The recent High Court case on bank fees, Andrews v
Australia and New Zealand Banking Group Limited [2012] HCA
30, has garnered much media attention. Beyond the
immediate impact on banks' terms and conditions, the decision
has implications for a wide range of contracts, particularly in
other financial services contexts, construction and major projects
IT and services contracts generally.
What is a penalty clause?
Parties to a contract obviously have an interest in keeping the
other side to the bargain. The traditional view is that a penalty
clause penalises a party for breaching the contract by requiring it
to pay a specified sum that is extravagant and unconscionable in
amount in comparison with the greatest loss that could conceivably
be proved to have followed from the breach (for example it is not a
genuine pre-estimate of the damage suffered by the other party). If
a clause is a penalty, it is void.
