Lloyd's Maritime and Commercial Law Quarterly
PENALTIES ARISING WITHOUT BREACH: THE AUSTRALIAN APOGEE OF ORTHODOXY
Kanaga Dharmananda* Leon Firios†
Andrews v ANZ Banking
Although the exact source of the rule is not entirely clear, it became the received wisdom—even a “self-evident proposition” according to McGregor1—that an agreement for the payment of a sum on the happening of an event can be a penalty only if that event is a breach of contract. Export Credits Guarantee Department v Universal Oil Products Co
2 is usually cited for this proposition. It would seem, according to the High Court of Australia, that the received wisdom is contrary to the history and rationale of the law as to penalties.
In Andrews v Australia and New Zealand Banking Group Ltd,3 the question before the High Court of Australia was whether several fees imposed by ANZ, the respondent bank, on its customers were capable of being characterised as penalties despite not being payable upon breach. The fees included honour, dishonour and non-payment fees ranging from $30 to $45. The court unanimously held that the fees were capable of constituting penalties4 and, in the process, proclaimed equity’s jurisdiction to relieve against penalties.
This significant development, which may call for many texts, including Treitel: The Law of Contract and Chitty on Contracts, to be re-examined, was justified on the basis of two propositions. First, the rule against penalties is (and always has been) a rule of equity and equity’s jurisdiction was never superseded by the common law. Secondly, equity’s jurisdiction to relieve against penalties was never confined to payments upon breach of contract.
* SC, Western Australia; Honorary Fellow, School of Law, University of Western Australia
† Solicitor, Western Australia; Tutor, School of Law, University of Western Australia
1. H McGregor, McGregor on Damages, 18th edn (Sweet & Maxwell, London, 2009), [13.008].
2. [1983] 1 WLR 399.
3. [2012] HCA 30.
4. At [78].
LLOYD’S MARITIME AND COMMERCIAL LAW QUARTERLY
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