After the recent win for banks in the High Court bank fees case, the banks’ chief executives ought to send the judges Christmas cards and offer them discounted home loans.

With the clamour rising for a Royal Commission into the banks (as an aside – why not just better fund the regulators?) the decision was a godsend. Imagine the noise if the Court had held that their fees were illegal?

The multiple judgments are a legal thicket, with references to Magna Carta and also a little judicial tiff between the High Court and the UK Supreme Court (formerly the House of Lords) concerning when the doctrine of penalties may be applied.

So what did it decide and what are the consequences?

This High Court case dealt only with late payment fees on credit cards. These fees would be a penalty if the amount claimed ($35 at its highest) was “extravagant”, “unconscionable” or “out of all proportion” to the bank’s interests which were said to be damaged or affected.

The case became a battle of the experts – the customer’s expert focused on the narrow cost to compensate the bank for its loss.  The bank’s expert took a much broader approach to what interests of the bank were damaged or affected:

• operational and collection costs
• loss provisioning costs
• increases in regulatory capital costs.

Some of these costs were admittedly hard to calculate and could not be recovered, but the majority judges allowed the banks a “measure of latitude” where the pre-estimation of loss is difficult.

In past cases the party imposing the fee or cost under attack has not always been allowed a “measure of latitude” and it is significant that the bank was in this case, particularly as loss provisioning and extra regulatory costs could not be recovered from the customer.

Keane J also noted that the result did not mean that there was no limit on bank fees and charges – if need be a claim could be based on abuse of market power or dishonest conduct in the market. However, this would be an extremely difficult claim, given that the banks could point to their competitors. Funding a claim against the banks to prove some form of dishonest oligopoly would be an extremely expensive case for a customer or funder.

The Court also put some significant obstacles in front of plaintiffs bringing the currently fashionable claim based on “statutory unconscionability”. It was held that the customer had entered into his banking agreements freely and with notice of the fees. The bank did not pressure him into taking out or continuing with the card and had not acted improperly.

The consequences for penalty claims generally are as follows:

• if the fee or cost can be characterised as the provision of a service to the customer, it should not be a penalty
• the party charging the fee is entitled to take a broad view of the interests they say that they need to protect
• accounting costs and costs that are not recoverable against the customer can be taken into account
• the fact that it is difficult to estimate or quantify the costs does not mean that they cannot be taken into account.