When a $3 Cost Became a $35 Fee, and the Law Still Allowed It

Home › Case Studies › Case Law Library › Equity Law › Unconscionable Conduct > Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28

Published: 11 November 2025 | Reviewed: 5 December 2025
(3-minute read)

Why proportionality, not sympathy,
decides whether a fee is lawful.

A missed credit card payment cost the bank about $3,
yet it charged customers up to $35, and
the High Court said the fee was lawful.

The Structural Risk Exposed in the Judgment

This case is often misremembered as a fight about fairness. It was really a fight about structure: when does a fee become a penalty the law will strike down?

Lucio Paciocco challenged several Australia and New Zealand Banking Group Limited fees, including late payment charges on credit card accounts. Evidence at trial suggested the bank’s operational cost for a missed payment was around $3. The fees were $20 to $35.

He argued that the charges were penalties, amounts designed to punish rather than protect legitimate interests, and were therefore unenforceable.

The Federal Court initially agreed with him. The Full Federal Court disagreed. The High Court, by majority, dismissed the appeal.

Their reasoning was structural, not sympathetic.

A fee is a penalty only if it is “out of all proportion” to the interests it protects. Those interests can extend beyond the immediate cost of the breach. For a bank, they include system stability, collection processes, loss provisioning, and regulatory capital obligations. The question is not whether the fee matches the cost, but whether it rationally relates to these broader interests.

The High Court held that the late payment fees did.

The law did not require equivalence. It required proportionality. And proportionality was found.

Why This Matters for Australians Today

Paciocco is now one of Australia’s most important modern cases on contractual fairness. It teaches three uncomfortable truths.

A fee is not unfair merely because it exceeds actual cost.
Courts allow businesses to protect broader operational and regulatory interests.

Commercial structure outranks personal expectation.
Even if a charge feels excessive, the legal test is whether it is punitive, not whether it feels high.

Consumer fairness today comes from regulatory design, not implied terms.
Statutes like the Australian Securities and Investments Commission Act and the National Credit Code, not common-law penalty doctrine, supply modern consumer protection.

In subscription platforms, automated billing, and digital credit systems, Paciocco remains the warning: fairness is not what feels right. Fairness is what the structure can justify.

What Went Wrong Structurally

The conflict arose because customers assumed a fee should reflect the bank’s direct cost. But the contract did not say that. And the law does not require it.

The penalty doctrine is narrow.
It does not stop businesses from charging more than their direct loss.

The doctrine protects against punishment, not profit.
If the charge serves a legitimate interest, it is allowed.

The real structural gap was the mismatch between consumer expectation and contractual reality.

Paciocco’s claim failed because the structure of the doctrine left no room for the fairness he expected. The commercial justification was enough.

The Universal Lesson

Systems create outcomes.

If a fee structure is built without transparency, escalation, or client control, disputes are inevitable. Paciocco shows that once the structure is set, courts will not rewrite it merely because someone experiences it as unfair.

Fairness must be engineered into the process, not left to argument after the fact.

The Structural Fix: Cost Safety through One-Path Funding

The risk illuminated in Paciocco, a small cost inflating without clear boundaries, is the same risk many clients face in legal matters.

Clean Law’s One-Path Funding model was created to remove that drift.

Under One-Path Funding:

• clients fund only one legal lane at a time

• no blended incentives or invisible expansion can occur

• every dollar is tied to an authorised stage

• escrow ensures no fund moves without written client approval

• oversight remains separate from advocacy, keeping incentives aligned

Where Paciocco shows what happens when structure allows costs to grow beyond expectations, One-Path Funding creates a structure that keeps cost growth visible, limited, and under client authority.

It is not about trusting the process. It is about designing one where trust is not required.

Reflection: The Line Between Penalty and Protection

The High Court did not punish the bank. It applied the law as it stands: a charge is lawful if it protects a rational commercial interest.

But the judgment carries a quieter message: clarity prevents conflict.

Every fee, in law or business, survives only when its purpose is explainable and proportionate to an identified interest. Structure decides fairness long before a court ever sees the case.

Clean Law was built on that same principle: fairness should be visible, measurable, and grounded in a system that clients control.

Learn how One-Path Funding makes cost safety structural, not optional.

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To discuss a current dispute or understand how structured cost protection works: Request a Confidential Call

By Nicky Wang
Principal Solicitor
Legal Liaison Ltd (trading as Clean Law)
Prepared in accordance with public-interest governance,
annual Law Society trust-account audits, and ACNC-reported standards.

Disclaimer: This page is intended to provide general information only and is not legal advice. The contents may not reflect the most current legal developments and do not take into account your individual circumstances. You should not act or refrain from acting on the basis of this information without obtaining legal advice tailored to your situation.