EZYPAY NZ LTD V YKC LTD HC WN CIV-2007-485-1496

EZYPAY NZ LTD V YKC LTD HC WN CIV-2007-485-1496 23 July 2007IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2007-485-1496BETWEEN EZYPAY NEW ZEALAND LIMITED Plaintiff AND YKC LIMITED Defendant Hearing: 20 July 2007 Appearances: A W Johnson for the plaintiff J Parker for the defendant Judgment: 23 July 2007 at 4.30 p.m. In accordance with r 540(4) I direct the Registrar to endorse this judgment with the delivery time of 4.30 p.m. on 23 July 2007.JUDGMENT OF MACKENZIE J[1] This is an application for an interim injunction pending trial. The plaintiff applied ex parte, but giving the defendant notice on a "Pickwick" basis, on 13 July 2007. After hearing from counsel, I directed that the application be heard on an inter partes basis on Friday, 20 July, and granted an interim order pending that hearing. [2] The plaintiff's business is that of supplying billing and payment collection services. Its claim is that in the course of that business, it contracted with the defendant to supply such services to a gym business operated by the defendant under the trading name of Exodus. That agreement took effect from July 2006, and was for an initial term of two years. Exodus became dissatisfied with the services provided and, by letter dated 11 May 2007, purported to cancel the contract. It took steps to advise its gym customers to cancel their direct payment authorities to Ezypay, and to make future payments to Exodus direct. Ezypay commenced this proceedingseeking specific performance of the agreement, and certain ancillary orders. It applies for interim relief pending the hearing of this proceeding. The relief sought is now set out in an amended application in these terms:"1. That until further order an interim injunction do issue against Exodus: 1.1 Restraining it during the period of the continuation of the agreement from approaching its Gym Members through newspapers or any other medium, advising them to cancel or otherwise alter or amend their direct debit authorities with Ezypay. 1.2 Restraining it from advising Gym Members (or any member of the public) directly or indirectly that Ezypay has breached the agreement or otherwise disclosing the agreement or the contents of the agreement. 1.3 Restraining it from entering into any contractual arrangement with any other supplier or suppliers of billing and payment collection services or similar services as presently performed by Ezypay. 2. Directing that the costs of and incidental to this application and the orders therein be reserved."[3] The plaintiff has also filed an amended statement of claim. Two causes of action are pleaded. The first pleads anticipatory or actual breaches of contract which may be briefly summarised as follows: (a) that the purported termination of the contract by Exodus was wrongful; and (b) that the steps taken or threatened by Exodus to cause its customers to cancel their direct payment authorities to Ezypay are in breach of the contract; and (c) that the steps taken or threatened by Exodus to advise its customers that Ezypay is in breach of the agreement are in breach of a confidentiality clause in the contract. The essence of the plaintiff's claim for relief is that Exodus's purported termination of the agreement was wrongful, that that wrongful termination has not been acceptedby Ezypay, and that the contract remains in force and should be specifically performed. The second cause of action alleges that Exodus's actual or intended advice to its customers or others, to the effect that the plaintiff is in breach of the contract, is misleading and deceptive conduct contrary to s 9 of the Fair Trading Act 1986. [4] It is appropriate to consider the interim relief sought against the usual tests applied on such applications, namely whether there is a serious question to be tried and where does the balance of convenience lie. No elaborate exposition by me of the relevant tests is required. [5] The interim relief sought by the plaintiff falls into two broad categories: (a) Relief designed to preserve the position in respect of the provision by the plaintiff, and the receipt by the defendant, of payment and collection services, so that specific performance will be a practical remedy available after trial. That is the general objective of the relief sought in paragraphs 1.1 and 1.3. (b) Relief designed to prohibit the plaintiff from making public statements, or statements to its gym customers through public media, relating to the circumstances of the agreement. That is the objective of the relief sought in paragraph 1.2. It is appropriate to deal with those two broad categories of the relief sought separately.Interim relief to preserve the availability of specific performance[6] As to whether there is a serious question to be tried, Mr Johnson submits that the relevant clauses of the agreement are clauses 1, 2 and 28, which set out the exclusive appointment of the plaintiff, the 24 month period of the agreement, and the obligation not to disclose to any third party the existence or contents of the agreement. Clauses 1 and 2 are specifically relevant to this aspect of the claim for relief. Ezypay's position is that Exodus is in breach by purporting to bring theagreement to an end earlier than the two year period and subsequently taking steps to arrange the payment of gym fees in a manner contrary to the exclusive arrangement provided for in the contract, and accordingly is in breach of clauses 1 and 2. [7] I do not consider that it is necessary to examine the strengths of the plaintiff's case on the proposition that the purported termination of the contract was wrongful. There are issues as to the precise terms of the contract, and in particular whether the plaintiff's standard terms were accepted or not. There is clearly, on the affidavits, a dispute as to the circumstances relied on by the defendant as grounds for cancellation. That is not, however, the main issue here. It is not sufficient, on the "serious question to be tried" limb, for the plaintiff to establish that there is a serious question to be tried as to whether the defendant is in breach of the contract. The relief sought is also an important element of the plaintiff's claim. The interim relief sought is designed to preserve the plaintiff's position in respect of a remedy in specific performance, as distinct from a remedy in damages. The "serious question to be tried" threshold must be met with regard to the question whether the relief sought is likely to be available, as well as to the question whether there has been a breach of contract. Accordingly, the plaintiff must show that there is a serious question to be tried, not only as to the claim itself, namely whether the contract has been validly terminated, but also as to the relief claimed, namely that the contract remains on foot and is one of which specific performance should be ordered. [8] On the issue of whether the contract is one of which specific performance is likely to be ordered, there are two questions: (a) Whether the contract is of a type for which specific performance is appropriate; and (b) If so, whether an award of damages is likely to be an adequate remedy. [9] As to (a), there are certain categories of contract for which specific performance will not generally be available. There is a convenient statement of thelaw in Civil Remedies in New Zealand (ed Blanchard J) Specific Performance (Andrew McIntyre) at para 7.8.2 as follows:"7.8.2 Continuing court supervisionThe courts are unlikely to specifically enforce categories of contract that involve the continuous or ongoing performance of obligations by a party over a period of time. This is particularly so where the obligations involve a level of detail and complexity. The principle is well established by the early case of Ryan v Mutual Tontine Westminster Chambers Assn. The plaintiff sought to specifically enforce a covenant contained in a lease that required the premises to be constantly attended by a porter or, in his absence, an able assistant. The plaintiff complained that the porter was consistently absent and that his chosen assistants had proved unsatisfactory. Specific performance was declined. The long and continuing nature of the contract, which featured daily performance issues, weighed heavily in the exercise of discretion to decline the order. More recently, a greater flexibility has been apparent in England as to the application of this principle. It may be that the current position can best be stated by suggesting that contracts falling within this category may be specifically enforced provided that it is practicable and in all other respects appropriate to do so (particularly that damages are an inadequate remedy for the plaintiff)."[10] Applying those principles here, this contract is one which requires a close relationship between plaintiff and defendant over a period of time. The Court will generally be unwilling to impose a continuing relationship on commercial parties. The plaintiff is collecting money owed to the defendant, and dealing with the defendant's customers. That relationship is one where the manner in which the services are performed will be important to the defendant in the conduct of its business, in maintaining its own relationships with customers, and there will be potentially a considerable level of detail involved. Adequate supervision by the Court of the manner of performance of the contract would be difficult. I consider that the case for specific performance of a contract of this nature is not strong. [11] There is a second aspect of the contract which is likely to render specific performance inappropriate. The contract, if it is held not to have been validly terminated, is alleged by the plaintiff to be for a fixed term and thereafter to continue until two months' notice is given. There is a dispute between the parties as to the precise terms, but on the plaintiff's contention the agreement would be able to beterminated by the defendant with effect from early September 2008. A substantive trial of these proceedings is clearly some distance off. It may be problematic whether they would come to trial before September 2008; on the best prognosis there would inevitably be some months before a hearing. The Court would thus be faced with making an order requiring specific performance of a contract which would then be capable of termination within a short period. That prospect must be a strong factor against the grant of specific performance. [12] A further issue as to whether specific performance is likely to be available is whether an award of damages would be an adequate remedy. In terms of calculating damages for which the defendant would be liable under Hadley v Baxendaleprinciples, I do not consider that would pose undue difficulty. Mr Johnson contends that the plaintiff has the opportunity, by virtue of the relationship with the defendant's customers, to further its own business in other respects. The plaintiff is apparently in a position of seeking to establish itself in the New Zealand market. It contends that the present contract is important to it in this regard in a number of respects and that it will be disadvantaged if it is not able to perform the contract. I do not consider that a collateral benefit to the plaintiff arising indirectly in that way is a factor which should be given significant weight in considering whether damages will be an adequate remedy. A plaintiff is entitled to compensation designed to restore the plaintiff financially to the position it would have been in had the contract been performed. That does not generally entitle a plaintiff to damages based on other business which it might have obtained. Specific performance should not generally be available to preserve for the plaintiff a benefit from the contract for which the defendant is not liable. I consider that the plaintiff has not demonstrated that any losses arising from the defendant's breach of contract (if it be so) for which the defendant is liable to the plaintiff could not adequately be compensated by a remedy in damages. [13] For these reasons, I consider that, even if I were to hold that the plaintiff had a strong case that the contract had been wrongly terminated (as to which I express no view), its case for the remedy of specific performance is weak. Accordingly, on the "serious question to be tried" limb, I consider that the plaintiff fails to meet the threshold.[14] As to the "balance of convenience limb", the position is that the defendant has already communicated with many if not most of its customers advising that they should change the payment arrangements. There is a dispute on the evidence as to the exact number, but on any view of it a substantial number have cancelled their payment instructions to Ezypay. Therefore, ordering specific performance would already involve requiring customers who have changed their payment arrangements from Ezypay to change them back. Secondly, if the defendant were prevented from communicating with its customers who have not changed their arrangements, then the effect would be that payments would continue to be made by those customers to the plaintiff. The plaintiff submits that, so far as monies held by the plaintiff, including any further payments received from customers, are concerned, clause 10 of its standard terms and conditions will apply. Clause 10 provides as follows:"Should a dispute arise between Ezypay and the Principal, its stakeholders, officers or employees or between the Principal's stakeholders, officers or employees, Ezypay may withhold the Principal's funds, in its absolute discretion, until it is satisfied that the dispute between the disputing parties concerned is settled and it has the appropriate authority to release the funds"[15] The plaintiff contends that that clause entitles it to retain all monies paid to it by the defendant's customers, in respect of fees due to the defendant but collected by the plaintiff on its behalf, until the dispute between the plaintiff and the defendant is resolved. If so, that is a draconian provision, and the prospect that the plaintiff might seek to rely upon it militates against granting the plaintiff relief which would prevent the defendant from communicating with its customers and seeking to have them change their payment arrangements in the period until this litigation can be heard. If the case for interim relief were otherwise strong, this point might be addressed by making some provision for the interim disposition of the monies received. But that would not be to preserve the contractual position between the parties: it would be to vary it. As the case for interim relief is not otherwise strong, I need not deal with this aspect. [16] Further, the adequacy of damages as a remedy is relevant on the "balance of convenience" limb of the test also. For the reasons I have given in considering the adequacy of damages under the first limb, that aspect of the balance of convenience test does not favour the granting of interim relief to the plaintiff.Interim relief concerning wider publication[17] The plaintiff also seeks orders restricting the defendant as to the comments which it may make, either publicly or to its customers, as to the defendant's dissatisfaction with the plaintiff's services and its purported cancellation of the contract. That is the essence of the relief sought in paragraph 1.2, set out in paragraph [2] above. The plaintiff relies upon clause 28 of its standard terms and conditions which provides:"The parties agree that both during the continuance of this engagement and following its expiry or termination they will not disclose to any third party the existence or contents of this engagement or these terms and conditions or disclose to any third party or use details or information acquired directly or indirectly as a result of this engagement about the business activities of the other party to any third party (other than for the purpose of performing its obligations under these terms and conditions or to the extent required by law or pursuant to the existing requirements of any stock exchange or to their professional advisers) without the prior written consent of the other party."[18] The plaintiff contends that if the defendant were to place advertisements in newspapers, as a means of communicating with those of its customers for whom it does not have up-to-date addresses and the like, the defendant would be in breach of clause 28. I have very considerable reservations as to whether clause 28 has the wide operation for which counsel for the plaintiff contends. But, even if it may arguably give rights to the plaintiff concerning statements which may be made by the defendant, I am quite satisfied that it would be inappropriate to grant interim relief restricting what the defendant may say. Relief by way of restriction on publication of defamatory material will not ordinarily be granted. The remedies available to a plaintiff who fears that defamatory material may be published will generally not extend to an order restricting the publication which has not yet occurred. TheAmerican Cyanamid approach is not applicable to defamation cases, and a restraint on publication will be imposed only for clear and compelling reasons. Of the many cases which support those propositions, I refer only to TV3 Network Services Ltd v Fahey [1999] 2 NZLR 129. I consider that a similarly higher threshold should apply here, where a contractual restriction on statements which the plaintiff contends may reflect adversely on the plaintiff is sought to be enforced. Similar considerations apply to the Fair Trading Act cause of action. Further, on that cause of action, I am not satisfied that that meets the "serious question to be tried" threshold. Theplaintiff's case is set out in paragraph 23 of the amended statement of claim in these terms:"In contravention of section 9 of the Act, the defendant will or has misled or deceived and or is likely to mislead or deceive by advising its customers and or others direct or through the public media or advertisements or other pronouncements that the plaintiff is in breach of the agreement."[19] I consider that the contention that the defendant, if it were to advise its customers or others that it had terminated the agreement for breach, would be engaging in misleading or deceptive conduct, because its entitlement to cancel for breach was contested, does not meet the threshold of a serious question to be tried. There is no evidence before me which discloses a risk of some other conduct which might be misleading or deceptive. [20] For these reasons, interim relief is refused. The interim order which I made pending hearing, and extended until delivery of this judgment, will not be further extended. [21] The defendant is entitled to costs, which I fix on a 2B basis, with disbursements to be fixed. "A D MacKenzie J"SolicitorsMartelli McKegg Wells & Cormack, Auckland, for plaintiff Morrison Kent, Auckland, for the defendant