Analysis Of Legal Issues: Forfeiture Of Lease, Breach Of ACL, And Misleading Conduct

The Lesson from the Case: Primary Stipulation, Collateral Obligation, and Protecting Interests

  1. The Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28 case was heard in the High Court of Australia. The proceedings of the case originally started in the Federal Court before Gordon J who established that the provisions for late payment were penalties founded on common law along with equity. The court case commenced before Gordon J in the Federal Court in 2011, which constituted proceedings against Australia and New Zealand Group Ltd (ANZ) on penalties. The decision held by Gordon J was appealed to the Full Court of the Federal Court; nonetheless, the High Court discarded the issues that surfaced in the appeal concerning the penalties of principle (Lima & Wei, 2017).
  2. The case is a civil case that involves civil proceedings. The appellant (Mr Paciocco) who led the class-action appellants, was not successful in a claim for the recovery of the late-payment fees he paid pursuant to the conditions and terms of contracts between him and ANZ in line with two consumer credit card accounts. Therefore, Mr Paciocco bears the onus of proof in this particular case (Barnett, 2012). The appellant contendeds that a sum is a penalty bears the onus of proving that the sum is in reality a penalty and is faced with an “elevated hurdle”. On the facts of Paciocco it seemed that the mainstream anticipated the consumers to anticipate the bank’s interests and to adduce proof of the bank’s “costs” of provisioning and regulatory capital as part of the discharge of the onus on the clients to prove that the late payment fees were penal (Turner & Trone, 2013).
  3. The main legal issue in the proceedings was if the late payment fee provisions based on the ANZ’s credit card accounts of the consumers constituted penalties. The only challenged payment fee was a late payment fee of $35 or $20 charged when the client made the minimum monthly payment after the due date. The clients claimed that the payment fee was unenforceable as a penalty, as well as its imposition, was forbidden by diverse statutes (comprising prohibitions against unconscionable behaviour along with unfair terms).
  4. The appellant supported the primary instance decision that the late payment fees were exaggerated when contrasted with the biggest loss ANZ would recover by means of damages at law that was unenforceable as penalties. The appellant too challenged the fees reasons rather than that they were penalties. In this regard, the appellant claimed that the fees charged by the bank were not genuine or unfair or unconscionable pursuant to the statute (McCouat & CCH Australia Limited, 2010).
  5. In the case, the doctrine of the precedent and the hierarchy is evident in the manner the case proceeded from the federal courts to the High Court. Thus, the High Court in the case considered an appeal by a client of the ANZ against the verdict of the Full Court of the Federal Court that the late payment fee by the bank was not penalty. Consequently, the High Court’s verdict helpfully investigates the law against penalties and the way it is applied in Australia (Cranston, Avgouleas& Zwieten, 2017).
  6. Construction contracts classically comprise “liquidated damages” provisions offering for payment of a particular sum to one party by other if it fails to fulfil certain obligations. The case was a comparatively traditional penalty in the sense that it emanated in the background of a contract that responded to the violation of a primary stipulation through imposing a collateral obligation to pay the sum of money. Therefore, the reasoning in Paciocco was probable to have application past bank fees, as well as apply to other liquidated damages. Therefore, the position of penalty clauses in contracts founded on a judgment that is currently over a century old. In Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd (1915) AC 79, the United Kingdom (UK) House of Lords maintained a clause that offers for a liquidated sum to be paid for the violation of the contract cannot amount to be a penalty. A liquidated sum is the specified, as well as certain sum that is payable by a party who has violated a term of a contract to the other party who has encountered a loss. The liquidated sum should be genuine pre-estimate of the loss or damage incurred because of the breach of the contract.
  7. Thus, it will amount to a penalty provided the sum needed to be paid is extravagant, as well as unconscionable in contrast to the highest damage, which can believably be proved to have trailed from the violation of the contract. In addition, if the clause is deemed a penalty, then it would be invalid, as well as unenforceable based on the contract law. This precedent was the foundation of the litigation against the bank (Lewison, 2015).
  8. The decisions by the court were not fair because the judgment is probable to have extensive consequences on the contract law, specifically in line with the liquidated damages or losses clauses in contracts. This makes it harder to challenge liquidated damages clauses due to the broad range of issues taken into consideration in ascertaining the non-breaching party’s damage along with the degree, which may be warranted.

The primary lesson that arises from the case is that where a contract responds to the violation of a primary stipulation through imposing a collateral obligation to pay the sum. This implies that the practitioners should first consider the “interests” that should be protected by the primary stipulation. Significantly, this can generate a wide range of answers, which are wider than the answer to the question “what damages could be recoverable for the violation of the primary stipulation?

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Subsequently, practitioners would require comparing pertinent “interests” to the money sum. Prominently, this can comprise a quantitative comparison, other than attempting to “price” the pertinent “interests” or change them into dollar terms to carry out a quantitative comparison (Hudson, 2016). Therefore, only if the money sum is exaggerated, inflated, as well as unconscionable in amount or out of all amounts as contrasted to the pertinent “interests” could be capable of characterization as a penalty.

Part B

Question # 1


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Is Wendy likely to succeed in terminating the lease before the agreed period elapse and will Allan likely to succeed in recovering $10,000 in arrears for the 20 weeks?


A lease is a contract, which establishes the rights and obligations of the owner of the property (landlord) and the individual who uses the premises (tenant or lessee). In the case of Wendy and Allan, Wendy is the tenant or lessee while Allan is the landlord. Under the Retail Leases Act (NSW), a retail lease starts when the individuals enter into the possession of the retail shop or starts to pay rent as a tenant under the lease. The landlord has the right to end the lease, as well as sue for losses if the lessee or lessee violates any of the contract terms in the rental contract.

A tenant is bound by the terms of the contract or lease, which includes the duration of the lease (Hunt, 2009). In the case of Wendy and Allan, the duration that was agreed was for 5 years where the lease will end. The law demands that the landlord should be served with termination notice 14 days earlier to allow the facilitation of the termination and vacation of the tenant. Consequently, the landlord may seek payment of rent from the tenant through providing a non-payment termination notice. 

In addition, the landlord can tender termination days if rent has not been paid for 14 days from the day of scheduled payment. Section 129 of the Conveyancing Act, 1919 asserts that before a right of re-entry or penalty under any stipulation of a lease is enforceable, the landlord should originally serve the tenant with a notice regarding the violation and when the landlord wants compensation (Duncan & Christensen, 2014).

Legal Issue #1: Forfeiture of Lease and Recovery of Arrears

Application of the Law

At common law, the proprietor has the right to impose a forfeiture of a lease in which the lessee breaches a term of the contract, which is expressed as a provision of the rent contract. In this case, Wendy has breached to pay rent for a period of 20 months, which implies that Allan has the right to initiate forfeiture against Wendy for breach the lease agreement regarding the payment.  Allan can commence a non-payment case against Wendy because of the arrears that are due and sue Wendy for damages (losses) incurred due to non-payment of rent in the rental premises. Since Wendy has not served the tenant with the termination letter indicating.

that she is leaving the premises, then this amounts to the breach of the contract and consequently, the termination of the lease is illegal and the court will find Wendy liable to the breach of the agreement. If the tenant or lessee has not paid the rent for a specific period of time, then the landlord may declare the tenant’s rights, along with the lease, forfeited by the lessee’s breach.

Therefore, the tenant will be liable for the landlord’s damages, which include unpaid rent, forfeiture costs. Allan will succeed in this case because he will initiate a forfeiture case against Wendy for non-payment of rent and seek compensation for the damages caused because of the breach of the contract on the lease of the retail property. Therefore, Allan can seek payment of arrears of $10,000 from Wendy by providing a non-payment termination notice (Bradbrook, Croft, Hay & Bradbrook, 2009).


The court will find Wendy liable for the breach of the lease agreement for forfeiture because of the non-payment of rent arrears amounting to $10,000 and will likely to be ordered to pay the amount due. The court will base its verdict on the fact that Wendy basically violated the lease agreement that required her to pay rent as agreed (Cockburn, 2010).

Question #2a


Will Fred obtain a remedy under the Australian Consumer Law because of his inability to pay the high interests rates because he never understood terms and conditions?


Under the Australian Consumer Law (ACL), products purchased from an Australian business are classically covered by consumer guarantees not considering any other warranty. Thus, the law aims to safeguard consumers and make sure a fair business in Australia. It is unfair or unlawful under this law for a business to undertake statements in commerce, which are false or deceptive, as well as those that are probable to misinform or mislead the consumer.

Legal Issue #2a: Breach of ACL and Misleading Conduct – Fred’s Case

Thus, failing to reveal pertinent data, as well as predictions may be too deceptive (Parker & De Costa, 2016). Business conduct is probable to violate the law under the ACL if it fashions a deceptive general impression amongst the audience regarding the price, quality or value of consumer products. Under the ACL) misleading or deceptive conduct by the business can lead to court-ordered civil remedies, which include the imposition of financial penalties, declarations, compensation orders, as well as non-punitive orders (Svantesson & Clarke, 2013).

Application of Law

The case of Fred is a typical breach of the ACL because he was misled because of his inability to read and write where he did not read the contract provisions sufficiently. The misleading in the case of Fred amounted to price manipulations and violated the consumer rights because he was not taken through the contract terms even the company understood the Fred was illiterate (Nottage, 2009).. Trust Tractors Pty Ltd failed to provide accurate information to Fred that resulted in misleading the customer into believing that the interest rate was fair, yet the interest rate was high. This constituted unconscionable behaviour under the provisions of section 21 of the ACL (Sise, 2017).


The court will order that the Trust Tractors Pty Ltd mislead the consumer by failing to explain to the customer the financial terms of the interest rate. This violated the provisions of the ACL under section 21 of ACL where the company took advantage of a low-income customer through making deceptive statements regarding the actual cost of a loan.

Question #2b


What are Linda’s rights and possible remedies under the ACL regarding refund on the purchase of an electric exercise bike from the Big Z Inc store?


Under the Australian Consumer Law, it is illegal for a business to make deceptive representations regarding goods or services while supplying, supplying or even whilst advertising the products. Whether a representation is misleading or false will rely on the situations of the specific case. Thus, making misleading or false representations is an offence. Therefore, the business should not make a false representation regarding the standard, quality or grade of products. The ACL prohibits business not to engage in behaviour that is probable to mislead the consumers regarding the nature, production procedure, features, or appropriateness use regarding the product. Therefore, the company that is found liable for misleading the consumer will be liable for the refund because this behaviour is punishable under the provisions of the ACL (Sise, 2017).

Legal Issue #2b: Misleading Conduct and Consumer Rights – Linda’s Case

Application of Law

Under the Australia Consumer Law (ACL), Linda has the right to refund the electric exercise bike to Big z Inc. The company violated the provisions of the ACL needs the company to avoid misleading the consumer in the name of selling the product. Linda was misled into believing that the electric exercise bike has strong power, but found that the bike had small motor. Therefore, Linda under the ACL has the right to return the electric exercise bike and be refunded or get a replacement (Svantesson & Clarke, 2013). 


The court will order that Linda should get a refund because Big Z Inc breached the ACL law and that she has the right to return the bike. This implies that the court will base its judgment upon invoking the provisions of ACL towards protecting the consumer because the information advertised by the company was inaccurate and misleading (McNaughton, 2010).


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