee and whether the fee can be reversed. ANZ also incurs significant overhead costs in respect of its deposit and card account products ("product costs"). It is ANZ's practice to allocate the majority of such product costs to specific product areas. Mr Inglis allocated those product costs to the transactions associated with Exception Fees. 159 Mr Regan accepted that ANZ incurs these costs. However, the question he was asked required him to assess the actual variable or incremental costs incurred by ANZ as a result of the Exception Fee Events. As such, some operational costs were excluded by Mr Regan because they did not vary by reason of the Exception Fee Events relevant to the Applicants. For that reason, ANZ submitted, Mr Regan's evidence on ANZ's operational costs should be disregarded by the Court. 160 It is necessary to consider each category of operational costs. For the reasons that follow, Mr Inglis' approach is rejected. 161 First, collections costs. Mr Regan's calculations are based on evidence available as to actual call lengths in relation to the Applicants. Mr Regan used actual call lengths when known and the average of the actual call lengths when not known. Mr Inglis criticised that approach, but reluctantly accepted in cross-examination that rather than address an average of customers' call times, data on Mr Paciocco's average call time was a better indicator of his average call length, a matter also accepted by Mr Rinaldi, the Retail Manager of the Customer Connect team in the Operations group at ANZ, in cross-examination. I reject Mr Inglis' criticism. 162 Next, the hourly rate for collections costs. Mr Inglis used a cost per minute based upon his full absorption costing methodology to arrive at an hourly rate. Mr Regan on the other hand, used an assumed average wage, adjusted for a variety of inputs. In the course of cross examination, Mr Rinaldi revealed for the first time that since 2012 some of ANZ's collections calls have been made from Manila rather than Melbourne. Having become aware of this information, Mr Regan compared average wages for call centre staff in the Philippines to that of Melbourne. The wages in the Philippines were approximately 15% of that in Melbourne. This reduction in costs reduced the incremental collections costs further and dramatically. Mr Regan's approach is a more appropriate methodology for calculating collections costs than that adopted by Mr Inglis. 163 Second, enquiry costs. Mr Inglis himself acknowledged that these costs do not result from Late Payment Exception Fee Events. They were therefore properly excluded by Mr Regan. 164 Third, product costs. Mr Regan's calculations also properly excluded recovery of large amounts of general "overhead" expenses that bore no relation to the Exception Fees or the Exception Fee Events which gave rise to them. These "overhead" costs are not made greater because of the occurrence of any particular Exception Fee Event, or indeed Exception Fee Events generally. They are and are to be viewed as the costs of being a bank. To take just one example, because Mr Inglis adopted a full absorption methodology, he allocated "inter group expenses" in calculating the cost of each Exception Fee Event. One of the "inter group expenses" he allocated was $195 million in the 2009 Financial Year for the costs to ANZ of its loyalty points program for credit cards. That is a cost that is no doubt necessary to attract customers to enter into a card account with ANZ. It exists to entice customers to contract with the bank. It does not exist as a result of, or as a cost of, an Exception Fee Event. Relevance of ANZ's revenues 165 In his reports, Mr Regan observed that ANZ recovers its costs of its card and deposit account business by earning a variety of revenues (including fees). Mr Regan noted in his report that Mr Inglis' analysis did not address the extent to which the costs which Mr lnglis assessed "ha[d] already been recovered by the interest and other fees that ANZ charge[d] its cardholders". 166 ANZ submitted that ANZ's other revenues were irrelevant to the question it was required to consider. In support of that contention, ANZ submitted that Mr Regan's comment was based on an assumption, namely that "the interest rate which a bank imposes on the cardholders' unpaid balance is designed to cover its cost of capital, its related operating costs and the risk that it will not be repaid, and provide a profit to the bank", for which there was no evidentiary foundation. ANZ submitted that therefore there was no basis to conclude that it applied to the manner in which ANZ set its interest rates, including on Card Account 9629, the low rate card account. Secondly, ANZ submitted that the question of ANZ's other revenues were irrelevant to the issue to be determined by the Court because the other fee revenue earned by ANZ was revenue earned whether or not a customer engaged in activities that give rise to the Exception Fees. 167 Mr Inglis did not take into account the increased revenue which accrued to ANZ as a result of the Exception Fee Events (e.g. the substantial interest charged by ANZ on late and overdrawn amounts, and the other fees (such as cash advance fees) which ANZ imposed on certain types of transactions). His reason for not doing so was that it was not within the scope of his instructions to do so (those instructions being to only calculate the 'costs'). Mr Inglis did not suggest that such benefits were irrelevant when one comes to assess loss and damage. 168 ANZ submissions, in part, are rejected. The general contention that ANZ derives revenue whether or not a customer engages in activities that give rise to exception fees is of little assistance in seeking to resolve the question to be determined by the Court. However, in assessing whether an Exception Fee is extravagant and unconscionable, the fact that ANZ derives other revenue (other than the Exception Fee) from the specific Exception Fee Event is relevant. It simply cannot be ignored. When Mr Paciocco did not make the required monthly payment on his Card Account 9522 by the due date of 31 August 2006, at least two sources of revenue were earned by ANZ – interest at 12.24% on the amount outstanding and the Late Payment Fee. How can you assess the proper character of the Exception Fee without considering the other revenue earned by ANZ on the same Exception Fee Event? The answer is you cannot. That is not the only other term of the contract between the Bank and Mr Paciocco that remains to be considered. For example, under cl 30 of the September 2006 Conditions of Use (see [5(9)] of Annexure 2), ANZ retained the right to cancel the card or refuse authorisation of further transactions on that card at any time if, among other things, ANZ believed the use of the card or account may cause loss to ANZ or Mr Paciocco when, for example, Mr Paciocco was in default under the terms of the account. Those facts and matters are of relevance in determining, for example, whether the stipulated sum (the late payment fee) is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from a failure to meet the primary stipulation. Finch Report 169 Dr Finch was engaged by ANZ to report on whether the opinions expressed in the Regan Reports were correct, with specific regard to methodology, provisions and regulatory capital, and to comment on Mr Inglis' approach to those matters. That engagement was inappropriate and unnecessary. Mr Inglis was the appropriate person to reply to the matters raised by Regan. Such matters were in fact addressed by Mr Inglis in the Joint Report. To the extent that Dr Finch was to act as an "adjudicator" between the experts, it was inappropriate that he be appointed unilaterally by ANZ. The Applicants are justified in their concern that Dr Finch's engagement was an attempt to bolster ANZ's expert evidence by weight of numbers or attempt to 'out credential' the Applicants. (e) Loss and damage – step 6 170 The calculations of Mr Inglis and Mr Regan for each Exception Fee varied considerably. A summary of their respective calculations for Late Payment Fees is attached as Annexure 3. Mr Inglis' calculations produced figures that suggested that the cost to ANZ is significantly greater than the Exception Fee charged. In a competitive financial market, it is difficult to accept that a prudent bank would allow Exception Fee Events to occur at all if the costs of each event far outstripped the amount of the fee. 171 In the Inglis Reply Report, Mr Inglis purported to address ANZ's costs in relation to the specific Exception Fee Events charged to the Applicants including, relevantly here, Exception Fee 4. Mr Inglis assessed the cost at between $5 and $73. In doing so, Mr Inglis dealt with the following cost categories: provisions, regulatory capital and operational costs. For the reasons stated above, his analysis retains the earlier difficulties. He did not address the proper question: see [138]-[140] above. He improperly included provision and regulatory capital costs, which, by far, were the largest cost items: see [144]-[155] above. In fact, Mr Inglis accepted that in relation to some Exception Fee Events (both generally and specifically in relation to the Applicants), no provision or regulatory capital costs were in fact incurred. Mr Inglis' third category of costs, "operational costs", included a number of sub-items. There were a number of significant problems with both the inclusion of the item and, further, its quantification: see [156]-[164] above. 172 Mr Regan assessed the damage at $2.60. However, in doing so he acknowledged that insufficient information had been provided to him to enable him to calculate the precise damage to ANZ attributable to each Late Payment Exception Fee Event so as to restore ANZ to the position it would have been in if the event had not occurred. 173 The circumstances do not permit the loss to be assessed with certainty: see [46]-[47] above. The calculation or estimation of loss is difficult. It is therefore necessary to estimate the value of the loss. I accept that some guesswork and speculation is necessary and appropriate. Having regard to the evidence before the Court, I am satisfied on the balance of probabilities that ANZ suffered some loss or damage by reason of the Late Payment Exception Fee Event and that the quantum of that loss or damage is no more than $3. On any view, it is considerably less than $35. I assess the loss or damage at $3. The loss or damage of $3 is comprised of the operational (collections) costs identified by Mr Regan rounded up to the nearest half dollar. 174 Three other matters should be noted. First, no question of the time value of money arises because ANZ was entitled to, and did, charge interest on the amount not paid. Second, no form of damage other than those I have already considered was identified by ANZ. Third, it is consistent with characterising the stipulation as a penalty (in terrorem) to conclude that ANZ's direct or indirect costs of imposing, or recovering, the stipulation, are not recoverable. (f) ANZ's other submissions 175 ANZ submitted that it was apparent from the evidence adduced by Mr Inglis that the costs that might be occasioned to ANZ by late payment of a card account would be very difficult to calculate precisely. It abandoned its contention that it was impossible. In support of its contention that calculation of costs would be very difficult to calculate precisely, ANZ submitted that when it entered into a card account with a customer, it could not know in advance the circumstances in which the customer might not pay on time the amounts due on the account. In the case of Mr Paciocco, ANZ submitted that it could not know: (a) the account balance at the time of the late payment (which would impact the level of ANZ's provisions and regulatory capital); (b) the (credit risk) score assigned to Mr Paciocco's account at that time (which would also impact the level of ANZ's provisions and regulatory capital); and (c) whether and in what period Mr Paciocco would rectify the late payment (which would affect both the level of ANZ's provisions and regulatory capital and whether ANZ would need to take steps to secure repayment of the additional borrowings from Mr Paciocco which would occasion collection costs). 176 This contention is rejected for a number of reasons. First, it refers to and relies upon categories of cost which are not relevant. Secondly, and no less importantly, it misstates the task of the Court. The applicable principles are set out above: see Part 4, Sections E and F above. The fact that the task is difficult (even very difficult) does not provide an answer (or even part of an answer) to the fact that the Late Payment Exception Fee Provision and Late Payment Fee is a penalty at law and in equity. The stipulated sum is not agreed compensation. (2) Exception Fees 5-11 177 It is appropriate to address each of the steps earlier identified. (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 178 The contractual documents are not in dispute: see the column entitled "Contracts" in Annexure 1 and [53] and [58] above. The Exception Fee Provisions are not in dispute: see the column entitled "Extract of Specific Exception Fee Provision" in Annexure 1 and [54]-[57] above. The other inherent circumstances of the contract included the matters identified as relevant in Part 6, Section B(1)(d) above. (b) Exception Fee Events – step 2 179 These were also not in dispute. For each Late Payment Fee, they are summarised in the column entitled Transaction(s)/Event(s) in Annexure 1. A review of that material indicates, as was the fact, that relevant Exception Fee Events were different. For example, for Exception Fees 5, 9 and 11, a person within or on behalf of ANZ contacted Mr Paciocco to discuss the Exception Fee Event. On some occasions, an automated telephone call was made to Mr Paciocco as a result of the Exception Fee Event: see, for example, Exception Fee 9. On other occasions, the Exception Fee was charged and no further or additional step specific to Mr Paciocco was taken by ANZ: see, for example, Exception Fees 6-8 and 10. (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 180 As noted at [113] above, for Exception Fees 5-11 ANZ maintained its "formal" submission that each Late Payment Fee was not payable on breach but was a fee charged by ANZ, as part of the operation of the account, in respect of credit extended to the customer for a period of time beyond that previously agreed with the customer and for the increased risk of default in repayment of the amounts borrowed: see Andrews Trial at [244]-[249]. ANZ maintained that position before this Court and again contended that each Late Payment Fee was a fee payable upon a further period of credit necessarily extended by ANZ to the customer because of the absence of timely payment. 181 It was common ground that there was no relevant distinction between these Exception Fees and Exception Fee 4. A plain reading of the contractual documents and the applicable Exception Fee Provisions leads to the conclusion that the Late Payment Fee was payable upon breach by the customer of his contractual obligation to make payment by a stated date: see [114] above. Contrary to the submission of ANZ, the stipulation was not a fee payable upon a further period of credit necessarily extended by the bank to the customer because of the absence of timely payment. The credit had already been extended. It was the repayment of the credit, or at least part of the credit, already extended that ANZ was seeking. No further credit was extended. 182 Again, even if, contrary to the view just expressed, the Late Payment Fee was not payable upon breach by the customer of his contractual obligation to make payment by a stated date (a view I do not hold), then as a matter of substance, the stipulation in the letter of offer (namely, that "a fee of $35 will be charged to your credit card account if [the amount] shown on the statement of account is not paid within 28 days of the "Statement Period" shown on that statement") was collateral to the primary stipulation in favour of ANZ that required Mr Paciocco to make a minimum monthly payment by a due date: see [115] above. For the reasons stated above (see [116]), at law and in equity, the collateral stipulation was, as a matter of substance, to be viewed as security for, or in terrorem of, the satisfaction of the primary stipulation. (d) Extravagant and Unconscionable – step 5 183 For the reasons set out at [117]-[169] above, each of Exception Fees 5-11 is extravagant and unconscionable. (e) Loss and damage – step 6 184 Having determined that the Late Payment Exception Fee Provision and Exception Fee was prima facie a penalty at law and in equity and given that ANZ admitted that the Exception Fee was not a genuine pre-estimate of damage, the question left to be determined is to what extent (if any) did the amount stipulated to be paid exceed the quantum of the relevant loss or damage which can be proved to have been sustained by the breach, or the failure of the primary stipulation, upon which the stipulation was conditioned: see [48] and [126]-[130] above. 185 As noted earlier (see [179] above), a review of the column entitled Transaction(s)/Event(s) in Annexure 1 indicates, as was the fact, that the Exception Fee Events giving rise to Exception Fees 5-11 were different. For example, for Exception Fees 5, 9 and 11, a person within or on behalf of ANZ contacted Mr Paciocco to discuss the event. On some occasions, an automated telephone call was made to Mr Paciocco as a result of the event: see, for example, Exception Fee 9. On other occasions, the Exception Fee was charged and no further or additional step specific to Mr Paciocco was taken by ANZ: see, for example, Exception Fees 6-8 and 10. 186 As with Exception Fee 4, the circumstances do not permit the loss to be assessed with certainty: see [173] above. The calculation or estimation of loss is difficult. It is therefore necessary to estimate the value of the loss. Again, I accept that some guesswork and speculation is necessary and appropriate. Having regard to the evidence before the Court, I am satisfied on the balance of probabilities that ANZ suffered some loss or damage by reason of the Late Payment Exception Fee Event and that the quantum of that loss or damage is no more than the operational (collections) costs identified by Mr Regan rounded up to the nearest half dollar. Of course, in relation to Exception Fees 6 to 8 and 10, Mr Regan identified no operational (collections) costs. In relation to those Exception Fees, the loss or damage is assessed at $0.50. 187 The three other matters earlier identified (see [174]ff above) apply equally to those Late Payment Fees. C. Pre-December 2009 –- Honour, Overlimit and Non-Payment Fees (1) Saving Honour Fee (Exception Fee 1) 188 It is appropriate to consider a Saving Honour Fee (Exception Fee 1). (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 189 The contractual documents are not in dispute: see the column entitled "Contracts" in Annexure 1 and [63] above. The Exception Fee Provisions are not in dispute: see the column entitled "Extract of Specific Exception Fee Provision" in Annexure 1 and [65]-[66] above. The other relevant circumstances include the matters listed in Part 6, Section B(1)(d) above. (b) Exception Fee Events – step 2 190 These were not in dispute: see the column entitled Transaction(s)/Event(s) in Annexure 1. At the commencement of 12 September 2008, no overdraft facility had been agreed for Saving Account 156. However, there was an Online Excess Shadow Limit applicable to an ATM withdrawal on that account. The Online Excess Shadow Limit for Saving Account 156 was $200. The Online Excess Shadow Limit was explained at [101] above. 191 On 15 September 2008, the opening balance of Saving Account 156 was $46.99. Five transactions were posted to the account on 15 September 2008. An ATM withdrawal valued at AUD79.43 (FJD100.00) initiated by Mr Paciocco at 7:24pm on 12 September 2008 at the Sheraton Royal in Nadi, Fiji was automatically authorised by ANZ's Core Transaction Management System (CTM) because its processing would not bring the account beyond its shadow limit. The transaction was posted, leading to a debit balance of $32.44. A further ATM withdrawal valued at AUD156.52 (FJD200.00) initiated by Mr Paciocco at 4:24pm on 13 September, also in Fiji, was also automatically authorised by CTM because its processing would not bring the account beyond its shadow limit. That transaction was posted, leading to a debit balance of $188.96. Then, a 'Cirrus ATM Transaction Fee' of $10 was posted to the account, leading to a debit balance of $198.96 and, finally, an honour fee of $35, being Exception Fee 1, was charged, leading to a final debit balance of $233.96. In addition, ANZ sent a standard form letter to Mr Paciocco advising him that he had incurred an honour fee, and outlining ways in which he might avoid incurring fees in the future. On 18 September 2008, $3,000 was deposited into the account, resulting in a credit balance of $2,766.04. 192 ANZ's response to an overdraw transaction on this account was governed by the Auto Honour process. The Auto Honour process applied to online transactions including ATM transactions. The Auto Honour process determined whether a transaction on a saving account would be honoured, declined or referred to the not for sufficient funds (NSF) team for manual review. The NSF team was not engaged in relation to Saving Account 156. It will be necessary to consider the NSF system in relation to Business Account 58555. 193 The Auto Honour process on saving accounts was undertaken by ANZ's CTM system. In general terms, a transaction will be honoured by the Auto Honour process where the transaction would not cause the account to overdraw beyond the shadow limit. The evidence disclosed that a vast majority of saving accounts have their shadow limit calculated by ANZ's electronic system known as TRIAD. TRIAD calculated a deposit account's shadow limit based upon a range of factors including the customer's historical account behaviour. The shadow limit was recalculated at least monthly. A small number of saving accounts have their shadow limit set by ANZ's Customer Account Processing system. These accounts have a shadow limit of zero or a small fixed shadow limit determined by the type of account as opposed to a customer specific shadow limit determined in the manner just identified. 194 When the Auto Honour process honoured a transaction, ANZ did not assess the nature of the transaction in determining whether to authorise the transaction. ANZ's assessment was based solely on the amount of the transaction in relation to the balance of the account and the pre-determined shadow limit. Saving Account 156 had different shadow limits over time. 195 When an overdraw transaction was auto-honoured, an honour fee could be charged. If an online transaction would overdraw the account beyond its shadow limit, the transaction would be declined and no exception fee would be charged. (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 196 Mr Paciocco submitted that Exception Fee 1 was payable upon breach of contract. The submission was as follows: Clause 2.12 of the August 2008 Terms and Conditions contained a requirement that it was "a condition of all ANZ accounts that you must not overdraw your account without prior arrangements being made and agreed with ANZ". The Macquarie Dictionary (5th ed) defines 'overdraw' as follows: 1. to draw upon (an account, allowance, etc.) in excess of the balance standing to one's credit or at one's disposal. 2. to draw too far; strain, as a bow, by drawing. 3. to exaggerate in drawing, depicting, or describing. 4. to overdraw an account or the like. That definition emphasises that the overdrawing refers to an act by the customer in respect of the account. It is not the Bank's response that is relevant; the initiation of the event of overdrawing is the act of the customer, and that act is contrary to the language of obligation included in cl 2.12 of the August 2008 Terms and Conditions. The overdrawing by the customer was a breach of the customer's contractual obligations. (Emphasis in original.) 197 I reject that contention. First, it does not refer to all of the applicable contractual terms. Significantly, it omits any reference to the opening words of cl 2.12 ("ANZ does not agree to provide any credit in respect of your account without prior written agreement": see [65] above) or to the fact that the balance of the clause expressly provides for that which the Applicants contend is prohibited (the overdrawing of the account). The last activity is at ANZ's discretion and if exercised in favour of the account holder, is subject to interest and an honour fee. 198 As was explained in Andrews Trial: 1. A withdrawal or payment instruction given by a customer that would have the effect of overdrawing the customer's account or exceeding the account credit limit is to be construed as a request from the customer for an advance or loan from ANZ. ANZ may approve or decline the request in its discretion: Andrews Trial at [82], [177], [279], [306] and [322]. 2. The overdrawing of a customer account (whether a deposit account or a credit card account) was not a unilateral action by the customer, but was an action that required the consensual conduct of ANZ and the customer: for example, see [191] above. For the transaction to proceed, ANZ had to agree to and approve or authorise the transaction: Andrews Trial at [182], [280], [291], [307] and [323]. 3. Overdrawing the account could not constitute a breach by the customer of a contractual obligation. Such transactions fell within the express provisions of the applicable contractual terms which stated that ANZ may allow or authorise such transactions, or were outside the contractual terms because ANZ approved the transaction: Andrews Trial at [182], [280], [291], [307] and [323]. 4. It was not a breach of contract for ANZ's customers to give a withdrawal or payment instruction to ANZ that would have the effect, if honoured, of overdrawing the customer's account or exceeding the account credit limit. The relevant provisions of the customer contracts did not impose a contractual obligation not to give such an instruction. In fact, the relevant provisions stated expressly that ANZ may allow or authorise such a transaction: Andrews Trial at [185], [186], [208], [214], [328] and [331]. 5. Honour and overlimit fees (as will become relevant later) were charged by ANZ as a consequence of a customer issuing a withdrawal or payment instruction to ANZ that would have the effect, if honoured, of overdrawing the customer's account or exceeding the account credit limit and ANZ approving or authorising the instruction. The fees were charged in respect of ANZ's decision concerning the request for additional borrowing: Andrews Trial at [182], [183], [187], [279], [280], [291], [306], [307] and [328]. The honour fee in respect of consumer accounts was charged once per day, regardless of how many transactions that occurred on that day overdrew the account (Andrews Trial at [187]) and the overlimit fee in respect of card accounts was charged once per month, at the end of a statement period, if the balance of the account exceeded the credit limit during the statement period: Andrews Trial at [277]. Honour and overlimit fees were not charged by ANZ upon a breach of contract by the customer. This analysis is equally applicable to the Exception Fee Provisions in this case: see [65]-[66] above in relation to Exception Fee 1, and in respect of other Honour and Overlimit Fees to be discussed later in these reasons, see [60]-[62] (Overlimit Fee), [77]-[79] (Overlimit Fee), [84]-[88] (Business Honour Fee) and [248] (Overlimit Fee); see also Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm) at [76]-[80]. 199 Consistent with that reasoning, the imposition of Exception Fee 1 did not arise because of, or involve, a breach of contract. The Exception Fee was not payable upon any element of the contract which viewed, as a matter of substance, involved breach. 200 The next question is whether the liability to pay the Honour Fee was a collateral (or accessory) to a primary stipulation in favour of ANZ? 201 Mr Paciocco contended that the Honour Fee was payable upon such a stipulation. Mr Paciocco submitted that an overdraw was not just any event but an event coloured by the language of the contract and its inherent circumstances which "make it clear that it is an event which [ANZ] wished to discourage occurring". As Mr Paciocco submitted: Not overdrawing was a "desired act" from the Bank's point of view; it did not want customers to overdraw their accounts. The contractual provisions were expressed in language strongly discouraging the customer from overdrawing. In the case of credit cards … the customer "must not" exceed the credit limit without ANZ's authorisation, and so far as the Savings Account was concerned the customer "must not overdraw" without prior arrangement being agreed with ANZ. The inherent circumstances … show that ANZ regarded accounts as being "out of order", or requiring action to rectify or correct them. As a matter of construction and taking into account the inherent circumstances, the Exception Fees were intended by ANZ to stand in terrorem of failure by the customer to keep the account in order. They were known by bank officers to be so intended – as their "whole point" was to effect behavioural control and ensure customers kept their account in order. … Even if it is correct to say that the fee is payable by a customer "in response to a request for credit"…, that does not mean that fee is not also payable upon failure of a stipulation. The two are not mutually exclusive. (Emphasis in original.) 202 Those contentions are rejected. They are rejected because the Honour Fee is not payable upon failure of a stipulation. ANZ was not bound to meet the customer's request. The liability to pay the fee arose as a result of, and in exchange for, something more than and different from that which had existed up to that point in time. Properly construed, the provision which entitled ANZ to charge the Honour Fee did not impose a fee to be regarded as security for performance by the customer of other obligations to ANZ. It was a fee charged in accordance with pre-existing arrangements according to whether ANZ chose to provide something more and further to the customer. In the present case, it was a fee charged by ANZ for authorising payments upon instructions by Mr Paciocco upon which ANZ otherwise was not obliged to act: see [33]-[38] above. Shadow limits 203 The Exception Fee Events giving rise to Exception Fee 1 record that the overdrawings that led to the imposition of the Exception Fee were within the shadow limit. Shadow limits have been considered at [101] above. That a bank chooses to honour certain payments automatically does not, in any respect, alter the substance of the preceding analysis: see [196]-[202] above. 204 The setting of a shadow limit by a bank may well be administratively convenient. Its adoption constitutes no more than the adoption of a particular rule which will dictate the bank's decision in a particular case. That rule reflects a decision by the bank that it will meet certain requests. Neither adopting nor implementing the rule alters either the nature or the validity of the analysis in [196]-[202] above. The decisions that are made either individually, or in the form of a general rule, about the provision of further accommodation are each driven by the bank's assessment of the risks attached to a particular transaction by a particular account holder. It matters not whether that assessment is made by a bank officer considering the circumstances of a particular transaction by a particular account holder or by one or more bank officers formulating a general rule which is then applied to a particular transaction by a particular account holder either electronically or otherwise. (d) Extravagant and unconscionable – step 5 205 In light of the views just formed, it is strictly unnecessary to consider this question. However, it is appropriate to consider the following submissions. 206 Mr Paciocco submitted that the Court was required to consider the substance of the arrangements, "based on the evidence and not be beguiled into acceptance of notions of theoretical deemed requests for financial accommodation, and non-existent considerations of those requests". Mr Paciocco sought to submit that an analysis of the kind just undertaken was incomplete in the sense that it was insufficient to reveal whether ANZ's conduct in charging the Honour Fee was unconscientious. Some at least of Mr Paciocco's submissions appealed to what he described as subjective to ANZ. As explained at [41] and [126] above, I consider those considerations not to be relevant. 207 Whether or not that is so, Mr Paciocco's analysis fails to take account of two fundamental considerations. First, the customer "chose" to give the instruction which constituted the request for further accommodation. The fact that Mr Paciocco may not have averted to the state of his account with the bank before issuing the instruction does not alter the fact that it was he alone who chose to issue the instruction to the Bank. The second point is that ANZ was not bound to meet the instruction. But, if it chose to do so, the terms on which it would meet the instruction had been notified to, and agreed by, Mr Paciocco. 208 Other considerations to which Mr Paciocco referred including, in particular, what he described as ANZ's desire to maximise its fees, neither permits nor requires the conclusion that ANZ acted unconscionably in charging the agreed fee to provide accommodation which Mr Paciocco sought and ANZ was not bound to provide. Dr Jenkins and "service" 209 ANZ engaged Dr Jenkins, an economist, to provide her opinion on whether "the circumstances surrounding the charging of exception fees" gave rise to the supply of one or more services by ANZ to the Applicants, and if so, what the nature of those services was and what the benefit (if any) was that the Applicants received from those services. Those questions were not directed at the particular Exception Fees charged by ANZ against Mr Paciocco and/or SDG's accounts, and Dr Jenkins did not consider the questions she was asked in relation to Mr Paciocco and/or SDG specifically. Her focus was on a "broader group". As she stated in cross-examination, she "examin[ed] markets at a general level and from that [drew] conclusions about the behaviour of individuals". Dr Jenkins did not seek to identify any of the subjective characteristics of Mr Paciocco, for example, that may have influenced him in wanting the provision of a particular credit facility at any particular time. She did not seek any specific information about him as an individual, or of his motivations. She was not provided with a copy of, and did not read, Mr Paciocco's affidavit. 210 Unsurprisingly, Dr Jenkins' evidence was vague and generalised. It involved a summary of generalised conclusions containing such banalities as "the main characteristic of a service is that it conveys a benefit to the customer", "I find that consumers enjoy several benefits associated with the possibility to go into unarranged overdraft", and "[w]hen a transaction is honoured, consumers benefit from the flexibility of being able to meet wants or needs immediately". Such evidence does not assist the Court. 211 Finally, in this context, mention should be made of Abbey National, in which the United Kingdom Supreme Court held that charges for unauthorised overdrafts (equivalent to honour fees) were consideration for the package of banking services supplied to personal current (transaction) account customers. That decision does not advance ANZ's case. The regulatory framework is different. The terms of the "arrangements" between the bank and the customer are different. There can be no automatic application of what is said by the United Kingdom Supreme Court to the Exception Fees in issue in this case. (e) Loss and damage – step 6 212 In light of the views just formed, it is unnecessary to consider this question. (2) Overlimit Fees on the Card Accounts: Exception Fees 12 and 13 (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 213 The contractual documents are not in dispute: see the column entitled "Contracts" in Annexure 1 and [59] above. The Exception Fee Provisions are not in dispute: see the column entitled "Extract of Specific Exception Fee Provision" in Annexure 1 and [60]-[62] above. The other relevant circumstances include the matters listed in Part 6, Section B(1)(d) above. (b) Events or transactions giving rise to the imposition of Exception Fees 12 and 13 – step 2 214 These were not in dispute: see the column entitled Transaction(s)/Event(s) in Annexure 1. 215 In relation to Exception Fee 12, at the commencement of 28 July 2009 the opening balance of Card Account 9629 was $0 and the credit limit on the account was $4,000. The shadow limit on the account at that time was $120. On 28 July 2009, two events occurred. Mr Paciocco obtained a cash advance of $4,000 which was debited to the account, resulting in a debit balance of $4,000 and then a cash advance fee of $80.00 was also debited to the account, resulting in a debit balance of $4,080. On 12 August 2009, and as a consequence of the debiting of the cash advance fee to the account, an Overlimit Fee of $35 – Exception Fee 12 – was charged to the account. The next payment that was made was a payment of $4,300 on 4 September 2009, which brought the account back within its credit limit. 216 In relation to Exception Fee 13, at the commencement of 4 August 2009, the opening balance of Card Account 9522 was $14,878.33, the credit limit on the account was $15,000 and the shadow limit was $1,500. On 4 August 2009, two events occurred. A recurring direct debit of $245.54 in favour of 'Norwich Union Life Melbourne' was initiated (processed on 5 August 2009), resulting in a debit balance of $15,123.87 and a recurring direct debit of $612.02 in favour of 'Norwich Union Life Melbourne' was initiated (processed on 5 August 2009), resulting in a debit balance of $15,735.89. Then, on 11 August 2009 (and processed on 12 August 2009) Mr Paciocco initiated an EFTPOS debit transaction of $143.95 in favour of 'Medibank NSW Contribt Melbourne', resulting in a debit balance of $15,879.84. On 6 September 2009, as a consequence of these three transactions which each overdrew the account within its shadow limit, an Overlimit Fee in the amount of $35 – Exception Fee 13 – was charged to the account. The first two transactions were recurring direct debits on a MasterCard which were processed as EFTPOS transactions and authorised by CTM. The third transaction was authorised by CTM. The next payment that was made was a payment of $1,000 made on 12 August 2009, which brought the account back within its credit limit. 217 The evidence, in a general sense, disclosed that when a transaction is initiated on a card account, an electronic process (ANZ's Overlimit Process) determines whether a transaction on a card account will be approved by ANZ or declined. That process approves a transaction where it would not cause the account to exceed the credit limit by an amount beyond the shadow limit. 218 The shadow limit was calculated by TRIAD. TRIAD calculated a consumer credit card account's shadow limit based on a number of factors including the customer's historical account behaviour. In the case of Mr Paciocco, the shadow limits varied between the two Card Accounts and varied over time. 219 ANZ's Overlimit Process was undertaken by ANZ's Core Transaction Management system (CTM). CTM dealt with the requests for authorisation of transactions on card accounts. There are other systems which may authorise overdraw transactions on a card account. In relation to Mr Paciocco, the MasterCard scheme is relevant. That scheme directs that for recurring transactions (where the card holder has provided instructions to a merchant by way of an ongoing authority), the electronic transaction is not required to include a request from the acquirer to ANZ to decide whether to approve or decline the transaction (subject to the proviso that ANZ may "charge back" to the acquirer in specified circumstances). The scheme provides for the pre-approval of the recurring transaction. (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 220 Mr Paciocco submitted that each of Exception Fees 12 and 13 was payable upon breach of contract and further or alternatively, the liability to pay the Overlimit Fee was collateral (or an accessory) to a primary stipulation in favour of ANZ. 221 For the same reasons as Exception Fee 1 (see [196]-[204] above), those contentions are rejected. 222 The Overlimit Fee (despite the different nomenclature) is substantively not different to the Honour Fee. Significantly, the July 2009 Conditions of Use stated (see [60] above): You must not exceed the credit limit unless ANZ has consented in writing or ANZ otherwise authorises the transaction which results in the account holder's outstanding balance exceeding the credit limit. (Emphasis added.) 223 That is what occurred here in relation to Exception Fees 12 and 13. The clause expressly provided for that which Mr Paciocco contended was prohibited; the overdrawing of the account. That action required (as the clause stated) the consensual conduct of ANZ and Mr Paciocco. For the transaction to proceed, ANZ had to agree to and authorise the transaction: see [192]-[195] above. The overdraw transaction was a request by the customer for an advance or loan from ANZ which ANZ had the discretion to approve or disapprove: see [93] above. The overlimit fee became payable upon the customer initiating an overdraw transaction and ANZ exercising its discretion to approve the loan. The card account expressly contemplated the occurrence of overdraw transactions and stipulated that ANZ had a discretion to authorise the transaction and allow it to proceed. The events for which the fee was charged could not be a breach of a contractual obligation. 224 An overlimit fee was not charged in order to secure the performance of a primary stipulation not to overdraw the account or initiate an overdraw transaction. Rather, the customer was entitled to initiate such a transaction and the fee was payable in respect of ANZ's consideration of and decision in respect of the request for a further advance. The fee was charged if ANZ chose to allow the transaction and thereby approve the request for additional borrowing. Moreover, an overlimit fee was charged once per month, regardless of how many transactions occurred in that month which caused the credit limit to be exceeded: see [61]-[62] above. The fee was not payable upon a failure of a stipulation. It was payable in respect of ANZ's response to the request for further borrowing. Indeed, it was not payable each time that a request and response was made. It was only payable once per month. 225 As was the position with Saving Account 156, it was within ANZ's power to prevent Mr Paciocco from overdrawing his Card Accounts. There was no necessity for ANZ to accommodate such informal requests for additional borrowings and exercise any discretion with respect to the requests. ANZ could have elected not to permit Mr Paciocco to overdraw at all. Instead of preventing overdraw transactions, ANZ anticipated and planned for such transactions and developed procedures and systems to assess and determine whether to allow the overdrawing to occur. The fact that ANZ chose to accommodate these informal requests, when there was no necessity for it to do so, supports the conclusion that the overlimit fee cannot be characterised as security for the performance of a stipulation, especially a stipulation not to overdraw the credit limit. As noted above, the overlimit fee was a consensual additional obligation in the card account and not a penalty. The term imposed a fee in circumstances where Mr Paciocco had the right to initiate a transaction that would exceed the credit limit, thereby seeking further accommodation from ANZ, and the fee was payable for ANZ's consideration and approval of the relevant instruction. 226 Both Exception Fees 12 and 13 arose in the context of transactions with the shadow limit. For the reasons set out at [203]-[204] above, that a bank chooses to honour certain payments automatically does not, in any respect, alter the substance of that analysis. 227 Likewise, ANZ's choice to enter into the MasterCard scheme which will entail the "force posting" of certain kinds of transactions presents no different issue from those considered in the immediately preceding paragraphs: see [219] above. Again, ANZ has chosen to adopt a set of rules of general application which will, if the relevant circumstances arise, be applied in a particular transaction instigated by a particular account holder. (d) Extravagant and unconscionable – step 5 228 In light of the views just formed, it is strictly unnecessary to consider this question. However, for the same reasons as set out at [206]-[211] above, neither Exception Fee 12 nor 13 is otherwise extravagant and unconscionable. (e) Loss and damage – step 6 229 In light of the views just formed, it is unnecessary to consider this question. (3) Non-Payment Fees: Exception Fees 2 and 3 230 These Exception Fees are unusual. ANZ accepted that Mr Paciocco is entitled to common law damages for breach of contract in the sum of the amount of Exception Fee 2 and Exception Fee 3 from the date of the charging of each Exception Fee together with interest. Mr Paciocco's entitlement to those damages arises because ANZ admitted that the applicable contractual arrangements between ANZ and Mr Paciocco in relation to his Saving Account 156 did not permit ANZ to charge each of those Non-Payment Fees. 231 At the time Exception Fees 2 and 3 were charged, Saving Account 156 was governed by the terms and conditions set out in the August 2008 Terms and Conditions and the August 2008 Fees and Charges Booklet (collectively, the PP Terms). The PP Terms defined "Periodical Payment" and set out the circumstances in which ANZ was contractually entitled to charge a Periodical Payment Non-Payment Fee to that account. The August 2008 Terms and Conditions relevantly provided: 1. at cl 2.6 that "A Periodical Payment is a debit from your ANZ account, which you instruct ANZ to make to the account of another person or business"; 2. at cl 2.7 that "A Periodical Payment Non-Payment Fee is charged if you have authorised a Periodical Payment that is not made because there are insufficient cleared funds in your account". The PP Terms did not contain any other terms relevant to the imposition of Periodical Payment Non-Payment Fees. 232 In the case of each of Exception Fees 2 and 3, the Exception Fees were charged and extracted as a consequence of Mr Paciocco initiating an instruction to ANZ to make a payment from Saving Account 156 to a home loan account held by him with ANZ (Paciocco Home Loan Account). The Paciocco Home Loan Account was not an "account of another person or business" within the definition of Periodical Payment in cl 2.6. Any instruction by Mr Paciocco to make payments from Saving Account 156 to the Home Loan Account was not an instruction to make a Periodical Payment within the meaning of cl 2.6 and, as a consequence, Exception Fees 2 and 3 were not authorised by the PP Terms or any other term of any contract between Mr Paciocco and ANZ and were debited to the Account in breach of contract. 233 Mr Paciocco is entitled to common law damages for breach of contract in the sum of the amount of Exception Fee 2 and Exception Fee 3 from the date of the charging of Exception Fee 2 and Exception Fee 3 together with interest. It is therefore strictly unnecessary to consider Mr Paciocco's contention that the Savings Non-Payment Fee was a penalty at law and in equity. For present purposes, it is sufficient to record that for the reasons explained at [270]-[273] below, each Non-Payment Exception Fee Provision and Exception Fee (Exception Fees 2 and 3) was not penal. D. Post December 2009 – Late Payment Fees 234 In the post December 2009 period, the only Exception Fees the Applicants alleged were payable upon breach was the Late Payment Fee: Exception Fees 14, 16-18, 23, 27, 28, 31, 34, 36-38, 41, 42, 45-47 and 49. The Applicants continued to contend that the other Exception Fees were a penalty in equity. (1) Exception Fees 14, 16-18, 23, 27, 28, 31, 34, 36-38, 41, 42, 45-47 and 49 (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 235 The contractual documents are not in dispute: see the column entitled "Contracts" in Annexure 1 and [72] above. The Exception Fee Provisions are not in dispute: see the column entitled "Extract of Specific Exception Fee Provision" in Annexure 1 and [73]-[75] above. The relevant circumstances included the matters listed in Part 6, Section B(1)(d) above. (b) Exception Fee Events – step 2 236 These were not in dispute: see the column entitled Transaction(s)/Event(s) in Annexure 1. 237 In relation to Exception Fee 14, the account statement dated 13 December 2009 had a closing balance of $2,145.60 (Dr), and required a 'Minimum Monthly Payment' of $43 by the 'Due Date' of 7 January 2010. No such payment was made. As a result, the late payment fee was charged on 12 January 2010. On 3 February 2010 at 12:23pm, a member of ANZ's Collections Team made an outbound call to Mr Paciocco lasting 6.40 minutes, during which Mr Paciocco promised to pay $2000 that same day, and was advised of 'Next Monthly Payment', 'Not To Use Card' and to 'Call Back If Problems'. The notes of the call record that the account was assigned to a class designating Mr Paciocco as a 'Very Important Person', designating that he was a customer 'with significant lending with ANZ'. The next payment that was made was a payment of $2,000 on 3 February 2010. 238 The Exception Fee Events giving rise to the other Late Payment Fees on the Card Accounts were all different: see the column entitled Transaction(s)/Event(s) in Annexure 1. (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 239 Mr Paciocco submitted that the Late Payment Fee was payable upon breach of contract and further or alternatively, the liability to pay the Late Payment Fee was collateral (or an accessory) to a primary stipulation in favour of ANZ. The language of the relevant Exception Fee Provisions had changed: cf Exception Fees 4-11 (see [54]-[58] above). Despite that change in language, the Late Payment Fee remained payable on breach and further or alternatively, the liability to pay the Late Payment Fee was collateral (or an accessory) to a primary stipulation in favour of ANZ: see [114]-[116] and [180]-[182] above. (d) Extravagant and unconscionable – step 5 240 For the reasons set out at [117]-[169] above, each Late Payment Fee is extravagant and unconscionable. (e) Loss and damage – step 6 241 As with Exception Fees 4 and 5-11, the circumstances do not permit the loss to be assessed with certainty: see [173] and [186] above. The calculation or estimation of loss is difficult but it is not impossible. It is therefore necessary to estimate the value of the loss. Again, I accept that some guesswork and speculation is necessary and appropriate. Having regard to the evidence before the Court, I am satisfied on the balance of probabilities that ANZ suffered some loss or damage by reason of the late payment event and that the quantum of that loss or damage is no more than the operational (collections) costs identified by Mr Regan rounded up to the nearest half dollar. Of course, in relation to those fees where Mr Regan identified no operational (collection) costs, the loss or damage is assessed at $0.50. 242 The three other matters earlier identified (see [174] above) apply equally to these Late Payment Fees. E. Post December 2009 – Overlimit, Honour and Dishonour Fees (1) Overlimit Fees (Exception Fees 15, 19-22, 24-26, 29, 30, 32, 33, 35, 39, 40, 43, 44, 48 and 50) (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 243 The contractual documents are not in dispute: see the column entitled "Contracts" in Annexure 1 and [76] above. The Exception Fee Provisions are not in dispute: see the column entitled "Extract of Specific Exception Fee Provision" in Annexure 1 and [77]-[81] above. The other relevant circumstances include the matters listed in Part 6, Section B(1)(d) above. (b) Exception Fee Events – step 2 244 These were not in dispute: see the column entitled Transaction(s)/Event(s) in Annexure 1. The events and transactions varied from one Exception Fee to the other. 245 ANZ's Overlimit Process applied to these Exception Fees and has been set out earlier: see [217]-[219] above. (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 246 Mr Paciocco accepted that each Overlimit Fee was not payable upon breach of contract but contended that the liability to pay the Overlimit Fee was collateral (or an accessory) to a primary stipulation in favour of ANZ. 247 For the same reasons as Exception Fee 1 (see [200]-[204] above), those contentions are rejected. 248 As noted in the context of Exception Fees 12 and 13 (see [222] above), the Overlimit Fee (despite the different nomenclature) is substantively not different to the Honour Fee. Significantly, the March 2010 Conditions of Use stated: … (b) From time to time, there may be a debit made to your credit card account which, if processed, would temporarily result in the outstanding balance exceeding your credit limit. ANZ has an Informal Overlimit service to help you in these circumstances. (c) When a debit is initiated which, if processed, would result in the outstanding balance temporarily exceeding your credit limit, you make a request for an Informal Overlimit amount. ANZ will consider your request for an Informal Overlimit amount and, if both the debit and the account holder satisfy ANZ's credit criteria for Informal Overlimit amounts, ANZ will allow the debit to be processed as an Informal Overlimit amount, on the following terms: … (e) Any withdrawal, transfer or payment from the credit card account will be made firstly from any positive (Cr) balance and secondly from any available credit in the credit card account. An Informal Overlimit amount will only be provided if there is no available credit in the credit card account and both the debit and the account holder satisfy ANZ's criteria for Informal Overlimit amounts. (Emphasis added.) 249 That action required (as the clause stated) the consensual conduct of ANZ and Mr Paciocco. For the transaction to proceed, ANZ had to agree to and authorise the transaction: see [192]-[195] above. The overdraw transaction was a request by the customer for an advance or loan from ANZ which ANZ had the discretion to approve or disapprove: see [93] above. The overlimit fee became payable upon the customer initiating an overdraw transaction and ANZ exercising its discretion to approve the loan. The card account expressly contemplated the occurrence of overdraw transactions and stipulated that ANZ had a discretion to authorise the transaction and allow it to proceed. The overlimit fee was not charged in order to secure the performance of a primary stipulation not to overdraw the account or initiate an overdraw transaction. Rather, the customer was entitled to initiate such a transaction and the fee was payable in respect of ANZ's consideration of and decision in respect of the request for a further advance. The fee was charged if ANZ chose to allow the transaction and thereby approve the request for additional borrowing. Moreover, an overlimit fee was charged once per month, regardless of how many transactions occurred in that month which caused the credit limit to be exceeded: see [78]-[79] above. The fee was not payable upon a failure of a stipulation. It was payable in respect of ANZ's response to the request for further borrowing. Indeed, it was not payable each time that a request and response was made. It was only payable once per month. 250 As was the position with Saving Account 156, it was within ANZ's power to prevent Mr Paciocco from overdrawing his Card Accounts. There was no necessity for ANZ to accommodate such informal requests for additional borrowings and exercise any discretion with respect to the requests. ANZ could have elected not to permit Mr Paciocco to overdraw at all. Instead of preventing overdraw transactions, ANZ anticipated and planned for such transactions and developed procedures and systems to assess and determine whether to allow the overdrawing to occur. The fact that ANZ chose to accommodate these informal requests, when there was no necessity for it to do so, supports the conclusion that the Overlimit Fee cannot be characterised as security for the performance of a stipulation, especially a stipulation not to overdraw the credit limit. As noted above, the Overlimit Fee was a consensual additional obligation in the card account and not a penalty. The term imposed a fee in circumstances where Mr Paciocco had the right to initiate a transaction that would exceed the credit limit, thereby seeking further accommodation from ANZ and the Overlimit Fee was payable for ANZ's consideration and approval of the relevant instruction. 251 Each Exception Fee arose in the context of transactions with the shadow limit. For the reasons set out at [203]-[204] above, that a bank chooses to honour certain payments automatically does not, in any respect, alter the substance of that analysis. (d) Extravagant and unconscionable – step 5 252 In light of the views just formed, it is strictly unnecessary to consider this question. However, for the same reasons as set out at [206]-[211] above, none of these Overlimit Fees was otherwise extravagant and unconscionable. (e) Loss and damage – step 6 253 In light of the views just formed, it is unnecessary to consider this question. (2) Business Honour Fees (Exception Fees 51-61 and 72) (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 254 The contractual documents are not in dispute: see the column entitled "Contracts" in Annexure 1 and [83] above. The Exception Fee Provisions are not in dispute: see the column entitled "Extract of Specific Exception Fee Provision" in Annexure 1 and [84]-[88] above. The other relevant circumstances include the matters listed in Part 6, Section B(1)(d) above. (b) Exception Fee Events – step 2 255 These were not in dispute: see the column entitled Transaction(s)/Event(s) in Annexure 1. The events and transactions varied from one Exception Fee to the other. 256 Business Accounts were divided into centrally managed accounts or relationship managed accounts. Before October 2012, customers with borrowings of about $500,000 or more were serviced by a relationship manager. After October 2012, the threshold increased to $1 million. Business Account 58555 was centrally managed. 257 ANZ's response to an overdraw transaction on a centrally managed business account, other than a periodical payment, is governed by the Auto Honour process and the NSF process. The Auto Honour and NSF processes operate in the same manner as described above in respect of saving accounts save that there is a separate business division of NSF: see [192]-[195] above. For at least 30% of business transactions, the NSF team member contacts the customer to obtain further information in respect of the transaction. (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 258 Mr Paciocco accepted that each Honour Fee was not payable upon breach of contract but contended that the liability to pay the Honour Fee was collateral (or an accessory) to a primary stipulation in favour of ANZ. 259 For the same reasons as Exception Fee 1 (see [200]-[204]), those contentions are rejected. 260 These Business Honour Fees are substantively not different to the Saving Honour Fee (Exception Fee 1). The action required (as the clause stated) the consensual conduct of ANZ and SDG. For the transaction to proceed, SDG had to satisfy ANZ's credit criteria for an Informal Overdraft facility and, if it did, ANZ agreed to and authorised the transaction: see [84]-[85] and [192]-[195] above. The overdraw transaction was a request by SDG for an advance or loan from ANZ which ANZ had to approve or disapprove: see [93] above. The Honour Fee became payable upon SDG initiating an overdraw transaction and ANZ deciding to approve the facility. The contract expressly contemplated the occurrence of overdraw transactions and stipulated when ANZ would authorise the transaction and allow it to proceed. 261 The Honour Fee was not charged in order to secure the performance of a primary stipulation not to overdraw the account or initiate an overdraw transaction. Rather, SDG was entitled to initiate such a transaction and the Honour Fee was payable in respect of ANZ's consideration of and decision in respect of the request for a further advance. The Honour fee was charged if ANZ chose to allow the transaction and thereby approve the request for additional borrowing. 262 Moreover, an honour fee was charged once per day, regardless of how many transactions occurred on that day which caused the credit limit to be exceeded: see [84] and [88] above. The Honour Fee was not payable upon a failure of a stipulation. It was payable in respect of ANZ's response to the request for further borrowing. Indeed, it was not payable each time that a request and response was made. It was only payable once per day. 263 As was the position with Saving Account 156, it was within ANZ's power to prevent SDG from overdrawing Business Account 58555. There was no necessity for ANZ to accommodate such informal requests for additional borrowings. ANZ could have elected not to permit SDG to overdraw. Instead of preventing overdraw transactions, ANZ anticipated and planned for such transactions and developed procedures and systems to assess and determine whether to allow the overdrawing to occur. The fact that ANZ chose to accommodate these informal requests, when there was no necessity for it to do so, supports the conclusion that the Honour Fee cannot be characterised as security for the performance of a stipulation, especially a stipulation not to overdraw the credit limit. As noted above, the Honour Fee was a consensual additional obligation in the contract and not a penalty. The term imposed a fee in circumstances where SDG had the right to initiate a transaction that would exceed the credit limit, thereby seeking further accommodation from ANZ, and the fee was payable for ANZ's consideration and approval of the relevant instruction. 264 Each Exception Fee arose in the context of transactions with the shadow limit. For the reasons set out at [203]-[204] above, that a bank chooses to honour certain payments automatically does not, in any respect, alter the substance of that analysis. (d) Extravagant and unconscionable – step 5 265 In light of the views just formed, it is strictly unnecessary to consider this question. However, for the same reasons as set out at [206]-[211] above, none of these Honour Fees was otherwise extravagant and unconscionable. (e) Loss and damage – step 6 266 In light of the views just formed, it is unnecessary to consider this question. (3) Business Dishonour Fees (Exception Fees 62-71) (a) Terms and Inherent Circumstances of the Contract, judged at the time of the making of the Contract – step 1 267 The contractual documents are not in dispute: see the column entitled "Contracts" in Annexure 1 and [89] above. The Exception Fee Provisions are not in dispute: see the column entitled "Extract of Specific Exception Fee Provision" in Annexure 1 and [90] above. The other relevant circumstances include the matters listed in Part 6, Section B(1)(d) above. (b) Exception Fee Events – step 2 268 These were not in dispute: see the column entitled Transaction(s)/Event(s) in Annexure 1. The events and transactions varied from one Exception Fee to the other. 269 As explained at [256] above, Business Accounts were divided into centrally managed accounts or relationship managed accounts. Business Account 58555 was centrally managed. Accordingly, the Auto Honour and NSF processes applied: see [192]-[195] above. (c) Proper Construction of the relevant stipulation(s) – steps 3 and 4 270 Mr Paciocco accepted that each Dishonour Fee was not payable upon breach of contract but contended that the liability to pay the Dishonour Fee was collateral (or an accessory) to a primary stipulation in favour of ANZ. 271 As explained at [200]-[204] above, I do not accept that the Honour Fee ANZ charged for further accommodation is a penalty. Nor do I consider each Dishonour Fee was a penalty. By issuing an instruction to the bank which, if honoured, would take the relevant account beyond its limit, the customer asks the bank to provide further accommodation: cf Abbey National at [371]-[372]. Again, the fact that the customer may not avert to the state of his account must not obscure the fact that it is the customer who issues the relevant instruction constituting the request for further accommodation. If the bank refuses to meet that instruction, the application which the customer has made is rejected. But the fee the bank charges as a dishonour fee is a fee charged in return for the bank considering (and ultimately rejecting) the customer's request. There is in my view, nothing unconscionable in the bank charging a fee to consider and reject an application which the customer has "chosen" to make, which is an application to alter the agreed terms of the credit facility between the bank and the customer. Again, that the bank chooses to set that fee at whatever the market will permit it to charge does not either alone or in conjunction with any of the other considerations to which Mr Paciocco referred make the Dishonour Fee or the provision which imposes it a penalty. 272 Dishonour and Non-Payment Fees were charged by ANZ as a consequence of a customer issuing certain types of payment instruction to ANZ (cheques and direct debits in the case of dishonour fees and periodical payments in the case of non-payment fees) that would have the effect, if honoured, of overdrawing the customer's account or exceeding the account credit limit and ANZ not approving or authorising the instruction: Andrews Trial at [207], [208], [214], [328] and [331]. The liability to pay the Dishonour Fee was not collateral (or an accessory) to a primary stipulation in favour of ANZ. (d) Extravagant and unconscionable – step 5 273 In light of the views just formed, it is strictly unnecessary to consider this question. However, for the same reasons as set out at [206]-[211] above, none of these Honour Fees was otherwise extravagant and unconscionable. (e) Loss and damage – step 6 274 In light of the views just formed, it is unnecessary to consider this question. Part 7: UNCONSCIONABLE CONDUCT A. Introduction 275 There were two applicable unconscionable conduct regimes – under the ASIC Act and the FTA. 276 In respect of the Saving and Card Accounts, the Applicants alleged that ANZ engaged in unconscionable conduct in contravention of s 12CB of the ASIC Act and, in respect of conduct prior to 1 January 2011, also s 8 of the FTA by entering into, and giving effect to, those contracts with the Applicants (and in particular, in giving effect to the Exception Fees). In respect of the Business Account, the Applicants alleged that ANZ engaged in unconscionable conduct in contravention of: 1. in respect of conduct prior to 1 January 2011, s 12CC of the ASIC Act and/or s 8A of the FTA (now repealed and contained in the Australian Consumer Law found in Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL)); 2. in respect of conduct on or after 1 January 2011 and prior to 1 January 2012, s 12CC of the ASIC Act; and 3. in respect of conduct on or after 1 January 2012, s 12CB of the ASIC Act, by entering into, and giving effect to, those contracts with the Applicants. (It should be noted that the final submissions of both parties referred to s 8 of the FTA. That was an error. Section 8A, not s 8, is concerned with business transactions.) 277 The Exception Fees and the applicable statutory provisions in issue were as follows: s 12CB of ASIC Act s 8 of FTA s 12CC of ASIC Act s 8A of FTA ASIC Consolidated Regime Saving Honour Fee Exception Fee 1 Exception Fee 1 Overlimit Fee Exception Fees 12, 13, 15, 19 Exception Fees 12, 13, 15 Exception Fees 20-22, 24-26, 29-30, 32-33, 35, 39, 40, 43-44, 48 and 50 Business Honour Fee Exception Fees 51-54 Exception Fees 51-52 Exception Fees 55-61 and 72 Business Dishonour Fee Exception Fees 62-71 278 It was common ground that it was not necessary to consider Late Payment Fees under this heading having formed the view that the Late Payment Fees were a penalty at law and further and alternatively, a penalty in equity. Given ANZ's admissions in relation to Exception Fees 2 and 3, it is also not necessary to address those Exception Fees under this heading. B. Applicable legal principles 279 There was no dispute concerning the field of operation of the various statutory prohibitions against unconscionable conduct in the FTA and the ASIC Act. It was common ground that the statutory prohibitions against unconscionable conduct in the ASIC Act, the FTA and now the ACL (and its predecessors) are materially the same and the case law concerning the latter is applicable to the former. 280 In general terms, the unconscionable conduct regimes of both the ASIC Act and the FTA provide that a person must not engage in conduct which is, in all the circumstances, unconscionable: ss 12CB(1) of the ASIC Act (pre 1 January 2012); ss 8(1) and 8A(1) of the FTA. 281 In determining whether conduct is unconscionable, the Court: 1. may have regard to any matter in determining whether matter is unconscionable: ASIC Act (pre 1 Jan 2012) – ss 12CB(2) and s 12CC(2); ASIC Act (post 1 Jan 2012) – s 12CC(1) and FTA – ss 8(2) and 8A(3); 2. except in relation to unconscionable conduct in business transactions, may have regard to conduct engaged in, or circumstances existing, before the commencement of the relevant section of the statute: ASIC Act (pre 1 Jan 2012) – ss 12CB(4)(b) and 12CC(5)(b); ASIC Act (post 1 Jan 2012) – s 12CB(3)(b) and FTA ss 8(4)(b) and s 8A(6)(b); and 3. must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention: ASIC Act (pre 1 Jan 2012) – ss 12CB(4)(a) and 12CC(5)(a); ASIC Act (post 1 Jan 2012) – s 12CB(3)(a) and FTA ss 8(4)(a) and 8A(6)(a). 282 Further, after 1 January 2012, s 12CB(4)(c) of the ASIC Act states that in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of the terms of the contract and the manner in which and the extent to which the contract is carried out, and is not limited to consideration of the circumstances relating to formation of the contract. 283 The term "unconscionable" is not defined in the ASIC Act or the FTA. It is to be given its ordinary meaning, being something done not in good conscience and that which is irreconcilable with what is right or reasonable: Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at [42]; Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] ATPR 42-447 at [41]; Hurley v McDonald's Australia Ltd (2000) ATPR 41-741 at [22] and [31] cited with approval in Ange v First East Auction Holdings Pty Ltd (2011) 284 ALR 638 at [96] and [104] and followed in Australian Competition and Consumer Commission v Simply No-Knead Franchising Pty Ltd (2000) 104 FCR 253 at [30]; Australian Competition and Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491 at [183]-[185]; Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 2) (2009) 253 ALR 324 at [113] and Perdaman Chemicals and Fertilisers Pty Ltd v ICICI Bank Ltd [2013] FCA 175 at [22]. 284 In Tonto Home Loans Australia Pty Ltd v Tavares (2011) 15 BPR 29,699 at [291], Allsop P (as he then was) summarised the meaning of statutory unconscionable conduct in the following terms: Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 140; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; 117 FCR 301 at 316-317; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; ... the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at genera/law and equity: National Exchange at 140; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at 143. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances. See also Lux Distributors at [23] and Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 168. 285 As the Court said in Lux at [23]: The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. In some contexts, such values are contestable. Here, however, they can be seen to be honesty and fairness in the dealing with consumers. The content of those values is not solely governed by the legislature, but the legislature may illuminate, elaborate and develop those norms and values by the act of legislating, and thus standard setting. The existence of State legislation directed to elements of fairness is a fact to be taken into account. It assists the Court in appreciating some aspects of the publicly recognised content of fairness, without in any way constricting it. Values, norms and community expectations can develop and change over time. Customary morality develops "silently and unconsciously from one age to another", shaping law and legal values: Cardozo, The Nature of the Judicial Process (Newhaven, Yale University Press, 1921) pp 104-105. These laws of the States and the operative provisions of the ACL reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct. C. Applicants' submissions 286 What then were said by the Applicants to be the matters that informed the "unconscionable" conduct in the present case? It was common ground that the question may be posed both at the time of contact and at any time during the performance of the contract. 287 The Applicants referred to the following matters: 1. ANZ had all or most of the bargaining power in its relationship with the Applicants; 2. The Exception Fees were imposed by standard form contracts drafted by ANZ which did not take into account the specific characteristics of the Applicants, were presented to the Applicants without negotiation on a take it or leave it basis, gave the Applicants no reciprocal rights for any failure by ANZ of its obligations under the contracts but gave ANZ a contractual right to: 2.1 vary unilaterally terms or conditions of the accounts including the terms and conditions relating to the Exception Fees, which it did; 2.2 charge the same fees no matter how small the default which constituted the Exception Fee Event; 2.3 charge the same fee regardless of whether ANZ held security as it did for Mr Paciocco; and 2.4 charge the same fees regardless of whether the applicants held other accounts in credit (or had credit available) or of whether ANZ was in a position to combine accounts (as it was entitled to do so). 3. the Exception Fees were imposed in contracts governing the supply of essential services where the termination of the contracts by the Applicants was attended by significant inconvenience so as to dissuade the Applicants from switching banks and where discovering equivalent products which did not incur these exception fees was difficult and time consuming; 4. the fees were most likely to be paid by low income customers in financial difficulty; 5. the quantum of the fees was out of proportion to the loss, if any, that ANZ was likely to suffer from the event triggering the fee; 6. ANZ would act inconsistently between customers and between different events with the same customer. On occasion, when faced with a complaint by a customer that an exception fee was unfair or exorbitant, ANZ would respond by waiving the fee for that customer; 7. in charging the Exception Fees, ANZ allowed, took advantage of and profited from the fact that the Applicants initiated the events irrationally, inadvertently, unintentionally and as the result of accident, oversight or mismanagement of finances, where the applicants did not consider that they were making requests for credit when they incurred the fee and where they had other credit available at no or significant cost; 8. ANZ was uniquely placed to prevent customers inadvertently triggering most if not all exception fees; 9. The Exception Fees were charged regardless of whether they were caused by ANZ's payment systems (including shadow limits) and were thus incurred beyond the control or understanding of the customer; and 10. For Saving Honour Fees, Business Honour Fees and Card Overlimit Fees, ANZ charged interest on the overdrawn sum (which included a profit margin) and was thereby fully compensated. 288 For the period post December 2009, the Applicants relied upon additional conduct – the deletion by ANZ of the express stipulations directing a customer not to overdraw and the replacement of that wording to the effect that ANZ was providing a fee for service: see for example, para 14 of Annexure 2. The Applicants submitted that in redrafting the contracts it did not alter the substance of the contracts but, in the face of public and legal scrutiny and with the prospect of losing a valuable income stream, ANZ sought to "finesse" the wording to give the impression that it was providing services. The Applicants submitted that that conduct, and in utilising its unilateral right to vary the contracts in aid of the disguise, ANZ acted unconscionably because it used its power in a manner contrary to acceptable community values. D. Analysis (1) Introduction 289 The Applicants' contention that the entering into, and giving effect to, each of the Saving, Card and Business Contracts contravened the various statutory prohibitions against unconscionable conduct in the FTA and the ASIC Act is rejected. 290 Before turning to consider the particular circumstances relied upon by the Applicants, it is necessary to understand what was not alleged and what was absent. First, there was no allegation of dishonesty, oppression or abuse of a commercially powerful position and none existed. Second, there was no allegation that ANZ failed to disclose the Exception Fee Provisions to the Applicants at the time that they entered into the Saving, Card and Business contracts or when the Exception Fees were altered. The Exception Fees were disclosed: see [99] above. Third, there was no allegation that the Applicants were unable to understand the Exception Fee Provisions. Fourth, there was no allegation that the Applicants were compelled to enter into the Saving, Card and Business Contracts with ANZ or that ANZ placed financial or other pressure on them to enter into those contracts. Fifth, there was no allegation that the Applicants were under compulsion to engage in the overdraw transactions. It was wholly a matter of choice for the Applicants whether they chose to do so. ANZ provided a facility to "switch off" the ability to overdraw their account and thereby avoid the incurring of Exception Fees associated with overdraw transactions: see [100] above. If customers wished to borrow further funds from ANZ, ANZ offered various alternative loan products. While customers would incur fees in connection with those borrowings, those fees had a different structure than the exception fees, thereby offering choice to the customers. Other banks offered similar products subject to different fee structures. Sixth, each of the Saving, Card and Business contracts were terminable at will by the Applicants. If the Applicants were dissatisfied with the quantum of the Exception Fees at any time, they were able to terminate the contract and seek alternative services. 291 It is against that background that the specific matters relied upon by the Applicants are considered. (2) ANZ had all or most of the bargaining power in its relationship with the Applicants 292 ANZ did not negotiate the Exception Fee Provisions with the Applicants. That admitted fact alone does not suggest or establish unconscionability. Many consumer products are offered by suppliers without the opportunity for customers to engage in individual negotiations. That is a matter of business practicality and efficiency: see [95]-[98] above. 293 It was not suggested that ANZ was in a position of market dominance or that the Applicants had little choice but to acquire banking services from ANZ. The exception fees charged by ANZ and the other banks varied. The Applicants acquired banking services from other financial institutions and had held, and continue to hold, accounts with several of ANZ's competitors. Indeed, at each time an overdrawing transaction occurred which led to the charging of an Exception Fee, Mr Paciocco (and SDG) had sufficient credit available under facilities held by him, either with ANZ or with other financial institutions, to cover the amount by which that transaction overdrew the relevant account. (3) Exception Fees imposed by standard form contracts drafted by ANZ and other terms of those standard form contracts 294 The Exception Fees were imposed by standard form contracts: see [287] above. That, of itself, does not indicate unconscionability: see [292] above. 295 The Applicants submitted that the Exception Fee Provisions did not take account of the specific characteristics of the Applicants. That statement is too general. It may be accepted that a specific Exception Fee Provision did not take account of the specific characteristics of the two Applicants but the manner in which the overdraw provisions were managed did take account of the specific characteristics of an Applicant: see [99]-[102] above. 296 If the corollary of the Applicants' contention is that ANZ should not adopt a degree of standardisation of fees and charges for customers and, further or alternatively, should develop different fees for different circumstances, that contention is rejected. In assessing the statutory unconscionability regime, the Court is entitled to take into account the fact that in the modern world consumer products are often offered by suppliers with a degree of standardisation. That is a matter of business practicality and efficiency: see [95]-[98] above. The fact that there is a degree of standardisation does not, of itself, establish that the conduct was unconscionable. 297 The Applicants' further contention that the account contracts did not give the Applicants reciprocal rights for any failure by ANZ to meet its contractual obligations is rejected. The contention was not pleaded, was not developed by the Applicants in argument and the Applicants failed to consider or address the significance of the Code of Banking Practice which formed part of each Contract: see [92] above. (4) Contracts for essential services where termination attended by significant inconvenience 298 This contention is rejected. The contention was not pleaded, was not developed by the Applicants in evidence or argument. Moreover, the evidence that was tendered (namely the fact that the contracts were terminable at will by the Applicants and that the Applicants acquired banking services from other financial institutions and had held, and continue to hold, accounts with several of ANZ's competitors) was arguably inconsistent with this contention. (5) Fees more likely paid by low-income customers in financial difficulty 299 In support of this contention, the Applicants incorrectly cherry picked a sentence from the "ANZ Exception Fee Response – Update, 10 August 2009": see [64] of Annexure 4. This contention is rejected. (6) Quantum of Exception Fees out of proportion to ANZ's loss from Exception Fee Event 300 The Exception Fees in issue are the Overdraw, Overlimit and Dishonour Fees. 301 It is neither possible nor appropriate (see [17]-[21] above) to consider the quantum of each Exception Fee separate from the terms and inherent circumstances of the contract and the applicable Exception Fee Events. For the reasons set out at [206]-[211], it cannot be said that the quantum of the Exception Fees was unconscionable. (7) Applied fee waiver inconsistently between customers 302 The Applicants contended that ANZ would, when faced with a complaint by a customer that the fee was unfair or exorbitant, respond by waiving the fee but continue to charge the fee to other customers, thereby acting inconsistently between customers. As is self-evident, this contention is general. There was no evidence to suggest that this happened to either Applicant. 303 In fact, to the extent that this general evidence was and is relevant, the evidence was that ANZ staff did waive an exception fee in response to a customer request or query where it was the first time the customer had received such a fee. Staff were also able to waive the fee when the customer was in hardship or where the customer had overdrawn their account as a result of a mistake or accident. Such a policy was not unconscionable; to the contrary, it enabled ANZ to respond fairly to customers whose circumstances justified a waiver of the fee. (8) ANZ took advantage of fact that Applicants initiated Exception Fee Events irrationally, inadvertently and unintentionally and as the result of accident, oversight or mismanagement of finances. 304 This contention is also rejected. The contention was not pleaded, was not developed by the Applicants in argument and is contrary to the evidence. Mr Paciocco's evidence was that it was convenient for him to manage his ANZ accounts close to their limits and take the risk that he would overdraw the accounts and incur an overlimit or honour fee. No less importantly, charging of the Exception Fees is not rendered unconscionable by the Applicants' own irrational conduct or mismanagement especially where it is not alleged that the Applicants were unaware of the Exception Fees or the circumstances in which they were charged. Moreover, Mr Paciocco received letters from ANZ in respect of Exception Fees on Saving Account 156 and received many phone calls from ANZ's Collections Team in respect of Overlimit and Late Payment Exception Fee Events on his Card Accounts: see Annexure 1. Despite those steps, he continued to overdraw his accounts. (9) ANZ uniquely placed to prevent customers inadvertently triggering most if not all exception fees. 305 This contention is also rejected. The contention was not pleaded, was not developed by the Applicants in argument and is contrary to the evidence. ANZ was able to prevent customers triggering exception fees associated with overdraw transactions by preventing customers from overdrawing their accounts. However, there is no factual basis on which to conclude that customers would be better off if ANZ adopted that course. 306 In the case of Mr Paciocco, he gave evidence that if he initiated a transaction that overdrew his ANZ account he would prefer ANZ to process the transaction than refuse to process it. That is not surprising – he initiated each instruction which ANZ considered before authorising the account to be overdrawn. Moreover, ANZ was not able to prevent customers inadvertently triggering exception fees; ANZ could never know whether a customer action, whether initiating an overdraw transaction or late payment, was intentional or inadvertent. Only customers could prevent the inadvertent triggering of exception fees. Finally, it must be recalled that ANZ did take steps to bring the Exception Fees to the attention of the Applicants: see [99] above. (10) Exception Fees charged regardless whether caused by ANZ's payment systems and thus incurred beyond the control or understanding of the customer 307 This contention is also rejected. The contention was not pleaded, was not developed by the Applicants in argument and is contrary to the evidence. It is not accurate to contend that exception fees associated with overdraw transactions are caused by ANZ's payment systems. Overdraw transactions are initiated by customers; they constitute a request for additional borrowings to ANZ. ANZ's payment systems (both electronic and manual) determine whether to allow or disallow the transaction: see [192]-[195] above. The incurring of the fees is caused by the customer's conduct. Put another way, without the customer's transaction that initiates the process, the fee could not be charged. (11) Honour and Overlimit Fees – ANZ fully compensated by interest on overdrawn sum (which included a profit margin) 308 It was common ground that ANZ charged interest on overdrawn amounts. While it may be relevant, it is not necessarily unconscionable for a lender to charge both fees and interest in connection with borrowings. The Applicants do not advance any principle, far less any evidence, by which their contention of "full compensation" can be assessed: see [165]-[168] above. (12) December 2009 redrafting of the contracts 309 It was common ground that the December 2009 redraft did not alter the substance of the contracts. The 2009 drafting merely made more express what was always the case: that the fees associated with overdraw transactions were in respect of ANZ's consideration of the customer's request for further borrowing: Andrews Trial at [182], [183], [187], [279], [280], [291], [306], [307] and [328]. This contention does not assist. (13) Conclusion 310 In all the circumstances, in entering into, and giving effect to, the contracts with the Applicants (see [9]-[10] above), ANZ did not engage in unconscionable conduct in contravention of the ASIC Act or the FTA. Part 8: UNJUST TRANSACTIONS UNDER THE CREDIT CODES A. Introduction 311 This section only concerns the Overlimit Fees on Card Accounts 9522 and 9629: Exception Fees 12-13, 15, 19-22, 24-26, 29-30, 32-33, 35, 39-40, 43-44, 48 and 50. Neither the Consumer Credit (Victoria) Code (the Code) nor the New Code applied to saving or business accounts. 312 Mr Paciocco initially contended that by reason of the Exception Fees charged on the Card Accounts: 1. the Card Accounts entered into prior to 1 July 2010 and which were not "carried over instruments" were unjust transactions under s 70 of the Code; and/or 2. the Card Accounts entered into from 1 July 2010 or carried over instruments were unjust transactions under s 76(1) of the New Code. 313 During final submissions, Mr Paciocco accepted that it was the New Code that applied and that his claim was limited to a claim under s 76 of the New Code in relation to the Overlimit Fees on his Card Accounts (the Exception Fees listed in [311] above). B. Applicable law 314 Section 76(1) of the New Code headed "Court may reopen unjust transactions" relevantly provides: Power to reopen unjust transactions (1) The court may, if satisfied on the application of a debtor … that, in the circumstances relating to the relevant credit contract … at the time it was entered into or changed (whether or not by agreement), the contract … was unjust, reopen the transaction that gave rise to the contract … or change. 315 In determining whether a term of a particular credit contract is unjust, the Court must have regard to some matters and may have regard to other matters: s 76(2) of the New Code. 316 Section 76(2) of the New Code relevantly provides: In determining whether a term of a particular credit contract … is unjust in the circumstances relating to it at the time it was entered into or changed, the court is to have regard to the public interest and to all the circumstances of the case and may have regard to the following: (a) the consequences of compliance, or noncompliance, with all or any of the provisions of the contract …; (b) the relative bargaining power of the parties; (c) whether or not, at the time the contract … was entered into or changed, its provisions were the subject of negotiation; (d) whether or not it was reasonably practicable for the applicant to negotiate for the alteration of, or to reject, any of the provisions of the contract … or the change; (e) whether or not any of the provisions of the contract … impose conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract …; (f) whether or not the debtor …, or a person who represented the debtor …, was reasonably able to protect the interests of the debtor, … because of his or her age or physical or mental condition; (g) the form of the contract … and the intelligibility of the language in which it is expressed; (h) whether or not, and if so when, independent legal or other expert advice was obtained by the debtor …; (i) the extent to which the provisions of the contract … or change and their legal and practical effect were accurately explained to the debtor … and whether or not the debtor … understood those provisions and their effect; (j) whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor … and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics; (k) whether the credit provider took measures to ensure that the debtor … understood the nature and implications of the transaction and, if so, the adequacy of those measures; (l) whether at the time the contract … was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship; (m) whether the terms of the transaction or the conduct of the credit provider is justified in the light of the risks undertaken by the credit provider; … (o) the terms of other comparable transactions involving other credit providers and, if the injustice is alleged to result from excessive interest charges, the annual percentage rate or rates payable in comparable cases; (p) any other relevant factor. 317 "Unjust" includes unconscionable, harsh or oppressive: s 76(8) of the New Code. "Unjust" is not however confined to that "tautological trinity": West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621. The definition is not exclusive. As is self-evident, s 76(2) of the New Code is mostly concerned with matters of procedural injustice: West at 620-621 (dealing with identical wording under the Contracts Review Act 1980 (NSW) (the CRA). However, it is not limited to questions of procedural injustice. As McHugh J explained in West at [620]: a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision. … Thus a contract may be unjust under the [CRA] because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. 318 As the statutory language of s 76 of the New Code makes clear, it is the contract or the provisions, not the transaction, that must be unjust: West at 621E. As Kirby P stated in Baltic Shipping Company v Dillon ("Mikhail Lermontov") (1991) 22 NSWLR 1 at 20 (considering the CRA): I consider that it is a mistake to read into the language of s 9 an obligation to show that the contract was unjust because it was produced by unfair conduct or unjust conduct on the part of one of the parties to it. This is not what the section says. It addresses attention to the resulting contract itself … A contract may be "unjust" because of peculiarities inherent in the circumstances of one of the parties of which the other party was quite ignorant. It may be "unjust" although the other party has acted quite honourably and lawfully. 319 In determining whether a credit contract is unjust, a Court is not to have regard to any injustice arising from circumstances that were not reasonably foreseeable when the contract was entered into or changed: s 76(4) of the New Code. However, the Court must take into account the public interest and all the circumstances of the case: s 76(1) of the New Code. 320 Different views have been expressed about the "public interest" element. In Custom Credit Corporation Ltd v Lupi [1992] 1 VR 99 at 105 Murphy J noted that "public interest" was a difficult concept but suggested that it directed attention to whether the credit provider's conduct offended against community standards of business morality. As Mr Paciocco submitted, the community standards of business morality "may vary over time": Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [64]. In Knowles v Victorian Mortgage Investments Ltd [2011] VSC 611 at [64] and [68], the Court considered that the public interest criteria involved a weighing and balancing of competing considerations including the consumer protection purpose of the Code with the need to hold parties to their bargain. 321 Determination of unjustness involves a normative evaluation of the totality of relevant circumstances. As Allsop P (as he then was) said in Provident Capital Ltd v Papa [2013] NSWCA 36 at [7]: The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect his or her interests in the circumstances. C. Analysis 322 Mr Paciocco identified the same matters as those considered in Part 7 above with particular emphasis on three specific matters – the gross disproportion of the fees charged, there was in substance no service provided and the circumstances and purpose of the 2009 redraft. Each of those particular matters was also addressed in Part 7 above: see also [206]-[211] above. 323 For the reasons set out in Part 7 at [286]-[309] above, each of Mr Paciocco's Card Accounts was not, in all the circumstances at the time that they were made or changed, unjust within the meaning of s 76(1) of the New Code. The circumstances indicative of unjustness were not present. 324 The following matters further support that conclusion: 1. Mr Paciocco did not contend that he had an inability reasonably to protect his own interests or lacked the capacity to decide whether to enter into the Card Accounts: cf Knezevic v Perpetual Trustees Victoria Ltd [2013] NSWCA 199 at [12]. 2. Mr Paciocco did not contend that he did not understand the terms of the Card Accounts or that ANZ did not take adequate measures to ensure that he understood the nature and implications of the Card Accounts and their terms: May v Brahmbhatt [2013] NSWCA 309 at [41]. 3. Mr Paciocco did not contend he was unaware of the purpose and nature of the Card Accounts or his potential financial exposure (Radin v Commonwealth Bank of Australia [1998] FCA 1361 at [104]). 406 or that he had an inability to meet the obligations under the Card Accounts: Knezevic v Perpetual Trustees Victoria Ltd [2013] NSWCA 199 at [12]. Indeed, when Mr Paciocco opened Card Account 9522, he transferred across to that account a pre-existing indebtedness of $10,000. When Mr Paciocco opened Card Account 9629, he immediately used the account for a cash advance of $4,000: see [215] above. 4. Mr Paciocco did not contend that ANZ exerted or used unfair pressure, undue influence or unfair tactics on Mr Paciocco to enter into the Card Accounts (May v Brahmbhatt [2013] NSWCA 309 at [40]) or that he did not have a real or informed choice to enter into the Card Accounts: Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398. In fact, Mr Paciocco was under no obligation to enter into the Card Accounts or to draw on their credit in any amount or at any time: Godfrey v National Australia Bank (2001) NSWSC 977 at [61]. 5. Mr Paciocco did not contend that there was anything unusual or exceptional in the manner in which the Card Accounts were entered into or in their terms: May v Brahmbhatt [2013] NSWCA 309 at [43]. On the contrary, it was common ground that similar terms were offered by ANZ's competitors: see [95(2)] above. 325 For those reasons, Mr Paciocco's claim under s 76 of the New Code in relation to the Overlimit Fees on his Card Accounts (Exception Fees 12-13, 15, 19-22, 24-26, 29-30, 32-33, 35, 39-40, 43-44, 48 and 50) is dismissed. Part 9: UNFAIR CONTRACT TERMS A. Introduction 326 This claim was made in relation to Saving Account 156 and the Card Accounts. The unfair term provisions of the FTA and the ASIC Act do not apply to business contracts. The law is not straightforward. It was amended many times. The amendments may be divided into four phases: 1. Phase 1 – 9 October 2003 to 11 June 2009; 2. Phase 2 – 11 June 2009 to 1 July 2009; 3. Phase 3 – July 2010 to 31 December 2010; and 4. Phase 4 – 1 January 2011 to 1 July 2012. 327 In general terms: 1. neither s 32W of the FTA nor s 12BG of the ASIC Act has ever applied to Saving Account 156; 2. Part 2B of the FTA as in force during Phase 2 applied to Card Account 9629 from the date the account was opened (on or about 12 July 2009) and to the Exception Fee Provisions of Card Account 9522 from December 2009 until the repeal of the FTA on 1 July 2012; and 3. s 12BG of the ASIC Act has never applied to either Card Account. I will deal with each phase. (1) Phase 1 – 9 October 2003 to 11 June 2009 328 Phase 1 is not relevant to these proceedings. Part 2B of the FTA was inserted by s 12 of the Fair Trading (Amendment) Act 2003 (Vic). From its commencement on 9 October 2003 until its amendment on 11 June 2009, Part 2B of the FTA applied to saving accounts entered into from 9 October 2003. Accordingly, during Phase 1, Part 2B of the FTA did not apply to Mr Paciocco's Saving Account 156 (it was entered into on 10 June 1997) or his Card Accounts (as they were governed by the Credit Code). 329 Although the applicable law in Phase 1 is not relevant, it is necessary to consider its operation because it forms the foundation for the amendments in Phases 2, 3 and 4. 330 A term was unfair for the purpose of Pt 2B of the FTA during Phase 1 "if contrary to the requirements of good faith and in all the circumstances, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer" (emphasis added): s 32W of the FTA. A non-exhaustive list of factors that may be taken into account by the court were set out in s 32X of the FTA. 331 In Jetstar Airways Pty Ltd v Free [2008] VSC 539, Cavanough J made the following observations about Pt 2B of the FTA: 1. There are three elements to this test – a significant imbalance must have been caused, the causing of it must be able to be characterised as contrary to the requirements of good faith, and there must be detriment to the consumer: at [102], [106] and [107]; 2. A term will not be contrary to the requirements of good faith unless, inter alia, the inclusion of the term involves departure from good standards of commercial morality or practice: at [121]; 3. Individual negotiation of a term is not relevant to whether the term causes a significant imbalance, and so can only be relevant to the question whether contrariety to the requirements of good faith has been demonstrated: at [112]; 4. Regard must be had to the rights and obligations of the parties under the contract as a whole: at [127]; and 5. The provisions are not directed to whether there is unfairness in seeking to enforce a contractual term at a particular time; the time of the contract is the only relevant time for assessing unfairness for the purpose of this Part: at [119]. (2) Phase 2 – 11 June 2009 to 1 July 2010 332 Part 2B of the FTA was amended by the Fair Trading and Other Acts Amendment Act 2009 (Vic) to remove the good faith element of the statutory test and to repeal the exclusion of credit contracts. 333 From the commencement of the amendment on 11 June 2009 until its further amendment on 1 July 2010, Pt 2B of the FTA in its amended form applied relevantly to: 1. saving accounts entered into from 9 October 2003; and 2. card accounts entered into, and provisions of card accounts that were varied, from 11 June 2009. 334 Accordingly, during Phase 2, Pt 2B did not apply to Saving Account 156. Part 2B did apply to Card Account 9629 from the date the account was opened on or about 12 July 2009 and it did apply to the Exception Fee Provisions of Card Account 9522 (which was opened prior to 11 June 2009) from the date of variation of those terms in December 2009. 335 In Phase 2, the words "contrary to the requirements of good faith" were removed from s 32W: see [330] above. A term was regarded as unfair "if, in all the circumstances, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer". The factors that may be taken into account by the court under s 32X were unchanged. (3) Phase 3 – 1 July 2010 to 31 December 2010 336 Part 2B of the FTA was further amended by the Fair Trading Amendment (Unfair Contract Terms) Act 2010 (Vic) to enact equivalent provisions to those in Pt 2-3 of the ACL. During Phase 3, Pt 2B of the FTA applied relevantly to card accounts entered into, and provisions of those accounts that were varied, from 1 July 2010. None of Mr Paciocco's accounts became subject to Pt 2B of the FTA during Phase 3. 337 However, during Phase 3, Pt 2B of the FTA in force during Phase 2 continued to apply to contracts entered into before 1 July 2010 in accordance with its terms. Accordingly, during Phase 3, Pt 2B as in force during Phase 2 continued to apply to Card Account 9629 and to the Exception Fee Provisions of Card Account 9522: see [334] above. 338 Subdivision BA of Div 2 of Pt 2 of the ASIC Act (also replicating the provisions in Part 2-3 of the ACL) commenced on 1 July 2010. That subdivision applied relevantly to card accounts entered into, and provisions of those accounts that were varied, from 1 July 2010. None of Mr Paciocco's accounts became subject to subdiv BA of Div 2 of Pt 2 of the ASIC Act during Phase 3. (4) Phase 4 –- 1 January 2011 to 1 July 2012 339 Part 2B of the FTA (including s 32W) was repealed by s 17 of the Fair Trading Amendment (Australian Consumer Law) Act 2010 (Vic) from 1 January 2011, and the FTA was amended to enact the ACL (Victoria) (which included the unfair contract terms provisions in Pt 2-3 of the ACL). The ACL (Victoria) applied relevantly to card accounts entered into, and provisions of those accounts that were varied, from 1 January 2011. None of Mr Paciocco's Card Accounts became subject to the Phase 4 ACL (Victoria) provisions. 340 However, during Phase 4: 1. Part 2B of the FTA in force during Phase 3 continued to apply to contracts entered into before 1 January 2011 in accordance with its terms. This did not include Saving Account 156: see [334] above; 2. Part 2B of the FTA in force during Phase 2 continued to apply to contracts entered into before 1 January 2011 in accordance with its terms. This applied to Card Account 9629 and to the Exception Fee Provisions of Card Account 9522: see [334] above. 341 The FTA was repealed, and the provisions of the ACL were re-enacted as laws of Victoria, by the Australian Consumer Law and Fair Trading Act 2012 (Vic) which commenced on 1 July 2012: see ss 8 and 233. From that date, the previous saving and transitional provisions under the FTA ceased to apply. Accordingly, Pt 2B of the FTA as in force during Phase 2 ceased to apply to the Card Accounts on 1 July 2012. B. Areas of dispute 342 There were two areas of dispute as to the operation of the provisions in relation to the unfair contract terms provisions. The first related to the operation of Pt 2B of the FTA in relation to Saving Account 156 and Card Account 9522. Part 2B commenced on 11 June 2009 and both relevant accounts were opened prior to this date. ANZ contended that Pt 2B of the FTA did not apply by reason of the fact that each the accounts were opened prior to the commencement of the relevant provision. Mr Paciocco's position was that the date of the opening of the account was not determinative; it was the date of the relevant contract, which was extant at the time of the charging of the Exception Fee. 343 The second dispute related to the operation of Subdiv BA of Div 2 of Pt 2 of the ASIC Act in relation to Card Account 9522 and Card Account 9629. Subdivision BA commenced on 1 July 2010. ANZ's position was that the regime did not apply by reason of the fact that the subdivision only applied to credit contracts "entered into", and provisions of those contracts, which were "varied", from 1 July 2010. In particular, ANZ contended that because Card Account 9522 was "opened" well prior to this date and Card Account 9629, was again "opened" and relevantly "varied" well prior to the operative date, the regime did not apply. Again, Mr Paciocco's position was that the extant credit contracts, which regulated the then existing rights of the parties, came into existence (replacing the pre-existing credit contracts) post 1 July 2010. What then was the relevant date of each contract? 344 In determining the date of each relevant contract, it was common ground that the relevant accounts were opened on the following dates: (a) Saving Account 156 – 10 June 1997; (b) Card Account 9522 – 16 June 2006 and Card Account 9629 – 12 July 2009. However, Mr Paciocco's position was that the date of opening did not end the relevant inquiry. He contended that properly analysed each newly published PDS and Fees Documents (Saving Accounts) and Conditions of Use and Fees Documents (Card Accounts) constituted a new contract between ANZ and the customer. 345 In support of that contention, Mr Paciocco referred to the relevant principles as to the legal effect of a variation: Concut Pty Ltd v Worrell (2000) 75 ALJR 312 at [19] and Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at [22]-[24]. The extract from Sara Lee repays careful reading. In that case, Gleeson CJ, Gaudron, McHugh and Hayne JJ observed: When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists. … In Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd Taylor J said: "It is firmly established by a long line of cases ... that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement." That passage was cited with approval by Wilson and Dawson JJ in Dan v Barclays Australia Ltd. It accords with principle and with authority. 346 As Mr Paciocco submitted, the focus must be on the date of the creation of the relevant contract which terms governed the bargain at the time of the Exception Fee. The date of creation of the relevant contract was that set out in [344] above. The contractual documents relevant to each Exception Fee are listed in Annexure 1. In relation to each suite of contractual documents, there was no more than one contract. None of the variations to the contract rescinded the initial contract. 347 Therefore, contrary to the contentions of Mr Paciocco, only Exception Fees 12 and 14-50 are subject to the FTA unfair contract terms regime and the ASIC Act regime is wholly inapplicable to the Mr Paciocco's claim. 348 Further, Mr Paciocco's contention is in conflict with the terms of the applicable transitional provisions. The transitional provisions expressly addressed the effect of variations to the terms of existing contracts, and distinguished between entering into a contract and varying a contract. 349 In Pt 2B of the FTA: 1. Section 32Y(4) of the FTA relevantly provided "sub-section (1) applies to any consumer contract entered into on or after the commencement of section 12 of the Fair Trading (Amendment) Act 2003". 2. Clause 14(1) of Sch 3 to the FTA provided that: Despite the amendment of this Act by section 4 of the Fair Trading and Other Acts Amendment Act 2009, Part 2B does not apply to contractual terms contained in a contract to which the Consumer Credit (Victoria) Act 1995 applies ... if the contract was entered into before the commencement of that section 4 unless a term of that contract is varied on or after that commencement, in which case Part 2B applies to that term on and from the time the variation takes effect. (Emphasis added.) 350 In Subdivision BA of Div 2 of Pt 2 of the ASIC Act, cl 8 of Sch 3 of the Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth) provided that: 1. Subdivision BA of Division 2 of Part 2 of the ASIC Act applies to a contract entered into on or after the commencement of this Part of this Schedule. 2. That subdivision does not apply to a contract entered into before the commencement of this Part of this Schedule. However: (a) … (b) if a term of the contract is varied on or after that commencement, and paragraph (a) has not already applied in relation to the contract – that Subdivision applies to the term as varied, on and from the day (the variation day) on which the variation takes effect, in relation to conduct that occurs on or after the variation day. (Emphasis added.) 351 If every variation constituted the entering into of a new contract containing the varied terms, those parts of the transitional provisions that cater for the effect of variations would be rendered otiose: cf Pearce and Geddes, Statutory Interpretation in Australia, 7th ed at [2.26]. Having regard to the transitional provisions as a whole, it can be concluded that the legislature did not intend that varied contracts would constitute a contract "entered into" after the commencement of the statutory provisions within the meaning of the applicable transitional provisions. C. Analysis 352 Mr Paciocco again identified the same matters as those considered in Part 7 above with particular emphasis on the same three specific matters – the gross disproportion of the fees charged, there was in substance no service provided and the circumstances and purpose of the 2009 redraft. Each of those particular matters was also addressed in Part 7: see also [206]-[211] above. 353 For the same reasons as set out in Part 7 at [286]-[309] above, none of the provisions imposing any of Exception Fees 12 and 14-50 was unfair within the meaning of the FTA. Part 10: LIMITATION DEFENCES 354 This proceeding commenced on 14 March 2013. Mr Paciocco incurred two Exception Fees on Card Account 9522 more than 6 years prior to the commencement of the proceeding: a Late Payment Fee incurred on 4 September 2006 (Exception Fee 4) and a Late Payment Fee incurred on 4 March 2007 (Exception Fee 5). 355 ANZ has raised limitation defences in respect of those penalty claims under the general limitation statutes and in respect of some of the statutory claims under the specific statutory provisions. Given the views formed about the inapplicability of the statutory provisions, it is strictly unnecessary to consider the limitation defences in relation to those statutory provisions. A. Penalty claims 356 In respect of the claims based on the penalty cause of action, Mr Paciocco relevantly sought declaratory relief and orders for an account, interest and ancillary relief. It was common ground that Mr Paciocco's Card Accounts were made in Victoria, the relevant Exception Fees were paid in Victoria and the limitation period that governs those claims would be determined by Victorian law. 357 Section 5 of the Limitation of Actions Act 1958 (Vic) (Limitations Act) relevantly provides: 1. a 6 year limitation period applies to "actions founded on simple contract (including contract implied by law) ...": ss (1)(a); 2. an action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action: ss (1)(b); and 3. save as otherwise expressly provided an action shall not be brought to recover any arrears of interest in respect of any sum of money whether payable in respect of a specialty, judgment, legacy, mortgage or otherwise, or any damages in respect of such arrears, after the expiration of 6 years after they became due": ss (7). 358 The reference to "contract implied by law" in s 5(l)(a) includes a claim in restitution. The expression "contract implied by law" reflects the former understanding of such restitutionary claims as being grounded in a contract implied by law: Farmer v Arundel (1772) 96 ER 485 at 486; Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 356-7 and Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 587 at [272]-[297]. 359 Mr Paciocco raised three contentions as to why Exception Fees 4 and 5 were not statute barred. First, he contended that the proper basis for relief was not restitution for money had and received. Instead, he contended that his principal claim was for declaratory relief in relation to Exception Fees 4 and 5 by which he claims a declaration that he is entitled "to be repaid the Exception Fees …", or alternatively "be repaid the amount by which the Exception Fees exceeded ANZ's actual damage as a result of the events giving rise to the charging of Exception Fees …". That contention is rejected. Mr Paciocco does seek declaratory relief but that is not the source of the relief. The source of the relief is the legal entitlement to be repaid so much of the Late Payment Fee paid to ANZ as exceeds the relevant cost to ANZ of the Exception Fee Event. That legal entitlement was pleaded as, and found to be, a claim in restitution for money had and received. 360 The second limb of Mr Paciocco's argument concerned the application of Devaynes v Noble (1816) 1 Mer 529 (Clayton's case). Mr Paciocco contended that ANZ's conduct (the imposition of the fee) increased the debt owing by Mr Paciocco to ANZ on each Card Account. He further contended that he acquired (at common law) a chose in action and (under the equitable doctrine) an equity representing his right to contest the application of the debit and that the debit did not affect the true state of the account running as between banker and customer: Limpgrange Ltd v Bank of Credit and Commerce International SA [1986] FLR 36; National Bank of Commerce v National Westminster Bank [1990] 2 Lloyd's Rep 514 and Mackenzie v Albany Finance Ltd [2003] WASC 100 at [232]. Mr Paciocco's contention was that money was not paid on application of the debit; money was only paid if and to the extent that Mr Paciocco made a payment on account of the debit balances represented by the imposition of Fees 4 and 5 and that these payments, consistent with principles in Clayton's Case, would be appropriated to the debits in the order in which they arose on the Card Account. In the present circumstances, given the balances on that account, Mr Paciocco contended that payment may have been some considerable time after the debits were made. Mr Paciocco contended that ANZ, which bore the relevant onus, had failed to establish when the payment was made and therefore when the chose in action (or the equitable analogue) arose. 361 ANZ submitted that Clayton's case was inapplicable because the parties (ANZ and Mr Paciocco) had specified how payments were to be appropriated in repayment of a debt. What then do the September 2006 Conditions of Use provide? Clause 18 entitled "Application of Payments, How payments are applied" stated: Payments that are made to your account will be applied in the order set out below. Within each subclause below, transactions at lower interest rates are repaid before those at higher interest rates. (a) Any Promotional Plan Instalments due as shown on any statement of account; (b) All government duties, taxes, fees and charges that appear or have not yet appeared on a statement of account, and all other transactions that appear on any statement of account including balance transfers, cash advances, purchases, Promotional Plans (excluding any Promotional Plan on which payments are not yet due); (c) All other transactions that have not yet appeared on your statement including, balance transfers, cash advances, and purchases and Promotional Plans (excluding any Promotional Plans on which payments are not yet due); (d) The outstanding balance on any Promotional Plans where payment is not yet due. 362 What then was the order of payments? There were no Promotional Plan Instalments or unpaid government duties and taxes on the statement of account for Card Account 9522. Having regard to the Exception Fee Events giving rise to Exception Fee 4, the Exception Fee was debited and paid more than six years before the proceeding was commenced and was out of time. The position with Exception Fee 5 was different. It was debited more than six years before the proceeding was commenced but paid within the six years preceding the date on which the proceeding was commenced. Exception Fee 5 was not statute barred. 363 That leaves Mr Paciocco's third argument – his reliance upon s 27 of the Limitations Act. Mr Paciocco contended that he was entitled to rely upon the principles that extend limitation periods in cases of mistake. He submitted that it was apparent from Mr Paciocco's evidence that until the proceeding was commenced in 2013, he was operating under the belief that ANZ was entitled to charge the Exception Fees and he was obliged to pay Exception Fees 4 and 5. 364 ANZ submitted that Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCR 581 was authority for the proposition that s 27 of the Limitations Act does not apply in relation to mistakes of law. Mr Paciocco contended that submission ought be rejected on the basis that Torrens Aloha was not authority for that proposition. He submitted that Torrens Aloha addressed the question of whether, given the findings in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 that the rule that moneys paid under a mistake of law were not recoverable was not the law of Australia, that judgment in 1992 served to give rise to cause of action which had not previously existed. Torrens Aloha determined, in the light of David Securities, that a cause of action for moneys paid under a mistake of law accrued at the time the money was paid. It was silent, however, on the key question of when time began to run under s 27 of the Limitations Act. 365 Section 27 of the Limitations Act acts as an exception to the usual rule that time begins to run when a cause of action accrues. Under s 27, time does not begin to run "until the Plaintiff has discovered … the mistake … or could with reasonable diligence have discovered it". ANZ contended that the reference to "mistake" was a reference to a mistake of fact, not law. I reject that contention. At the time s 27 was enacted, mistake of law as a basis for a restitutionary claim was not recognised at law. Accordingly, at the time that was enacted it was not intended to extend to include a mistake of law. However, for the reasons set out in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 at 387G-389G, 398-401 and 416-418 when construing the equivalent English provision, I reject the contention that s 27 is limited to a mistake of fact. ANZ's limitation defence to the contention that Exception Fees 4 and 5 are penalties at law and further or alternatively in equity, are rejected. 366 Counsel for Mr Paciocco accepted that until the Andrews Trial proceeding was commenced on 22 September 2010, Mr Paciocco was operating under the belief that ANZ was entitled to charge the Exception Fees and that he was obliged to pay Exception Fees 4 and 5. Other than to contend that s 27 of the Limitations Act was limited to a mistake of fact (a contention already rejected), ANZ did not contend for a different date. Accordingly, in respect of Mr Paciocco's claims that Exception Fees 4 and 5 are penalties at law and further or alternatively in equity, time did not begin to run until the Andrews Trial proceeding was commenced on 22 September 2010. These claims are not statute barred. B. Unconscionable conduct under the ASIC Act and the FTA 367 The Applicants seek compensatory orders under s 12GM of the ASIC Act and s 158 of the FTA, and in the alternative seek orders for statutory damages under s 12GF of the ASIC Act and s 159 of the FTA. 368 First, the claims for statutory damages under s 12GF of the ASIC Act and s 159 of the FTA. These are subject to a limitation period of 6 years from the date on which the cause of action accrued: s 12GF(2) of the ASIC Act and s 159(3) of the FTA That date is the date on which loss and damage was first suffered (Wardley Australia Limited v Western Australia (1992) 175 CLR 514), which in this case is the date on which the relevant Exception Fee was charged. In relation to Exception Fee 4, that date was 4 September 2006: see [111] above. There is no discretion to extend these limitation periods: Roumanus v Orchard Holdings (NSW) Pty Ltd (in liq) (2012) 90 ACSR 677 at [38] and Kedem v Johnson Lawyers Legal Practice Pty Ltd [2013] FCA 432 at [82]-[83]. Accordingly, if it be relevant, Mr Paciocco's claims for statutory damages under s 12GF of the ASIC Act and/or s 159 of the FTA in relation to Exception Fee 4 would be barred. 369 In relation to the Applicants' claims for compensatory orders under s 12GM of the ASIC Act, the Applicants did not specify whether their claim was made under subs (1) or (2) of that section. There is a material difference between the two subsections. Subsection (1) is not of itself subject to a limitation period, but subs (2) is subject to a 6 year limitation period: see s 12GM(5). However, a claim under subs (1) can only be made if it is ancillary to a claim made under another provision of Div 2 of Pt 2 of the ASIC Act: Sent v Jet Corporation of Australia Pty Ltd (1986) 160 CLR 540 at 543 and Mayne Nickless Ltd v Multigroup Distribution Services Pty Ltd (2001) 114 FCR 108 at [53] (note that s 12GM is based upon, and takes the same form as, s 87 of the Trade Practices Act 1974 (Cth) considered in those decisions). The Applicants have not made any other claim under Div 2 except the claim under s 12GF. If the claim under s 12GF is time barred, then that claim cannot support a claim under s 12GM(l); that is, a claim under s 12GM(l) takes the same limitation period as is applicable to the claim to which it is ancillary (in this case, 6 years): Sent at 546 and Mayne Nickless at [54]-[56]. Accordingly, if it be relevant, Mr Paciocco's claims for compensatory orders under s 12GM of the ASIC Act in relation to Exception Fee 4 would also be barred. 370 Finally, the Applicants' claim for compensatory orders under s 158 of the FTA. This claim must be based on subs (3) (subs (1) is only applicable to proceedings for an offence). Subsection (3) is in a similar form to s 12GM(1) of the ASIC Act in that it is dependent upon a proceeding being sustained under another provision of Div 2 of Pt 11 of the FTA. The Applicants have not made any other claim under Div 2 except the claim under s 159 of the FTA, which is subject to the 6 year limitation period. Accordingly, if it be relevant, for the same reasons as in respect of s 12GM of the ASIC Act, Mr Paciocco's claims for compensatory orders under s 158 of the FTA in relation to Exception Fee 4 would also be barred. C. Unjust Transactions under the New Code 371 Mr Paciocco sought relief under s 77 of the New Code to recover the amount of the Exception Fee plus interest. The limitation period that governs Mr Paciocco's claims will be determined by Victorian law. Section 5(1)(d) of the Limitations Act relevantly provides that a 6 year limitation period applies to "actions to recover any sum recoverable by virtue of enactment". The claim for relief under s 77 of the New Code is an action to recover a sum recoverable by virtue of enactment, and is therefore subject to a 6 year limitation period. Accordingly, if it be relevant, Mr Paciocco's claims for relief under s 77 of the New Code in relation to Exception Fee 4 would be out of time. D. Unfair Terms under the FTA and the ASIC Act 372 It was common ground that no limitation issue arises under this cause of action because Mr Paciocco's claims only arise in respect of the Card Accounts from mid-2009. PART 11: REMEDIES AND ORDERS 373 The Late Payment Fees charged by ANZ on the Card Account 9522 and Card Account 9629, being Exception Fees 4-11, 14, 16-18, 23, 27, 28, 31, 34, 36-38, 41, 42, 45-47 and 49 constituted a penalty at common law and a penalty in equity. The liability to pay the late payment fee was payable on breach and further and alternatively, was collateral (or accessory) to a primary stipulation (to make a payment by a particular date) in favour of ANZ. That collateral stipulation, upon failure of the primary stipulation, imposed upon the customer an additional detriment in the nature of a security for, and in terrorem of, the satisfaction of the primary stipulation which was extravagant, exorbitant and unconscionable. 374 The Honour, Dishonour, Non-Payment and Overlimit Fees charged by ANZ were of a different character. None of them constituted a penalty at common law or a penalty in equity. The liability to pay each of those Exception Fees was not collateral (or accessory) to a primary stipulation in favour of ANZ. The liability to pay each arose as a result of, and in exchange for, something more than and different from what had been agreed in the primary stipulation. They were not penal in nature. 375 Further, none of the Exception Fee Provisions that entitled ANZ to charge the Honour, Dishonour, Non-Payment or Overlimit Fees contravened any of the other statutory provisions earlier identified. 376 First, it is appropriate to declare that each Late Payment Fee charged by ANZ on Card Account 9522 and Card Account 9629, being Exception Fees 4-11, 14, 16-18, 23, 27, 28, 31, 34, 36-38, 41, 42, 45-47 and 49, constituted a penalty at common law and a penalty in equity. Second, it is appropriate to declare that Mr Paciocco is entitled to so much of the Late Payment Fee paid to ANZ which exceeds the relevant amount specified in the final column of Annexure 3 entitled "Finding – Loss and Damage". The resulting amount is the amount by which the Exception Fee exceeded the costs of ANZ by reason of the Exception Fee Event. 377 However, by reason of the nature of the Card Accounts, the question of interest charged by, and paid to, ANZ and the question of pre-judgment interest is not straightforward. As will be self-evident, the calculation for each Exception Fee will necessarily be different. For those reasons, I will direct the taking of all necessary accounts and enquiries to determine: 1. The amount by which each Late Payment Fee paid to ANZ exceeds the relevant amount specified in the final column of Annexure 3 entitled "Court – Loss and Damage"; 2. The amount of interest charged by, and paid to, ANZ in respect of the amount determined in accordance with subparagraph 1 above; and 3. The amount of interest to be allowed to Mr Paciocco at the rate of interest specified in Practice Note CM 16 on the sums referred to in subparagraphs 1 and 2 above from the times at which Mr Paciocco paid ANZ each Late Payment Fee or the amount of interest on the amount determined in accordance with subparagraph 1 above. 378 The Non-Payment Fees charged by ANZ on Saving Account 156, being Exception Fees 2 and 3, were different – they were charged in breach of contract. ANZ admitted that the applicable contractual arrangements between ANZ and Mr Paciocco in relation to Saving Account 156 did not permit ANZ to charge each of those Non-Payment Fees: see [230]-[233] above. What then is the appropriate relief in relation to those Exception Fees? Mr Paciocco is entitled to damages for breach of contract in the sum of the amount of Exception Fee 2 and Exception Fee 3 from the date of the charging of each Exception Fee together with interest. As will be apparent, the interest calculation may not be straightforward. The parties will need to address this issue. By agreement, the question of costs was to be the subject of a further hearing. That hearing may now be unnecessary. 379 The parties are directed to confer and bring in agreed orders and directions to give effect to these reasons for judgment by 4:00pm on 12 February 2014. If the orders and directions cannot be agreed, then the parties are to file a joint document which identifies the areas of agreement, the areas of disagreement and, for the areas of disagreement, the reason or reasons for that disagreement. If a further hearing is necessary, the parties are directed to inform the Court of the length of the hearing and about the availability of Counsel. It may be necessary to defer that argument until after the taking of all necessary accounts and enquiries referred to in the preceding paragraph. I certify that the preceding three hundred and seventy nine (379) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 5 February 2014 ANNEXURE 2 – RELEVANT CONTRACTUAL TERMS Terms defined in the Reasons for Decision have been adopted in this Annexure PRE-DECEMBER 2009 (1) Saving Account 156 1 The Signature Card relevantly provided: I/We agree to be bound by the terms and conditions for the account types which are opened in my/our names, and which are noted on this card, including the terms dealing with the disclosure of information. I/We authorise the nominated signatories to act fully and effectively in all dealings with ANZ regarding the operation of the account as set out in the terms. I/We acknowledge receipt of all booklets containing terms and conditions for each account and, if the Code of Banking Practice applies, general descriptive information. 2 The August 2008 Terms and Conditions relevantly provided: (1) cl 2.3, headed "Cheques", under the sub-heading "what if the cheque is dishonoured?", stated that "ANZ may charge you a dishonour fee"; (2) cl 2.5, headed 'Withdrawing or transferring money', stated that "[u]nless otherwise noted, you may withdraw money from your account (provided your account contains sufficient funds)" and then set out various methods by which withdrawals could be made; (3) cl 2.6, headed "Stopping or altering payments for Direct Debits and Periodical Payments", stated "[a] Periodical Payment is a debit from your ANZ account, which you instruct ANZ to make to the account of another person or business"; (4) cl 2.7, headed "Crediting of withdrawals and deposits", stated "[a] Periodical Payment Non-Payment Fee is charged if you have authorised a Periodical Payment that is not made because there are insufficient cleared funds in your account"; (5) cl 2.9, headed "Changes to Fees and Charges, Interest Rates and these Terms and Conditions", stated that ANZ could make certain changes to Mr Paciocco's account, including by introducing a new fee, by increasing an existing fee or charge, or by changing "any other term or condition". The clause required ANZ to give a minimum of 30 days' notice to Mr Paciocco, either in writing or by press advertisement, of an increase to an existing fee; (6) cl 2.12, headed "Provision of Credit", stated: ANZ does not agree to provide any credit in respect of your account without prior written agreement. Depending on your account type, credit can be provided through an ANZ Equity Manager facility, an Overdraft facility or an ANZ Assured facility. It is a condition of all ANZ accounts that you must not overdraw your account without prior arrangements being made and agreed with ANZ. … If a debit would overdraw your account, ANZ may, in its discretion, allow the debit on the following terms: • interest will be charged on the overdrawn amount at the ANZ Retail Index Rate plus a margin (refer to 'ANZ Personal Banking Account Fees and Charges' booklet for details); • an Honour Fee may be charged for ANZ agreeing to honour the transaction which resulted in the overdrawn amount (refer to 'ANZ Personal Banking Account Fees and Charges' booklet for details); • the overdrawn amount, any interest on that amount and the Honour Fee will be debited to your account; and • you must repay the overdrawn amount and pay any accrued interest on that amount and the Honour Fee within seven days of the overdrawn amount being debited to your account. You should inform ANZ as soon as possible if you are in financial difficulty. (7) in cll 4.2 and 4.3, ANZ had the right to block access to a customer's account, or to combine the balances of two or more of a customer's accounts, and ANZ had a discretion to "close an account due to unsatisfactory conduct or for any other reason it considers appropriate"; (8) Section 5, headed "Bank Fees and Charges", stated: All ANZ accounts are subject to specific account related fees and charges. Other general fees and charges may also apply to your account for other services or account activity. ANZ offers fee free transaction banking on some accounts under certain conditions. ANZ may also waive fees under certain conditions. If ANZ fails to collect a fee to which it is entitled, ANZ has not waived its right to collect the fee for future transactions of the same nature. For information about: • specific account fees and charges (including the types of transactions you can make, monthly transaction quotas and specific fee amounts); • fee exemptions; and • fee concession criteria Please refer to the 'ANZ Personal Banking Account Fees and Charges' booklet. (9) Section 8, headed "Electronic Banking Conditions of Use", was divided into sections. Under the section headed "Processing instructions – general", it stated: The account holder authorises ANZ to act on the instructions you enter into electronic equipment. … ANZ may delay acting on or may ask you for further information before acting on an instruction. Where ANZ has instructions for more than one payment from your account(s), ANZ will determine the order of priority in which payments are made. … (10) A further section headed "Cancellation of cards or electronic access" stated: ANZ may cancel any card, [Customer Registration Number] or electronic access: • without prior notice if: • ANZ believes that use of the card or electronic access may cause loss to the account holder or to ANZ; • the account is an inactive account; • all the accounts which the card may access have been closed; • the account has been overdrawn, or you have exceeded your agreed credit limit; or • on giving you not less than three months written notice. … The account holder may cancel a card at any time by sending ANZ a written request or by calling ANZ on 13 13 14 … ANZ may require written confirmation. (11) A further section headed "Withdrawal of electronic access" stated: ANZ may withdraw your electronic access to accounts (including by BPAY) without prior notice if: • electronic equipment malfunctions or is otherwise unavailable for use; • a merchant refuses to accept your card; • any one of the accounts is overdrawn or will become overdrawn, or is otherwise considered out of order by ANZ; • ANZ believes your access to accounts through electronic equipment may cause loss to the account holder or to ANZ; • ANZ believes that the quality or security of your electronic access process or ANZ's systems may have been compromised; • all the accounts which you may access using ANZ Phone Banking or ANZ Internet Banking have been closed or are inactive or the account you have nominated for Mobile Phone Banking fees and charges to be charged to is closed; or • ANZ suspects you of being fraudulent or engaging in inappropriate behaviour unless this is prohibited by law. 1 The August 2008 Fees and Charges Booklet relevantly provided: Direct Debit or Direct Credit Free An arrangement you make with a third party to debit or credit your account directly. • A Dishonour Fee may apply if a payment is dishonoured Note: ANZ does not charge for providing this service, however the third party may charge a fee. Dishonour Fee • Charged to your account on the day of the dishonour, when any payment on your account (cheque or direct debit) is dishonoured due to lack of cleared funds in your account. $35 • Dishonour Fee – ANZ Access Basic account $10 • Dishonour Fee – ANZ Access Limited account $0 Honour Fee • Payable on each occasion that ANZ honours a drawing where sufficient cleared funds are not available in the account or when the credit limit on your account is exceeded. $35 … The Honour Fee is payable on the date of the excess and drawings include those made at a branch, by cheque, or electronic banking. Electronic banking includes Internet, Phone, EFTPOS, Periodical Payments, Direct Debits and ATMs. … Overdrawn Account Interest Overdrawn Account (accounts without a credit limit) • ANZ Retail Index Rate plus a margin of 8.5% per annum** The ANZ Retail Index Rate is published weekly in the Australian Financial Review and other major newspapers. Periodical Payments … • Non-payment fee $35 • Non-payment fee – ANZ Access Basic account $10 • Non-payment fee – ANZ Access Limited account $0 (2) Card Accounts 9522 and 9629 2 The Letter of Offer dated 16 June 2006 relevantly provided: Minimum Repayment Each month you are required to pay: • the greater of $10 or 2% of the monthly Closing Balance shown on your statement of account, rounded up to the nearest dollar • or, if the Closing Balance of your statement of account is less than $10, the full closing balance by the Due Date shown on that statement of account. In addition you will need to pay any Amount Due Immediately on receipt of your statement of account. Credit Fees and Charges … Late Payment Fee: A fee of $35 will be charged to your credit card account if the "Monthly Payment" plus any "Amount Due Immediately" shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement. Overlimit Fee: A fee of $35 will be charged to your credit card account at the end of the "Statement Period" shown on the statement of account if the balance of the account exceeds the "Credit Limit" during that statement period. Charged at a maximum of once per statement period. Under the contract the annual percentage rate, the minimum repayment, the interest free period and the credit fees and charges may be changed by ANZ without your consent. New fees and charges may also be introduced by ANZ without your consent… You will be notified of any change in accordance with Condition 33 of the ANZ Credit Card Conditions of Use. … This document does not contain all the pre-contractual information required to be given to you. More pre-contractual information can be found in the Credit Card Conditions of Use enclosed with this letter. The Credit Card Conditions of Use booklet outlines the rights and obligations you and the Bank must meet when operating your account. … 3 The September 2006 Conditions of Use relevantly provided: (1) ANZ would (subject to certain limited exceptions) mail a statement of account to the account holder each month: cl 12; (2) the statement would detail all amounts processed to or from the credit card account during the statement period (including any refunds or payments made as well as any fees and charges incurred on the credit card account): cl 13; (3) in cl 14, that: Making payments to your credit card account (14) Repayment obligations The statement of account shows how much the account holder must pay to ANZ and when payment is due. (14.1) Amounts payable immediately The greater of: (i) overlimit amounts; and (ii) overdue amounts will be shown on statements of account as being payable immediately. (14.2) Amounts payable by the 'DUE DATE' (a) The account holder must make the 'Minimum Monthly Payment' shown on each statement of account by the 'DUE DATE' shown on that statement of account. Additional payments can also be made towards the 'Closing Balance' shown on the statement of account. (b) [This clause set out how the 'Minimum Monthly Payment' would be calculated] (c) For all types of Gold credit card accounts, ANZ First (Low Interest option), ANZ Low Rate MasterCard, ANZ Low Interest MasterCard credit card accounts, the 'DUE DATE' is 25 days from the end of the statement period. For all other credit card accounts, the 'DUE DATE' is 14 days from the end of the statement period. If the 'DUE DATE' would fall on a day that is not an ANZ business day, the 'DUE DATE' will be the next ANZ business day. (4) in the Introduction, under the heading Meanings of words: 'Overdue amount' means any 'Minimum Monthly Payment' that remains unpaid from previous statements of account; 'overlimit amount' means the amount by which, at any time, the outstanding balance of the credit card account exceeds the approved credit limit. (5) how payments could be made to a credit card account: cl 15; (6) in cl 20, how interest was calculated, including that: 1. no interest was payable on purchases, where the full closing balance of the account was paid by the due date; if it was not paid by the due date, the interest would be charged from the date of each purchase; and 2. interest was payable on cash advances from the date of the cash advance, and in each case the interest would be debited to the account on the closing date of the statement period; (7) in cl 22, under the heading "Fees and Charges" and the sub-heading "Bank fees and charges", that: (a) ANZ reserves the right to charge the credit card account with fees and charges for the provision and operation of the credit card account. The fees and charges applicable to the credit card account are those shown in the Letter of Offer and in the ANZ Personal Banking Fees and Charges booklets, as varied from time to time. (b) … (c) ANZ is also irrevocably authorised to debit any interest, fees or change [sic] applicable to the credit card account. (d) The monthly statement of account will detail all fees and charges applied to the credit card account during the relevant statement period. (8) in cl 29, headed "Default", that: (a) The account holder is in default under the credit card contract if you have not met any of your obligations under this credit card contract. If the account holder is in default under the credit card contract, or if ANZ believes on reasonable grounds that you induced it to enter into the credit card contract by fraudulent misrepresentation, the outstanding balance including the outstanding balance on any Promotional Plans on the credit card account will, at the option of ANZ, become immediately due and payable to the ANZ and the credit card(s) relating to this credit card contract will be cancelled, by ANZ giving the account holder notice in accordance with any applicable law. (b) … (c) Any reasonable amount reasonably incurred or expended by ANZ in exercising its rights in relation to the credit card account arising from any default (including expenses incurred by the use of ANZ's staff and facilities) are enforcement expenses and become immediately payable by the account holder. ANZ may debit the credit card account for such amounts without notice. (d) Upon payment to ANZ, in accordance with this condition, of all amounts owing on the credit card account, the agreement governing the operation of the credit card account will be terminated without the need for any further notice. (9) in cl 30 headed "Cancellation by ANZ": (a) … (b) ANZ reserves the right to cancel a credit card or refuse authorisation of further transactions on any credit card account at any time: (i) without prior notice if: (A) ANZ believes that use of the credit card or the credit card account may cause loss to you or to ANZ (for example, if you are in default under the credit card contract or under the terms and conditions applicable to another credit facility provided by ANZ to you); (B) The credit card account is an inactive account; (C) The credit limit has been exceeded or a repayment is overdue (Note that ANZ may elect not to cancel a credit card or refuse authorisation of a transaction for these reasons but the fact that ANZ has elected not to do so on one or more previous occasions does not stop ANZ from taking these actions); (D) In the reasonable view of ANZ you have tampered with, misused or allowed any other person to use the chip on your credit card; or (ii) upon giving you not less than three months written notice. If the credit card account is closed, all credit cards issued in relation to that credit card account will also be cancelled. (c) … (d) ANZ will not cancel any individual credit card(s) without good reason. ANZ reserves the right to cancel any credit card at any time without prior notice if: (i) ANZ believes that use of the credit card may cause loss to you or to ANZ; or (ii) the credit card account has been closed. (10) in cl 31 headed "Cancellation by you", it stated: (a) The account holder may close the credit card account at any time by making a telephone request to ANZ for closure of the credit card account. If the credit card account is closed, all credit cards issued in relation to that credit card account will also be cancelled. (11) in cl 33, that ANZ could, at any time, "change any term of the credit card contract by giving the account holder notice", including the applicable interest rate(s), the way in which interest is calculated or applied, the amount, frequency, time for payment of or the method of calculation of repayments, increasing the amount of a credit fee or charge or changing the frequency or time for payment of a credit fee or charge, or introducing a new credit fee or charge; (12) ANZ could combine the balances of two or more of a customer's accounts: cl 40; and (13) Part B, under the heading "Electronic Banking Conditions of Use", contained terms to the same effect as those set out in [2(9), 2(10) and 2(11)] above. 4 The August 2006 Fees and Charges Booklet relevantly provided: Late Payment Fee $35 • Charged to ANZ Low Rate MasterCard … if the "Monthly Payment" plus any "Amount Due Immediately" shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement. 5 The Letter of Offer dated 24 July 2009 relevantly provided: Minimum Repayment Each month you are required to pay: • the greater of $10 or 2% of the monthly 'Closing Balance' shown on your Statement of Account, rounded up to the nearest dollar • or, if the 'Closing Balance' of your Statement of Account is less than $10, the full 'Closing Balance' by the Due Date shown on that Statement of Account. … Amount Due Immediately If an Amount Due Immediately appears on your monthly Statement of Account, you will need to pay this amount in full as soon as you receive your statement. This Amount Due Immediately is payable in addition to the Monthly Minimum Repayment. Credit Fees and Charges … Late Payment Fee A fee of $35* will be charged to your credit card account if the "Monthly Payment" plus any "Amount Due Immediately" shown on the statement of account is not paid within 28 days of the end of the "Statement Period" shown on that statement. * A reduced fee of $10 will apply if you hold an ANZ Access Basic Account. Overlimit Fee A fee of $35* will be charged to your credit card account at the end of the "Statement Period" shown on the statement of account if the balance of the account exceeds the "Credit Limit"# during that statement period. Charged at a maximum of once per statement period. * A reduced fee of $10 will apply if you hold an ANZ Access Basic Account. # Ask us how you can avoid going over your Credit Limit by opting to have ANZ decline transactions (in most cases) that will take you over your limit. Pre-Contractual Information Under the contract the annual percentage rate, the minimum repayment, the interest free period and the credit fees and charges may be changed by ANZ without your consent. New fees and charges may also be introduced by ANZ without your consent… You will be notified of any change in accordance with Condition 33 of the ANZ Credit Card Conditions of Use. 6 The July 2009 Conditions of Use contained materially the same terms as the September 2006 Conditions of Use (see [5] above) except for the following matters. (1) cl 2 headed "The Credit Limit", stated: (a) Your credit limit is set out in the Letter of Offer and is for the credit card account. If ANZ issues more than one credit card for use on your credit card account no separate limit applies for each credit card. The account holder can ask ANZ to increase or decrease the credit limit at any time. ANZ is not required to agree to any request to increase the credit limit. ANZ is not required to agree to any request to decrease the credit limit if the decrease would result in the outstanding balance exceeding the credit limit. (b) You must not exceed the credit limit unless ANZ has consented in writing or ANZ otherwise authorises the transaction which results in the account holder's outstanding balance exceeding the credit limit. By authorising a transaction which results in the account holder's outstanding balance exceeding the credit limit, ANZ is not increasing the account holder's credit limit. If you exceed your credit limit, you must pay the amount by which the outstanding balance exceeds the credit limit immediately. (c) Any withdrawal, transfer or payment from the credit card account will be made firstly from any positive (Cr) balance and secondly from any available credit in the credit card account. (2) cl 30, headed "Cancellation by ANZ" (which differed from that in the September 2006 Conditions of Use (see [5] above)), stated: (a) … (b) ANZ reserves the right to cancel a credit card at any time without prior notice and will provide notice as soon as practicable after the credit card is cancelled. If the credit card account is closed, all credit cards issued in relation to that credit card account will also be cancelled. (c) … (d) Examples of when ANZ may cancel a credit card include, without limitation, where a credit card has not been activated within 6 months of the date of the Letter of Offer relating to that credit card or where ANZ believes the use of the credit card account will cause loss to you or ANZ. This is not an exhaustive list of when ANZ may cancel a credit card and is a guide only. (3) Part B, headed "Electronic Banking Conditions of Use" (which differed from that in the September 2006 Conditions of Use (see [5(12)] above)), stated that: Cancellation of Cards or Electronic Access ANZ may cancel any card, [Customer Registration Number] or electronic access at any time without prior notice as set out in Clause 30(b). … The account holder may cancel a card at any time by sending ANZ a written request or by calling ANZ on the relevant number listed at the front of this booklet. 7 The July 2009 Fees and Charges Booklet relevantly provided: Overlimit Fee $35 • Charged at the end of the "Statement Period" shown on the statement of account if the balance of the account exceeds the "Credit Limit" during that statement period (excluding ANZ Visa PAYCARD / ANZ Rewards Visa PAYCARD accounts). • Charged at a maximum of once per "Statement Period" (Emphasis added in bold) POST-DECEMBER 2009 (1) Card Accounts 9522 and 9629 8 The 24 July 2009 Letter of Offer: see [7] above. 9 The December 2009 Conditions of Use contained materially the same terms as those set out at [5] and [8] above. 10 The December 2009 Fees and Charges Booklet relevantly provided: Late Payment Fee $20 • Charged to your credit card account if the "Minimum Monthly Payment" plus any amount "Payable Immediately" shown on the statement of account is not paid by the "Due Date" shown on that statement. • No Late Payment Fee will apply if you hold an ANZ Access Basic Account. • Charged to ANZ Visa PAYCARD and ANZ Rewards Visa PAYCARD accounts if the "Minimum Monthly Payment" plus any amount "Payable Immediately" shown on the statement of account is not paid in full by the "Due Date" shown on that statement. Overlimit Fee $20 • Charged to your credit card account at the end of the "Statement Period" shown on the statement of account if we agree to provide an Informal Overlimit amount during that statement period. The Overlimit Fee is charged at a maximum of once per statement period. (Refer to the ANZ Credit Cards Conditions of Use for information about Informal Overlimit amounts). • Ask us how you can avoid going over your credit limit by opting to have ANZ decline transactions (in most cases) that will take you over your credit limit. (Refer to the ANZ Credit Cards Conditions of Use for more information). • No Overlimit Fee will apply if you hold an ANZ Access Basic Account. • This fee does not apply to ANZ Visa PAYCARD and ANZ Rewards Visa PAYCARD accounts. 11 The March 2010 Conditions of Use contained materially the same terms as those set out at [5] and [8] above except for [8(a)] above which instead provided in cl 2: (2) The Credit Limit (a) Your credit limit is set out in the Letter of Offer and is for the credit card account. If ANZ issues more than one credit card for use on your credit card account no separate limit applies for each credit card. The account holder can ask ANZ to increase or decrease the credit limit at any time. ANZ is not required to agree to any request to increase the credit limit. ANZ is not required to agree to any request to decrease the credit limit if the decrease would result in the outstanding balance exceeding the credit limit. (b) From time to time, there may be a debit made to your credit card account which, if processed, would temporarily result in the outstanding balance exceeding your credit limit. ANZ has an Informal Overlimit service to help you in these circumstances. (c) When a debit is initiated which, if processed, would result in the outstanding balance temporarily exceeding your credit limit, you make a request for an Informal Overlimit amount. ANZ will consider your request for an Informal Overlimit amount and, if both the debit and the account holder satisfy ANZ's credit criteria for Informal Overlimit amounts, ANZ will allow the debit to be processed as an Informal Overlimit amount, on the following terms: • interest will be charged on the Informal Overlimit amount at the applicable interest rate for purchases, cash advances and other payments (see Condition (19)); • an Overlimit Fee will be charged (refer to the Letter of Offer for details); • the Informal Overlimit amount, any interest on that amount and any Overlimit Fees will be debited to your credit card account; and • you must repay the Informal Overlimit amount on the earlier of: - the time shown for payment of 'Overdue/Overlimit' amount on the next statement of account after the Informal Overlimit amount is debited to your credit card account; and - the day that is 60 days after the day on which the Informal Overlimit amount is debited to your credit card account. (d) By processing a debit as an Informal Overlimit amount, ANZ is not increasing the account holder's credit limit. (e) Any withdrawal, transfer or payment from the credit card account will be made firstly from any positive (Cr) balance and secondly from any available credit in the credit card account. An Informal Overlimit amount will only be provided if there is no available credit in the credit card account and both the debit and the account holder satisfy ANZ's criteria for Informal Overlimit amounts. (f) If you want to avoid exceeding your credit limit, you should ask ANZ: - how to have ANZ decline transactions you initiate that will take you over your credit limit – please note that this service is not available for all transaction types (for example, it is not available for a transaction that is not electronically authorised such as a purchase that is manually debited to your credit card account if EFTPOS is not available). Please ask for our Overlimit Credit Card Opt Out Form; - about ways in which you can monitor the balance of your credit card account; or - if you have longer-term, ongoing borrowing needs, how to apply for an increase to the account holder's credit limit or for information about other products that may suit your needs. 12 The 'ANZ Credit Cards Conditions of Use' dated June 2010 (and all subsequent versions) included a preamble under the heading "Important things to know about using your ANZ credit card" which included: Fees We tell you which fees can apply to your credit card account in the Letter of Offer that we sent to you, and you can also find these in the ANZ Personal Banking Account Fees and Charges booklet which is available on anz.com or at any ANZ branch. Some of the key fees you need to know are below: … Fees that apply when you do something, or request us to do something for you We provide you with services on your credit card account and sometimes there are fees for doing so. The most common service fees are: … • Late Payment Fee • Overlimit Fee (not applicable to ANZ Visa PAYCARD and ANZ Rewards Visa PAYCARD accounts, or if you hold an ANZ Access Basic Account) You can avoid some of these fees: You can avoid a Late Payment Fee by paying the Minimum Monthly Payment shown on your statement by the due date • We have convenient services available to you that make it easy to make your minimum payment on time such as CardPay Direct – please ask us for details. You can avoid an Overlimit Fee by staying within your approved credit limit • We tell you what your credit limit is on your Letter of Offer that we sent you, and it's also shown on your monthly account statement • Sometimes you might have a transaction that temporarily causes you to exceed your credit limit. In this situation, we want to help you avoid embarrassing moments such as being declined while purchasing your groceries. Where you and the transaction which would exceed your credit limit satisfy our criteria, we will provide you with a convenient service to cover your payment needs – we call this service an Informal Overlimit facility. An Overlimit Fee will be charged for this service. • You can also ask us to decline certain transactions so that you don't exceed your credit limit. Please see clause 2 in this booklet for further information. (Emphasis added in bold.) 13 The 'ANZ Personal Banking Account Fees and Charges' dated June 2012 relevantly provided: Overlimit Fee $20 A. Charged to your credit card account at the end of the "Statement Period" shown on the statement of account where: • any type of debit is initiated on your credit card account that would cause you to exceed your credit limit during the Statement Period; and • we agree to provide you with an Informal Overlimit amount to allow this debit to be charged to your credit card account; and • we determine that: (1) Your account was opened before 18 June 2012 and either: a. you have not asked us to decline transactions (in most cases) that will take you over the credit limit; or b. you previously asked us to decline the transactions referred to in (a), but have since asked us to approve these transactions where they meet ANZ's criteria by consenting to be charged an Overlimit Fee; or (2) Your account was opened on or after 18 June 2012 and you have consented to be charged an Overlimit Fee. • The Overlimit Fee (where payable) is charged at a maximum of once per statement period. Please refer to the ANZ Credit Cards Conditions of Use for information about Informal Overlimit amounts. B. You will not be charged an Overlimit Fee where ANZ provides you with an Informal Overlimit amount during the Statement Period and: - you hold an ANZ Access Basic Account; or - we determine that: (1) Your account was opened before 18 June 2012 and you have asked us to decline transactions (in most cases) that will take you over the credit limit; or (2) Your account was opened on or after 18 June 2012 and at the time the Informal Overlimit amount is provided you have not consented, or you have withdrawn your consent to being charged an Overlimit Fee (unless you are charged an Overlimit Fee in accordance with paragraph A in respect of an earlier Informal Overlimit amount). (2) Business Contract 14 The Signature Card relevantly provided: I/We agree to be bound by the terms and conditions for the account types which are opened in my/our names, and which are noted on this card, including the terms dealing with the disclosure of information. I/We authorise the nominated signatories to act fully and effectively in all dealings with ANZ regarding the operation of the account as set out in the terms. I/We acknowledge receipt of all booklets containing terms and conditions for each account. 15 The Account Authority contained, inter alia, a purported resolution of SDG as follows: That a bank account for the company be opened with [ANZ] at its Lower Templestowe branch, and that [any one to sign] be authorised to: • Operate and enter into agreements to operate on the account(s) in any way permitted by ANZ including transactions by electronic, mechanical and other means. • Sign cheques; draw, endorse, accept and discount bills of exchange and drafts; make, endorse and discount promissory notes. • Overdraw or increase the overdraft on the account. • Sign authorities for periodical payments; place money on term deposit or other non-current deposit and deal with and receive payment for such deposits, including interest, and deal with term deposit receipts and certificates of deposit. • Give receipts for shipping documents and the like and sign requisitions for letters of credit. • Sign and make withdrawals in respect of any deposit or current account. • Generally act fully and effectually in all dealings, matters and transactions between the company and ANZ. 16 The December 2009 Terms and Conditions relevantly provided: (1) ANZ could combine the balances of two or more of a customer's accounts. (2) ANZ could in its discretion close an account "due to unsatisfactory conduct or for any other reason it considers appropriate". (3) ANZ could change the terms and conditions by, inter alia, introducing a new fee or charge, increasing an existing fee or charge, or changing any other term or condition. (4) that a cheque may, at ANZ's discretion, be dishonoured or payment refused where, inter alia, there are insufficient funds in the account of the drawer, and that "ANZ may charge a dishonour fee". (5) in a section headed "Informal Overdraft facility", it stated: For the purposes of this clause the following definitions apply: 'Informal Overdraft' means an amount advanced to you under the Informal Overdraft facility. 'Informal Overdraft facility' means the informal short-term credit facility ANZ may provide to you pursuant to this clause if a debit to your account (excluding a periodical payment) would, if processed, result in either: • your account becoming overdrawn; or • the approved limit on your account being exceeded. When any debit (excluding a periodical payment) is initiated which, if processed, would result in either: • your account becoming overdrawn; or • the approved limit on your account being exceeded, you are deemed to request an Informal Overdraft. For accounts other than ANZ Equity Manager in a Company Name ANZ will consider your request and assess your eligibility for an Informal Overdraft based on ANZ's credit criteria. You will be charged an Informal Overdraft Assessment Fee for this service in the circumstances described below. If you satisfy ANZ's credit criteria for an Informal Overdraft facility, ANZ will agree to your request by allowing the debit to be processed as an Informal Overdraft, on the following terms: • If the balance of your Informal Overdraft facility exceeds $50 at the time of your request, or will exceed $50 once the debit requested is processed, you will be charged an Informal Overdraft Assessment Fee on the day on which the debit is processed (or if that day is not a business day, on the next business day). The Informal Overdraft Assessment Fee (referred to in your bank statements and in the 'ANZ Business Banking Transaction Accounts Fees and Charges' booklet as an 'Honour Fee') is payable immediately. • Interest will be charged on the sum of the Informal Overdraft and any fees and charges debited to the account at the ANZ Retail Index Rate plus a margin … • The Informal Overdraft, any Informal Overdraft Assessment Fee and any interest on both of those amounts will be debited to your account; and • you must repay each of those amounts by the earlier to occur of either: • 7 days of the Informal Overdraft being debited to your account; or • ANZ demanding repayment. Demand for payment may be made in your next statement of account or by letter to you. If you do not satisfy ANZ's credit criteria for an Informal Overdraft, ANZ will decline your request and will not allow the debit to be processed. You will be charged an Informal Overdraft Assessment Fee (referred to in your bank statements and in the 'ANZ Business Banking Transaction Accounts Fees and Charges' booklet as an 'Outward Dishonour Fee') and this fee is payable immediately. • Other than amounts debited to your account in accordance with this clause, ANZ does not agree to provide any credit in respect of your account without prior written agreement. You should inform ANZ as soon as possible if you are in financial difficulty. (6) Under the heading "Overdraft Facility", it stated: If you require credit, an ANZ Business Overdraft Facility can be arranged on your account … All applications are subject to ANZ's normal credit approval criteria. (7) under the heading 'Electronic Banking Conditions of Use', it stated: 15. Cancellation of Cards, Security Devices or Electronic Access (a) ANZ may cancel or limit any card, Security Device, [Customer Registration Number] or electronic access: • Without prior notice if: • ANZ believes that use of the card, Security Device or electronic access may cause loss to the Account Holder or to ANZ; • The Account is an inactive account; • All the Accounts which the card may access or the Security Device relates to have been closed; • The Account has been overdrawn, or you have exceeded your agreed credit limit (other than by use of the Informal Overdraft facility); • The account or your use of the account is otherwise out of order; or • On giving you not less than three months written notice. … (c) The Account Holder may cancel a card at any time by sending ANZ a written request or by calling ANZ on the relevant number listed at the back of this booklet. 16. Withdrawal of Electronic Access (a) ANZ may withdraw your electronic access to Accounts (including by BPAY) without prior notice if: • Electronic equipment malfunctions or is otherwise unavailable for use; • A merchant refuses to accept your card; • Any one of the Accounts is overdrawn or will become overdrawn (other than by use of the Informal Overdraft facility); • Any one of the Accounts or your use of an account is otherwise considered out of order by ANZ; • ANZ believes your access to Accounts through electronic equipment may cause loss to the Account Holder or to ANZ; • ANZ believes that the quality or security of your electronic access process or ANZ's systems may have been compromised; • All the Accounts which you may access using ANZ Phone Banking, ANZ Internet Banking or ANZ Internet Banking for Business have been closed or are inactive or the account you have nominated for ANZ Mobile Phone Banking fees and charges to be charged to is closed; or • ANZ suspects you of being fraudulent or engaging in inappropriate behaviour; unless this is prohibited by law. 17 The December 2009 Business Fees and Charges Booklet relevantly provided: Honour Fee $37.70 Charged for considering a request for an Informal Overdraft where you satisfy ANZ's credit criteria for an Informal Overdraft, and the balance of your Informal Overdraft facility exceeds $50 at the time of your request or will exceed $50 after the debit requested has been processed. Outward Dishonour Fee $37.70 per dishonour Charged for considering a request for an Informal Overdraft where you do not satisfy ANZ's credit criteria for an Informal Overdraft. It also contained a term specifying the 'Informal Overdraft Interest Rate' as the 'Overdraft Interest Rate' plus 4% p.a. 18 The Letter of Offer dated 28 April 2011 relevantly provided: The Facility Limit is the maximum amount of credit (inclusive of any interest and fees debited to your account) that you may incur. If you exceed the Facility Limit and ANZ offers you an Informal Overdraft Facility, you will be charged the Overdraft Interest Rate plus a further 4% p.a. on the balance of your Informal Overdraft Facility. … A fee is charged if the balance of your Overdraft facility exceeds $50 or will exceed $50 after a requested debit has been processed. This fee is for considering a request for an Informal Overdraft where you satisfy ANZ's credit criteria. 19 The Letter of Offer dated 29 November 2011 relevantly provided: (1) the facility limit on SDG's overdraft facility was $49,999; (2) under the heading 'Informal Overdraft Interest Rate': The Facility Limit is the maximum amount of credit (inclusive of any interest and fees debited to your account) that you may incur unless ANZ agrees to advance you any further amount under an Informal Overdraft facility. If ANZ provides you with an Informal Overdraft facility, you will be charged the Interest Rate plus a further 4.00% pa on the sum of the Informal Overdraft and any applicable Informal Overdraft Assessment Fee… (3) an Honour Fee of $37.70 is payable "if ANZ pays drawings on your account in excess of the Facility Limit. This fee is payable on the date of the excess drawing"; and (4) the facility was to be secured by a guarantee and indemnity given by Mr Paciocco. 20 The 'Finance Conditions of Use – ANZ Business Banking' dated August 2011 relevantly provided: (1) under the heading "Request for Informal Overdraft facility", provisions to the same effect as those set out in [18(5)] above; (2) interest would be charged on amounts not paid when due (an 'overdue amount'): cl 11, and: You agree to pay ANZ, on demand, in addition to the interest payable under sub-clause (a), a fee determined by ANZ so that the interest and the fee will compensate ANZ for the Costs ANZ incurs or loss ANZ suffers as a result of an overdue amount. (3) it was a review event if "ANZ has dishonoured or refused payment of cheque(s) issued on any of your accounts because there are insufficient funds": cl 13(h)(v); (4) ANZ could change the terms and conditions by, inter alia, introducing a new fee or charge, changing an existing fee or charge, or changing any other term or condition: cl 14; (5) in cl 35, headed "Consolidation of Accounts", that: ANZ may at any time combine, consolidate, merge or apply any credit balance in any of your accounts, or any amount available to ANZ by way of set-off, lien or counterclaim, towards payment of money which is then, or will become, due and payable by you to ANZ under any Transaction Document. If ANZ does any of these things, ANZ will tell you in writing. ANZ can do any of these things despite any previous agreement to the contrary. You authorise ANZ to do anything in your name which is necessary for ANZ to be able to do any of these things. ANZ's rights under this clause are in addition to any other rights it has at law or under any other agreement. (6) that a cheque may, at ANZ's discretion, be dishonoured or payment refused where, inter alia, there are insufficient funds in the account of the drawer, and that "ANZ may charge an Informal Overdraft Assessment Fee (referred to in your bank statements and ANZ Business Banking Finance Fees and Charges booklet as an Outward Dishonour Fee)": cl 39; and (7) under the heading 'Electronic Banking Conditions of Use', provisions to the same effect as those set out in [18(7)] above. Annexure 4 Pre-2008 Exception Fee Discussion Paper dated 24 March 2006 1. The paper stated that within ANZ, at that time, there was a series of actions recommended to implement pricing changes by which dishonour fees and periodical non-payment fees were reduced from $45 to $35 and honour fees were increased from $29.50 to $35. The first objective identified for the re-pricing was to "improve revenue streams". Another objective was to improve "alignment between fees and service provided". There was a "strong rationale for changing existing exception fee levels and policy". That rationale had the following components: a. A "pricing rationale" – ANZ noted that only the highest balance savings accounts were profitable, "exception fees revenue aligns well with lower value centiles", customer research confirmed that "exception fees are not a driver of acquisition choice and rarely a driver of attrition" and "competitor pricing provides headroom for change without being top of market". b. Insofar as the changes had a "policy rationale", it noted that there was no strong rationale for having different online limit policies for cheque and savings customers and existing fee levels were "misaligned" across the personal fees. c. In relation to "customer and community rationale", the paper recorded that "[e]xisting differences in honour and dishonour fee levels are hard to justify; changes may reduce the pressure on dishonour fees which are hardest to justify as "no service is provided". (The substance of this statement was repeated in the 30 June 2006 Exception Fee Discussion Paper). 2. The outcome of customer research was then considered. The conclusion was that honour fees were not a substantial part of acquisition or attrition. In relation to "attrition", the paper recorded that "very few respondents had even considered changing banks because of honour fees" because "for most customers, honour fees were charged rarely at all" and where they did play a role, "respondents were already dissatisfied with their bank". 3. The paper also addressed the rationale for the proposed pricing change to a common honour and dishonour fee of $35. The paper stated that it was difficult to justify to customers and regulators why the dishonour fee was higher than the honour fee "given that there is no incremental service provided for dishonour". Another rationale was said to "provide some cost recovery and incentive for proper account management". Exception Fee Discussion Paper dated 30 June 2006 4. The paper stated that by "changing exception fee prices and opening online limits for new advantage and select savings accounts will reduce losses in otherwise unprofitable balance segments". In particular, the paper stated that a "fee alignment at $35 result[ed] in an increase in profit in unprofitable accounts". 5. Exception fees were stated to represent "a significant part of the Transaction Banking" profit and loss. The current level of exception fees was put in context. The paper stated that they totalled $93 million whereas the entire transaction banking earnings before provisions was $208 million and account service fees totalled $50 million. 6. The paper further stated that the proposed changes were based on the outcome of customer research. The research confirmed: a. All customers disliked fees but they disliked the dishonour fee more than the honour fee because of the "lack of perceived service". b. Customers did not understand or appreciate why the honour fee and dishonour fee were different in fee amount. c. Customers were looking for better communication in relation to fees and options and that customers would prefer a buffer of $10. 7. "As laid out in the research [the] results were": a. lowering the dishonour fee; b. aligning fees; c. improving communication with customers; and d. reducing basic fees. 8. The conclusion reached was that ANZ could not afford to do all of these things and increase the buffer and still make the changes financially worthwhile so they have chosen to let go the item which customers viewed as a distant third, the buffer. Exception Fee Briefing Paper dated July 2006 9. The paper stated that exception fees: a. were to be simplified and made consistent ($35) across other ANZ products. b. were to be reduced to $10 for Access Basic customers to reduce the impact of these fees on low income earners. 10. The paper further stated that customer communication was to be improved when a fee is incurred by ANZ writing to customers to explain when these fees are charged and how they can be avoided in the future. 11. The unauthorised overdraft rate was to be aligned with the ANZ Assured overdraft rate, which meant that one interest rate was charged for overdrawing accounts. 12. From late 2006, any new customers opening both cheque and non-cheque accounts may be able to overdraw their account electronically (not applicable to Access Basic and currently only applied to cheque accounts). May 2007 – Internal Emails 13. The penalty fee debate was discussed internally within ANZ. The emails recorded that ANZ was aware that the Australian Securities and Investments Commission (ASIC) was focusing on two issues: the legality of the fees, that is, "whether the amount charged is reasonable to protect the legitimate interest of the Bank" and secondly, the "public perception of the amount of the fees is too high". In an email dated 9 May 2007, an ANZ bank officer recognised that at this time any review of the terms and conditions would not lead to a change in the level of fees and expressed doubts whether this would "ultimately satisfy ASIC and the issue will resurface". The email recorded that "ASIC is basically giving the industry an opportunity to manage the issue itself". 2008 Australian Securities and Investments Commission (Fair Bank and Credit Card Fees) Amendment Bill 2008 (Bank Fees Bill). 14. On 14 February 2008, the Bank Fees Bill was introduced to the Senate and had its first and second readings. Its proposed short title was "A Bill for an Act to Amend the Australian Securities and Investments Commission Act 2001 to limit unfair banking and credit card penalty fees, and for related purposes". The core of the Bill was to prohibit a 'default charge' which was not "at or below a genuine pre-estimate of the damage likely to be suffered by the financial service provider resulting from the consumer default" (cl 12FA), and to enable ASIC to determine a valid "default charge" based upon a consideration, inter alia, of "whether the default charge reflects a genuine pre-estimate of the additional administrative costs that might reasonably be expected to result from the consumer default, reduced by costs that are not able to be identified with reasonable precision and an amount that takes account of the ability of the financial service provider to mitigate the loss it suffers resulting from consumer defaults": cl 12FB(5)(a)). 15. The Bank Fees Bill did not lapse until Parliament was prorogued on 19 July 2010. Through 2008, the Bill was the subject of inquiry by the Senate Standing Committee on Economics, which reported on 16 September 2008. 16. Shortly before the introduction of the Bank Fees Bill, the Australian Bankers Association (ABA) commissioned a review of the Code of Banking Practice. The commencement of the review was publicised in a press release by the ABA on 21 December 2007. Consultation occurred during the review process. ANZ contributed to the review. February 2008 Personal Banking Account Fees and Charges Booklet 17. ANZ issued the February 2008 Personal Banking Account Fees and Charges Booklet. Weekly Management Board Meeting of ANZ on 17 March 2008 18. Under the heading "Bob Santamaria" (in house counsel for ANZ), the Minutes of the weekly management board meeting of ANZ on 17 March 2008 stated "review exception fees for appropriateness to avoid retrospective penalties". Exception Fees Updates, Product Development 1 April 2008 19. Paper entitled "Exception Fees Updates – Product Development" prepared. The introduction explained that the paper was a response to the proposal in the Bank Fees Bill to "limit banking and credit card penalty fees by ensuring that fees are for cost recovery only …". 20. The introduction to the paper stated: – "How ANZ Consumer Cards can project manage the potential requirement to change the disclosure of such 'exception fees' to 'service fees' – Identifies key milestones for the above to occur – Highlights key considerations for the imitative. " 21. The suggested approach was to "changing exception fees to service fees". The paper then listed "key considerations moving [that suggested approach] forward". One key consideration was whether the terminology change was "sufficient protection against the potential impact?" 22. The update also recorded that ANZ's Legal and Government Regulatory Affairs Department, on the basis of its advice, had advised there was "therefore definite revenue at risk figure". Review of the Code of Banking Practice, Issues Paper, August 2008 23. ANZ made a written submission to the Independent Code Reviewer, Jan McClelland in August 2008 in relation to a review of the Code of Banking. In relation to the Issues Paper Interim Recommendation number 7 – Fees and Charges, ANZ submitted that "Fees, charges and interest, including exception fees, are set by member banks in a highly competitive environment. ANZ believes that exception fees are avoidable and we give our customers the information, products and options they need to avoid them". 24. ANZ's submission stated ANZ was continuing to look at new ways to help customers avoid these fees and expected to announce further developments shortly. As such, ANZ believed that fees and charges should not be regulated, particularly in an industry code. ANZ referred to the Commonwealth Government's June 2008 Green Paper on Financial Services and Credit Regulation which suggested that: Regulation of bank fees and charges discourages new investment and innovation, increases compliance costs for industry and may actually lead to an increase in prices for consumers. … 25. ANZ further submitted that the Banking and Financial Services Ombudsman's Terms of Reference stated that it cannot consider the amount of a fee so far as it relates to a policy or practice of a bank. ANZ agreed and believed that the Code of Banking Practice was not the appropriate vehicle for determining the level of fees and charges. ANZ recommended that the market should be allowed to continue to place downward pressure on these fees and charges through innovation and clear and transparent disclosure which would include continuing to update the [Australian Bankers' Association] Exception Fee fact sheet to ensure customers could compare products across providers with regard to these fees. 26. Attachment A to ANZ's submission was two Exception Fee policies which ANZ released in August 2007. The policies were said to "outline a series of commitments to [ANZ's] personal customers". 27. The first entitled "ANZ Exception Fees Policy Consumer Credit Cards" was said to set out ANZ's commitment to customers with regard to late payment fees and overlimit fees applicable to ANZ consumer credit cards. The second policy was entitled "ANZ Exception Fees Policy Consumer Transaction and Savings Products". This policy was for Access Advantage, Access Select, Access Basic, Access Deeming, Progress Saver, Premium Case Management, Prime Cash Management, Home Loan Interest Saver, ANZ One and Equity Manager account and was said to set out ANZ's commitments in relation to honour fees, dishonour fees and periodical payment non-payment fees that applied to these accounts. Both documents stated it was ANZ's policy to provide consumers with: o full disclosure; o keeping fees simple; o helping the consumer avoid fees; and o applying the fees fairly. Confidential Paper, Response to Fee Headwind, 11 August 2008 28. The document was incomplete. The document described the "external environment" as being one where banks "are asked to set Exception fees limited to costs recovery only". 29. The response outlined options that ANZ could consider to mitigate the revenue loss from the potential reduction in exception fees such as tightening criteria further on some exception fees including reducing late payment fee 'grace' days and reducing the overlimit 'buffer'. 30. Other options for raising revenue included increasing annual fees, charging monthly fees instead of annual fees on credit cards, increasing retail rates and cash rates on all products, moving from charging on overlimit fee per cycle to per honoured transaction and introducing differential exception fees on different products. Exception Fees Strategy, September 2008, by Louis Hawke 31. The Executive Summary stated: * Recent events overseas and in Australia are generating heightened focus and increasing the risk of regulation on bank fees, in particular exception fees. * Focus on strategy is to source additional income streams to offset the potential loss of exception fee revenue due to regulation. * Actions to address political concerns and improve customer experience include – new exception fee free account, new ATM warning message and low balance text alerts. * Strategies to cover revenue gap include – changing the mix of honour and dishonoured transactions, increasing the monthly account service fee. * Significant component of honour/dishonour fee is at risk. * Largest threat Senator Fielding Bill – ASIC (Fair Bank and Credit Card Fees) Amendment Bill 2008. * Corporate Affairs, Legal & Banking Products are monitoring the situation and working together on the strategies. 32. The paper stated that the following initiatives "have been / will be implemented to provide customers with more options to avoid overdrawing their accounts": • Exception Fee Free Account (Access Limited) - launched 15 September 2008 o Provides choice to customers who do not wish to overdraw their account • New ATM warning Message – to be rolled out progressively in March 2009 o New message to allow customers to proceed with or cancel transactions that will overdraw their account o Based on the assumption that 50% of customers will choose not to proceed with the transaction, the revenue impact is a reduction of up to $12 million per annum • Low Balance Text Alert Messages … 33. ANZ's short to long term strategies were stated in that document: Short/Medium Term Strategies * Change Terms and Conditions for transaction accounts - Honour and dishonour fees to be changed to "service fees" for overdrawn amounts less than $500 and "temporary overdraft fee" for amounts greater than $500. (More than 90% of honour fees charged are for overdrawn amounts of less than $500). * Switch on Online shadow limits for non cheque Access Accounts - Expected additional revenue of $20 million per annum (at $35 per item) - Controlled phased roll out with new ATM warning message * Change honour/dishonour mix from 70%/30% to 50%/50% - Expected additional revenue of $18 million per annum (at $35 per item) * Change the mix of Online/Batch honour transactions (honour more transactions via Online channels and honour less transactions via batch channels) - Expected additional revenue – to be confirmed. Long Term Strategies If exception fees were regulated/capped to cost recovery, the approach would be to: * Increase monthly account service fee ($0.13 for every $ reduction in per item fee applied on all active accounts or $0.25 for every $ reduction if applied on fee paying accounts only). * Increase proportion of dishonour transactions to over 50%. * Change exception fee charging methodology - item based honour fee - change posting sequence and charge for uncleared funds. December 2008 – ABA Review Report 34. The ABA Report was published in December 2008: Review of the Code of Banking Practice, Final Report, December 2008. 35. Chapter 9 dealt with fees and charges. Among other things, the review noted that of particular concern to consumer advocates and regulators were exception fees. Those concerns focused on: a. the charging of exception fees unilaterally and automatically, often in relation to trivial defaults or unintentional errors by consumers and in situations which compounded the problem for people experiencing financial difficulties; b. the amount charged was disproportionate to the penalised transaction and the cost to the Bank; c. the lack of assistance provided by Banks to assist customers to avoid exception fees; and d. the level of exception fees was not covered by the Code. 36. The review noted that while regulators and consumer advocates acknowledged "that banks are entitled to recover costs incurred by them upon default by a customer", they argued that the code should include reference to the provision of information on exception fees. Express reference was made in the Review to developments in the United Kingdom, which was noted to have "found that fees charged by a Bank in relation to the customer's overdrawing of their account or overdraft limit were not common law penalties": Office of Fair Trading v Abbey National Plc [2008] All ER (D) 349, [2008] EWHC 875 (Comm). That decision had been handed down on 24 April 2008. In relation "to the issue of the quantum of exception fees", the report recommended that "the definition of fees and charges include reference to the reasonable recovery of costs incurred by the Banks when customers default on their repayments, exceed their overdraft limit or are overdrawn on their account". 22 December 2008 Internal Email 37. The Senior Manager, Product and Project Initiation, of ANZ sent an email to, among others, the Managing Director, Retail and Business Banking entitled "Fee for service initiative". The email included statements that: a. The "fee for service" initiative was an appropriate direction for ANZ moving forward given the "pressure that is mounting on exception fees earned on retail and commercial (small business)". b. For the period October 2005-October 2008, over $300 million was earned from late payment and overlimit fees in Consumer Cards. The actual size of the impact across all Consumer and Commercial Businesses was currently being sized. 2009 Fee Review – Project plan and challenges, Product Development January 2009 38. It stated the "Fee for Service" initiative aimed to update the fee name or descriptions so customers understood why the fees are charged. Fee for Service Review, Road-show document, January / February 2009 39. In early 2009, ANZ prepared a "Road-show document" entitled "Fee for service review". In the introduction and scope section, the document stated: ANZ is currently reviewing the 'fees for Service" that are being charged to customers. Part of this review may involve the tailoring of existing fee names or descriptions to more suitable wording to help our customers understand why fees are charged. Presentation to DIRC / PIRC, Fee for Service February 2009 40. Under the heading "Nature of the origins of the proposal, what is the strategic rationale and what are the desired outcomes", the document stated "to reduce the risk of disputation proceedings against ANZ" and to reduce the "risk of government or regulatory action against 'Fees for Service' charged to customers". Fee for Service Scope / Approach prepared by John Papasoulis / Joe Lewis, February 2009 41. This paper, prepared by John Papasoulis and Joe Lewis (who had responsibility for the Fee for Service Project) recommended to ANZ that the proposal implemented focus initially on "tailoring" fees to the higher risk / value revenue streams given that Consumer Cards and Deposits consisted of $251 million or 76% of fee revenue. 42. The paper recommended a phased introduction of the initiative. In phase 1, the Letter of Offer, Terms and Conditions and other "up-front" collateral changes would be made to introduce the new fee names and descriptions but with "continued reference to old fee names". "Penalty Fee Review Project – Feasibility Analysis" prepared by Alicia Hall on 16 February 2009. 43. In the background to the "penalty fee project", Ms Hall noted: * The ANZ legal teams are in the process of reviewing all account penalties with the intention that there will be changes made to the penalty fee names and descriptions. * Penalty fees are currently applied to every ANZ account type, across every business unit and are applicable/visible on multiple platforms. The interdependencies for penalty fees from a technology and business process perspective are substantial as are the volume of fees affected and potentially to be including in the scope of this change. * Our understanding is that the Service Fees already being charged to accounts are not included in this initiative. (Emphasis in original). 44. One of the assumptions and considerations was a differentiation between "Penalty Fees" and "Service Fees and other charges not related to Penalty Fees". 45. Ms Hall listed the Risks. The eighth risk was "Changing Fee names and Descriptions and not addressing the integral intent of the charges may present an ethical challenge to risk and legal teams and hence [ANZ] may face litigation or regulatory issues". Presentation to DIRC / PIRC, Fee for Service, Initiative Review, 23 February 2009 46. The description / summary for the meeting stated that: a. The Fee for Service was directed to "pre-empting likely regulatory change in banks [sic] ability to charge exception fees to customers"; b. The "[p]rimary benefit is to tailor exception fee name and/or description to protect the existing fee revenue received". 47. Another version of the same document stated in the description / summary for the meeting that disputation against exception fees was leading to extreme risk that ANZ would suffer severe consequences from any action and that proposed regulatory action against exception fees was regarded as an "almost certain likelihood". Fee For Service Steering Committee #1, 12 March 2009 prepared by John Papasoulis and Joe Lewis 48. The key benefit to the initiative was the "risk to current fee revenue generated, which the ANZ may not be able to charge in the future and be requested to repay retrospectively" and "each day the proposed changes are not made, the future exposure increases - as much as $1 [million] per day". 52. Consistently with this, further reference is made to the fact that each day the proposed changes are not made, the future exposure increases by as much as $30 million per month. 53. In talking of customers who held both customer and business accounts, the report stated that the phased approach to changing the fees would involve the customer being aware that a variation was being made to a fee that "restates it as a service fee rather than a penalty fee while the business fee with the same name is unchanged as a penalty fee". 54. The report referred to the risk of media attention including the risk of drawing attention to the activity of new fee names and descriptions with resulting negative media exposure. The report however stated that the "media is relatively quiet on this particular issue at the moment, and hence it is a comparatively good time to make the changes, but potential still exits". Minutes of Meeting of Fee for Service Steering Committee on 12 March 2009 49. The minutes recorded that "Penalty Regime risks based on UK experience are still the focus of this initiative". 50. External legal advice was to be sought, and an officer (Mr John Papasoulis) was assigned to action the "single referencing of fees" which had been agreed to be utilised. The agreement was that "the 'old' fees will be updated to 'new' fee names and/or descriptions". Fee for Service Steering Committee #2, 28 April 2009, prepared by John Papasoulis, and Joe Lewis 51. A number of versions were in evidence. 52. In Version 1, the "Key Takeaway" was that the "Fee for Service initiative will justify the 'service element' of current fees and therefore not limit ability to charge to cost recovery only but cost recovery + amount on top (unknown)". 53. In Version 2, one of the challenges in meeting a 1 July deadline for implementation of the initiative was described as being "considerable delays have been encountered in receiving the finalised fee name and descriptions". 54. In Version 4, in discussing the various options of "dual referencing" or "single referencing", it was noted that the option of "Do nothing" had a "key advantage" in that it "[d]oes not draw attention to penalty fee regime". Minutes of Meeting of Fee for Service Steering Committee on 8 May 2009 55. The minutes recorded that it was decided that "the effective date risk could not be mitigated" and therefore "not to proceed with the variations of fees". "Penalty Fee Review Project, Technology Status Report" on 18 May 2009 prepared by Mike Lewicki. 56. The Report contained a Project Overview. The "problem" was described as follows: Fees are currently applied to every ANZ account type, across every business unit and are applicable / visible on multiple platforms. The interdependencies for penalty fees from a technology and business process perspective are substantial as are the volume of fees affected / requiring change. For instance, account penalties are applied when a savings account in (sic) overdrawn, this fee will be disclosed in the customers terms and conditions … At this stage it does not appear that the mechanisms for applying the charges will change however as the new names and fee descriptions will need to be applied to all accounts, all penalty fee types, and all changes will need to be considerate of downstream implications including change testing / verification impact which can result in a significant program of work to be managed." 57. Given this, the report noted there was a current priority of fees: (1) Honour Fee, (2) Late Payment Fee, (3) Overlimit Fee and (4) Dishonour Fee. Report, Fee For Service Steering Committee # 3, 15 June 2009 58. The Report gave an update on the "initiative" and the status of legal advice received. It noted the initiative was on hold and unlikely to be reconsidered unless the Commonwealth legislation changed to the Victorian model, or the national implementation timeline increased from 1 January 2010. 59. It noted that Working Groups had been established whose job it was to "scenario plan for likely outcomes of penalty fee regime, to identify initiatives to respond to impacts of incoming legislation." Minutes of Meeting of Fee For Service Steering Committee # 3, 15 June 2009 60. At the meeting "Questions [were] raised if there was an opportunity to change CoU's [Conditions of Use] and T&Cs [Terms and Conditions] for new accounts (contracts) to edit current fee wording that highlighted the breach/penalty component". . July 2009 – Internal correspondence and discussions 61. On 29 July 2009, there was internal bank discussion about exception fees and "what drove NAB's decision". A consideration was "legal view – including amount of margin on cost that can be recouped". August 2009 – Internal correspondence and discussions 62. On 3 August 2009, there was internal bank discussion about what level of fee "the market will settle at" following the decisions of Westpac and St George to cut them across the board to $9. 63. On 10 August 2009, Exception Fees were discussed at the Weekly Management Board meeting. 64. One paper presented to the Board was "ANZ exception fee response – Update" dated 10 August 2009 prepared by Mr Graham Hodges (CEO, Australia Division). The paper reviewed the market position, noted that ANZ's price response should be driven by a number of key factors including what were "Justifiable fees & structure". The paper proposed an alternative structure where a daily honour fee was charged on overdrawn accounts which would "encourage rectification of account" and noted that statistically more than half of overdrawn accounts were "corrected" in 5 days or less. The paper recorded that $436m of revenue was at risk, which represented a significant share of fee income for transaction accounts and credit cards, but not from highly-valued customers. Weekly Management Board meeting on 7 September 2009 65. Exception Fees were again discussed at the Weekly Management Board meeting. The Board met to discuss the plan to overhaul the fees due to the incoming unfair contracts legislation (that is, the Australian Consumer Law to commence on 1 January 2010). The Minutes record: Changes will be required to fees anyway due to the changes in the regulatory environment come 1 Jan with the introduction of the Unfair contracts legislation. We are taking into consideration what is the highest fee we can charge when these changes come into effect. ANZ exception fee response – Recommendation, prepared by Graham Hodges, CEO, Australia Division 66. This paper was annexed to the Minutes of the Weekly Management Board Meeting on 7 September 2009. 67. An executive summary included the following aspects: a. exception fees have become a major focus for media, lobby groups and politicians so change for customers is now mandatory; b. most consumers will accept a reasonable fee, however, want clear, timely information and communication; c. introduce a 'buffer' and reduce fees for Retail; d. certain fees be removed from people who receive government benefits; e. introduce a 'buffer' but predominantly maintain fees for Commercial; f. remove 27 fees and increase account service fees by $1 per month. 68. One aspect of ANZ's response to the qualitative customer research was that "Fees need to 'fit the fault'" if they were to be perceived as "justified and proportional." CEO Interview, 2012 69. Mr Philip Chronican, CEO of ANZ, when giving an interview in 2012, said "most of these fees relate to the early stages of people's accounts being out of order in some way or another".