Kermani v Westpac [2012] VSCA 42

Westpac had a volume discount fee agreement with its solicitor. When the guarantor found out they sought a declaration that this was an illegal fee sharing agreement and therefore void and they did not have to pay any of the banks legal fees. The judge found the agreement was not illegal but that Westpac had to account for the credits it received to the borrowers:

I would express my strong disapproval of the bank’s conduct in seeking to wrongfully exact excessive costs … and in continuing to maintain (including before this Court on appeal, but without filing any notice of cross appeal or crosscontention) that it was entitled to do so. Further, on the evidence in this case, and taking into account the bank’s continued submission that it was not obliged to give credit for the volume rebates received by it, the inference is open that the bank has for some years been wrongfully exacting excessive costs from borrowers, their guarantors and other third parties who are liable to indemnify the bank in respect of legal costs. The issue is not limited to this case, or even to this state. It appears that the bank has adopted a similar approach throughout the country…

In my view, it is incumbent upon the bank, and other banks and financiers which have similar arrangements in place to those considered in this case, to ensure that they establish a system which ensures that customers, their guarantors and other third parties who are liable to indemnify them for their legal costs are given the appropriate credits forthwith upon the receipt of any volume rebate or like discount. In some cases, this may involve the relevant bank or financier repaying money to the person who has been charged excessive costs; for example, in a case where the person responsible no longer maintains an account with the bank or financier which can be credited.

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