Her Honour set the scene about what was not in issue at :
3 It is also important to identify what is not in issue. ANZ accepted that in considering the law of penalties, the Exception Fees did not constitute a genuine pre-estimate of damage. However, consideration of the quantum of the Exception Fees and, in particular, whether that Exception Fee was out of all proportion to the likely damage suffered by ANZ was deferred to a later hearing. Next, these reasons for decision do not consider other accounts offered by ANZ or undertake some general enquiry into the practices of ANZ or any other bank. They consider only the Separate Questions.That is, the question of whether the Exception Fees were all out of proportion to the loss was for a later date.
The plaintiff, being a representative plaintiff in a group proceeding, argued the following:
- That the fees arose on breach of the contract between the ANZ and the customer, and by reason of that fact they were capable of being characterised as penal.
- In the alternative, the law of penalties is capable of including amounts incurred on the happening of an event that does not constitute a breach of contract.
Her Honour concluded that the law of penalties is not capable of operating in the absence of breach (at  to ):
77 What the applicants sought to do was to construct an argument, based not only on old decisions but also the historical origins of the law of penalties, that the law of penalties is not confined to payments upon breach but extends to payments upon conditions or events lying within the area of obligation of the party required to make the payment. That enterprise carried at least as much risk as that warned against by Mason and Wilson JJ in AMEV-UDC Finance Ltd at 183 and 186.
78 The modern jurisdiction cannot be divorced from its origins in the wide dispensing power of the Court of Chancery in respect of oppressive bargains: Meagher, Heydon and Leeming, at [18-095]. The law of penalties, confined (as it is) to payments for breach of contract, is a narrow exception to the general rule whereby the law seeks to preserve freedom of contract, allowing parties the widest freedom, consistent with other policy considerations, to agree upon the terms of their contract. As stated in Ringrow at  and  in the joint judgment of Gleeson CJ and Gummow, Kirby, Hayne, Callinan and Heydon JJ:
The law of contract normally upholds the freedom of parties, with no relevant disability, to agree upon the terms of their future relationships ... 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.
See also Thomas JA in Bartercard Ltd v Myallhurst Pty Ltd  QCA 445 (at ) that “[t]he surveillance of courts over contracts is not based upon any underlying approval or disapproval of incentives or disincentives, which are a natural part of commercial arrangements”.
79 Courts have consistently rejected a jurisdiction in equity to interfere with contractual freedom on the generalised ground that the provision in question is harsh or constitutes a hard bargain: see, by way of example, Campbell Discount at 614 per Viscount Simonds and at 626 per Lord Radcliffe; Export Credits Guarantee at 224 per Lord Roskill; Meagher, Heydon and Leeming, at [18-100]. Instead, courts have developed equitable and common law principles in particular, well recognised, circumstances to prevent contracts being used as a means of taking unfair advantage of persons in positions of vulnerability, particularly the principles relating to unconscionable conduct, undue influence and duress.
80 Indeed, the parties agreed that equity had a continued role to play in a number of circumstances where the common law would otherwise operate harshly or unconscientiously. In those circumstances, equity would operate remedially and apply its restitutionary principles to overcome the consequences of a party having paid a penalty. For present purposes, it is neither necessary nor desirable to seek to classify that jurisdiction as concurrent or auxiliary: see Meagher, Heydon and Leeming, at [1-095].
Her Honour considered that late payment fees were capable of being characterised as penalties, as they were an instance of breach of the customer's contract with ANZ. However, Her Honour identified four other fees, specifically honour fees, dishonour fees, over limit fees and non-payment fees, as not being capable of being characterised as a penalty. These were not capable of being characterised as penal because they did not arise from a breach, but instead they arose from a request by a customer to advance funds.