Deposits versus no-shows – round 2

I previously wrote about restaurants taking deposits to combat no-shows, how much they should charge and in what circumstances the deposit ought to be kept.

Remarkably, these questions tie in to the class action litigation against ANZ bank over bank fees. That litigation finally finished in July 2016 in the High Court. The litigation looks at the doctrine of contractual penalties.

The key questions around contractual penalties are:

  • Is a payment required for a breach of contract (as opposed to paying to receive a benefit);
  • Is that amount more than a genuine pre-estimate of the loss suffered by the other party, or the actual loss; and
  • Is requiring that payment, in the circumstances, unconscionable?

Paying that deposit creates a contractual promise to turn up to the restaurant, eat, drink and be merry. Failing to show up is a breach of that promise and the restaurant can seek to recover its losses by keeping that deposit. A booking without a deposit doesn’t create a contract. It’s seen as a courtesy between the restaurant and the diner.

A genuine pre-estimate of the loss suffered by the restaurant should take into account:

  • the cost of food inputs, staff, rent and other overheads are fixed;
  • the markup (profit) on food is fairly modest; and
  • there’s a good markup on alcohol, with no real loss.

If the table is filled by a waiting list, then there’s no measurable loss. It’s pure guesswork to determine whether the paying table ordered more or less than the hypothetical no-show table.

The difficult question is whether taking that deposit is unconscionable. That’s a complicated question looking at the need for the goods or service, the losses suffered by each the restaurant versus the diner along with concepts of reasonableness. Of course, the restaurant wants to say that the deposit is not unconscionable, so they can charge what they like without the risk of the deposit being clawed back.

It’s balancing things like:

Restaurant seeking to protect itself The size of the deposit
That food as a luxury service Food as a necessity
Ability to get dinner elsewhere Ability to get that dinner and service elsewhere
Notice of cancelling Chance of table being filled (waitlists)


ANZ in the High Court

Back to the bank fees. The bank’s customers lost their case against ANZ. The High Court pointed to the notion of ‘freedom of contract’ – as long as the parties agreed on those fees (which they did by opening an account or getting a credit card), it didn’t really matter what the fees and charges were. The customer had agreed to those fees and charges and had to pay them.

The High Court has left it to the government to set any rules around bank fees.

What does this mean for restaurants?

Courts have not been asked whether a large deposit for a nice restaurant could be a contractual penalty. Until that time, restaurants can consider running the risk and charge whatever they like for the deposit.


If the bank fees case is of any guidance, then restaurants can ask for just about whatever they like as a deposit.

By | 2017-06-01T13:06:13+10:00 27 October 2016|Categories: Guides, Opinion|Tags: , , , , , , , |

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