Impact Traders Pty Ltd v Australia and New Zealand Banking Group Limited - [2003] NSWSC 964 - NSWSC 2003 case summary — Zoe

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Impact Traders Pty Ltd v Australia and New Zealand Banking Group Limited

[2003] NSWSC 964

Supreme Court of NSW|2003-10-24|Before: Einstein J, Mr P

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Source facts

Court

Supreme Court of NSW

Decision date

2003-10-24

Before

Einstein J, Mr P

Source

Original judgment source is linked above.

Judgment (158 paragraphs)

[1]

CITATION : Impact Traders Pty Ltd v Australia and New Zealand Banking Group Limited [2003] NSWSC 964 HEARING DATE(S) : 24/10/03 JUDGMENT DATE : 24 October 2003 JURISDICTION: Equity JUDGMENT OF : Einstein J DECISION : Motion for injunctive relief dismissed.

[2]

CATCHWORDS : Notice of motion seeking orders concerning merchant facility agreement - Principles governing discretion to grant interlocutory relief - Principles applicable to the grant of mandatory injunctions - Banker and customer - merchant facility agreement - credit card merchant facility - facility to process internet business - overseas internet orders - Merchant Agreement terminated - business overdraft facility terminated by bank LEGISLATION CITED : Supreme Court Act 1970 (NSW) American Cyanamid Co & Ethicon Ltd [1975] AC 396 Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208 Australian Apple and Pear Marketing Board v Tonking (1942) 66 CLR 77 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499 CASES CITED : Eng Mee Yong v Letchumanan [1980] AC 331 Magna Alloys & Research Pty Ltd v Coffey [1981] VR 23 North of England Junction Railway Co v Clarence Railway Co (1844) 63 ER 520 Plimpton v Spiller (1876) 4 Ch D 286 Prosperity Limited v Lloyds Bank 39 TLR 372 Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729 Stollznow v Calvert [1980] 2 NSWLR 749 PARTIES : Impact Traders Pty Limited (Plaintiff) Australia and New Zealand Banking Group Limited (Defendant) FILE NUMBER(S) : SC 5374/03 COUNSEL : Mr G Segal (Plaintiff) Mr P Durack (Defendant) SOLICITORS : Charles G Roth & Co (Plaintiff) Allens Arthur Robinson (Defendant)

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(vii) The Merchant must use reasonable care in processing a Transaction to detect forged or unauthorised signatures or the unauthorised use or forgery of a Nominated Card . In particular, the Merchant must comply with specific requirements set out in the Merchant Operating Guides or otherwise notified by ANZ to the Merchant in writing." [emphasis added] 5 The evidence before the Court albeit adduced at an interlocutory level is that the plaintiff carries on the business of a retailer of cameras and associated equipment from certain shop premises in Sydney and through the internet. Apparently the branch of the plaintiff's business carried on through the internet is referred to as the "DirtcheapCameras.com" business. 6 The evidence is that the defendant has for a number of years provided banking facilities to the plaintiff including in about 1988 an overdraft facility which was increased over intervening years. 7 By April 2003, an offer to the plaintiff had been made by the defendant to increase the overdraft facility to $75,000, a previous offer having been accepted increasing that facility to $60,000. 8 Apparently the plaintiff established its first credit card merchant facility with the defendant when it commenced trading at its Chatswood shop in 1988 and it subsequently had that facility extended in relation to the Hornsby shop. 9 In any event the occasion for the commencement of these proceedings and the problems which have recently arisen relate to the plaintiff's internet business, apparently first advertised in about early 2001. On the evidence by the end of 2001 that internet business had grown substantially and the plaintiff applied to the defendant for the facility to process the internet business. 10 The evidence before the Court is that there is really only one merchant agreement with the plaintiff but a number of merchant numbers issued over time to it. The plaintiff's internet business comprises about fifty percent of its turnover and of that fifty percent up until the end of August 2003, one percent related to orders received from overseas. 11 The problems which on the evidence at an interlocutory level have arisen, are covered from the plaintiff's side, in affidavits filed by Mr Szekely on 20 October 2003 and by Mr Kilroe-Smith made on 20 October 2003 and on the defendants side in an affidavit by Mr Jacob Scott made on 23 October 2003 and a further affidavit made by Mr Kearney also on 23 October 2003. 12 It is unnecessary and inappropriate in determining the issues for determination on an application for interlocutory relief to decide disputed questions of fact. However the Court is able, particularly by reference to the written materials appended to these affidavits, to follow the broad general events which took place. The principles 13 Before going to those particular events it is convenient to examine the principles which underpin the exercise by the Court of its discretion to grant interlocutory relief. It has seemed to me that the principles which govern the Court's approach to that question are those generally dealt with and set out in Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208, a decision of Justice McLelland. In Appleton, McLelland J pointed out the importance of recalling that the Court here deals with a discretionary power conferred on the Court in very general terms, referring to section 66 (4) of the Supreme Court Act 1970 (NSW) which provides that the Court may at any stage of proceedings on terms grant an interlocutory injunction in any case which it appears to the Court to be just or convenient so to do. As his Honour made plain at 216 citing from the judgment of Moffitt P, in Stollznow v Calvert [1980] 2 NSWLR 749:

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"My Lords, when an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action. It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction; but since the middle of the 19th century this has been made subject to his undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial." 21 At page 216, McLelland J pointed out that it is the task of the court on an application for an interlocutory injunction to seek to fulfil this purpose in the manner best calculated to achieve justice between the parties in the circumstances of the particular case. McLelland J pointed out that with possible exception of a passage in the Beecham Group case which deals with what are said to be special considerations arising in a patent suit in which there is a substantial issue as to the validity of the patent, which McLelland J then proceeded to consider,

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"may be one not fit to be exercised without particular caution, but certainly it is one fit and necessary, under certain circumstances, to be exercised. Under what circumstances it should be exercised must be a matter for judicial discretion, in each several case." [per Knight VC in North of England Junction Railway Co v Clarence Railway Co (1844) 63 ER 520 at 526-7; Cf Business World Computers Pty Ltd v Australian Telecommunications Commission 82 ALR 499 where Gummow J properly described the proper approach in administering interlocutory mandatory relief] The facts 26 Returning to the facts presently before the Court, Mr Scott, the team leader of the defendant's Merchant Fraud section, in his affidavit of 23 October 2003 has deposed to the events which have taken place between September 2003 and generally the present time. Notwithstanding that there is a dispute in relation to Mr Scott's recollection of conversations which he had with Mr Szekely and Mr Szekely's version of those conversations, a convenient vehicle for treating with there communications is through Mr Scott's affidavit. This is not to say that the Court is able on an interlocutory injunction, because it is not, to decide which version of these conversations is reliable. That is a matter which will have to be determined during the final hearing. 27 To the extent that Mr Scott's evidence is before the Court it was that on or about 17 September 2003 he reviewed an Eagle report on the plaintiff's merchant facility. The evidence included the following: 9. On or about 17 September 2003, I reviewed an Eagle report on the Plaintiff's merchant facility number 2087211 for www.dirtcheapcameras.com ( the First Eagle Report ). This merchant facility number was "flagged" in Eagle due to the number of overseas cards, amount processed and ratio of declined and authorised transactions . In particular, the First Eagle Report indicated that this merchant facility number had processed $38,756 on foreign credit cards between 12 September 2003 and 16 September 2003.

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The conversation continued in words to the following effect: JS: "Have you sent out any goods?" PS: "We haven't sent out anything as yet." JS: "Don't send any goods, all the orders from Indonesia will come back as fraudulent. The $38,000 will have to be charged back to your account at a future date." PS: "What can we do?" JS: "Orders from inside Australia are safer although obviously there is no 100% guarantee but orders from Indonesia are almost certainly fraudulent. These are all going to be charged back to you and if you deliver the goods you will lose the goods." 17. There was no discussion about the Plaintiff's financial capacity or lack of capacity to cover the transactions at this time. The conversation continued in words to the effect: PS: "There is a big difference between processing the credit card transaction and delivery of goods. We always verify the transactions before delivery." JS: "You are still processing fraud if you do it that way and the money is going to your account before you attempt to verify the transactions. There is a lag between when you receive the orders and when you process them. This is when verification should be attempted not after you process the transaction. For all overseas orders you should request copies of drivers licence front and back, copies of the card front and back and contact numbers for the customer. You need to do everything possible to verify the customer before you process the transaction. I will give you a web site address that will give you information to help you. You can check credit card numbers on the site for the place of the issuing bank and then match that with the address for delivery of the order and if they are different do not deliver the goods. I will also send you a merchant guide with some helpful information. These may help you with your transactions however there is no 100% guarantee when it comes to orders made over the internet. It is still at the risk of the merchant and considering you have processed $38,000 that will need to be recovered from you already I strongly advise you do not process any further transactions from Indonesia. PS: "Thank you. I will look at them." JS: "The website is www.paymentech.com\banklookup\BankLookup.asp which is a website [I note that the website I referred to was available at the time of my conversation with Mr Szekely. The website has since been shut down.] Every transaction we have verified for our merchants with goods being sent to Indonesia has come back as fraudulent. Don't accept any more orders from there as it is too high risk to deal with and start getting verification before you process transactions." PS: "Thank you, I will contact Neil who processes these orders now and advise him what you said and to stop taking orders from Indonesia".

[154]

(g) ANZ reasonably determines that the continued provision of the Merchant Facilities to the Merchant may damage the reputation of ANZ . (iii) Termination of the Agreement or any part of it does not affect any rights or obligations of the Merchant or ANZ that arose prior to termination. In particular, any obligation the Merchant has under the Agreement to indemnify ANZ or to pay ANZ any amounts (including costs), is a continuing and independent obligation and survives even if the Agreement is terminated. All Transactions made prior to termination are subject to the terms of the Agreement. (iv) In the event that ANZ receives a Transaction Voucher after termination of the Agreement, ANZ reserves the right, at its option, to return the Transaction Voucher to the Merchant or to retain the Transaction Voucher. If ANZ decides to retain the Transaction Voucher, the Merchant is not entitled to any payment for the Transaction in respect of the Transaction Voucher until such time as ANZ has received payment and no chargeback claim can be made by the issuer of the Nominated Card in connection with the Transaction Voucher. (v) Upon termination of the Agreement, the Merchant must immediately return to ANZ all stationery, promotional material, Transaction Vouchers, Card Imprinters or equipment (including Electronic Terminals) supplied in connection with the Agreement." [emphasis added] 30 The central proposition for which Mr Segal has contended is that there is a serious case made out by the plaintiffs that the Court should imply into the provision in paragraph 30 (i) (a) that the ANZ reserves its right to suspend the Merchant's Facilities immediately upon notice to the Merchant if the ANZ upon rational or reasonable grounds believes that continued use or non-use of the Merchant Facility may cause loss to the Merchant or the ANZ. The submission was then that in the circumstances disclosed in the affidavits to which I have referred (and the two additional affidavits which were filed and relied upon) and the materials which went into evidence, the plaintiff has established a prima facie or serious or arguable case and not a specious case to the effect that the events which happened are shown to have constituted action by the ANZ outside of any rational or reasonable belief that continued use or non-use of the facility may cause loss to the Merchant or to itself. 31 My own view on the materials presently before the Court, albeit at an interlocutory level, is that the plaintiff's case on the evidence in that regard is extremely weak. I very much doubt that it amounts to setting up the type of serious case or prima facie case of which McLelland J spoke in the passages to which I have referred, which require the Court to go to the next step, namely, dealing with the balance of convenience. Even if the "reasonable grounds" implication was upheld, the evidence supports reasonable grounds for the beliefs sworn to by Mr Scott in his affidavit and in particular in paragraphs 28, 40 and 42 thereof. Against the event however that I be incorrect in that assessment (and one must always remember that in making such an assessment neither party has had a proper opportunity to cross examine the others witnesses and the Court is unable by definition to decide questions of fact), I propose to deal with the balance of convenience. The balance of convenience 32 In my view on the materials presently before the Court, the balance of convenience does not favour the plaintiff. First and foremost one must take into account consideration that the relief sought is mandatory relief. The bank has exercised its contractual right to suspend the Merchant Agreement. It has given notice of termination effective 30 days from 23 October, reserving its right to terminate immediately. To retrain it from acting upon its rights to suspend or to terminate would be effectively to order the bank to provide a facility - a mandatory order. This is not a situation in which the parties are presently in anything otherwise than a suspended contractual relationship under notice of termination. This is a situation in which, on the materials described in those affidavits, the bank first and on 29 September 2003 notified the plaintiff in writing that it had suspended Merchant Licence No. 2087211 (see annexure "E" to Mr Szekely's affidavit). That notice referred only to Merchant No. 2087211 and not to Merchant No. 1837640 or 2205433, however the Chatswood and Hornsby Merchant numbers were referred to in a subsequent notice given on 3 October 2003. 33 Later and on 7 October 2003, the bank terminated the plaintiff's business overdraft facility effective immediately, and on 23 October 2003 the bank terminated the plaintiff's Merchant Agreement in writing, effective thirty days from 23 October 2003, reserving its right to terminate immediately. 34 An important consideration in terms of the decision as to both prima facie case and ultimately the related consideration in relation to balance of convenience concerns the fact that as part of MasterCard's excessive counterfeit merchant program, MasterCard having the entitlement so to do, has required the bank to terminate the plaintiff's Merchant Agreement and to enter the plaintiff into MATCH or alternatively to accept charge back liability for one year. The evidence before the Court is that the bank would have to accept liability for the charge back of transactions where the cardholder's signature was obtained, that in contrast to the usual position where the bank would be able to dispute a charge back by the issuing bank if the Merchant obtained the customer's signature. 35 Mr Scott's affidavit includes the following:

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"The effect of accepting charge-back liability is that ANZ would lose the right to dispute the charge back claims made by the issuing bank. ANZ is not prepared to accept the charge-back risk on the Plaintiff. " 36 To my mind and notwithstanding the plaintiff's strenuously argued case that the balance of convenience is in favour of granting the interlocutory relief, it is necessary in relation to the application to bear in mind that the agreement presently under consideration is in fact an agreement which as part and parcel of the mechanics of the agreement, obliges the bank to make loans to the plaintiff as and when an internet transaction is processed. The charge back procedures carefully described in the affidavits do not, quite obviously, negate that clear proposition. There are then any number of authorities to the effect that the Court takes the greatest of care in considering an application to, in fact by mandatory order, order a banker/customer relationship to be reinstated. Prosperity Limited v Lloyds Bank xxxix Times Law Report 372 at 374 is authority pointing up the difficulties in restraining a bank from exercising its contractual rights to close a bank account. The situation here is that the plaintiff's business overdraft facility has been terminated. 37 I am satisfied from the evidence presently before the Court that the balance of convenience is against the grant of the injunctions sought. It is necessary to make explicit that the decision in relation to the balance of convenience takes into account an undertaking which the plaintiff proffered from the bar table to the effect that the plaintiff would not, until further order, use the internet facility, or the merchant facility, to process internet orders from overseas. I further take into account the plaintiff's offer not in writing but again announced from the bar table, that the plaintiff and its directors were prepared as a price of obtaining the injunctive relief to effectively, as I understood the offer, undertake not to use the Merchant Facility for overseas internet orders or overseas telephone orders and that they would undertake to the Court to stand behind the company's undertaking not to use the MasterCard Facility. 38 In the result and for those reasons, I have come to the very clear conclusion that this is not a case in which it can be said that damages is not an adequate remedy. The fact is that the balance of convenience when weighed against, the in my view, slender prospects of the plaintiff succeeding at the end of the day at a final hearing are such as to make the proper exercise of the Court's discretion in the present case quite clear. For those reasons none of the interlocutory relief sought will be granted. 39 The appropriate orders, as seems to me, are as follows: (i) I order that the notice of motion filed on 24 October 2003 be dismissed. (ii) I order that the plaintiff pay the defendant's costs of the motion. (iii) The proceedings are stood over to the duty judge's list next Thursday 30 October 2003 at 10.00am. 40 I grant leave to the plaintiff to file on or before Tuesday (28 October 2003) morning at 11.00am a notice of motion and affidavits in support seeking an order for expedition which motion may be made returnable in the first instance before the duty judge on Thursday morning of next week.

Impact Traders Pty Ltd v Australia and New Zealand Banking Group Limited

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