Tyro Payments Ltd v Kounta Pty Ltd

Supreme Court of NSW|2023-11-20|Before: Rees J

Solicitors: King & Wood Mallesons (Plaintiff) Corrs Chambers Westgarth (Defendant) File Number(s): 2023/280832

EX TEMPORE JUDGMENT

HER HONOUR: On 16 November 2023, I held that a restraint of trade clause in a contract between the applicant, Kounta Pty Ltd, and the respondent, Tyro Payments Ltd, was valid and injuncted Kounta from soliciting, inducing or otherwise attempting to persuade any Merchant (as defined in the contract) to become a merchant of any entity providing Acquiring Services (as also there defined) until 6 September 2024: Tyro Payments Ltd v Kounta Pty Ltd [2023] NSWSC 1384.
The applicant now seeks a stay of that order, pending determination of any appeal to be filed within seven days, and offers the usual undertaking as to damages. The applicant relies on the evidence of Assistant General Counsel, Susanna Bull, and solicitor, Michael da Rozario. The respondent tendered some documents.
Ms Bull said that it was not easy for the applicant to identify all Merchants, in the absence of a list from the respondent. After judgment was handed down, the respondent offered to provide such a list. However, the respondent had since declined to do so, where the applicant has advised that it may appeal and now seeks a stay of the injunction.
Ms Bull has made enquiries of relevant stakeholders and conducted "initial scoping" as to the steps need to be taken to "operationalise" the injunction. The applicant has paused marketing activities to known Merchants. The applicant is currently working through the implications of the injunction for the support services provided to its customers who are also Merchants. The applicant's sales team is currently considering how the injunction will impact the applicant's marketing activities. The applicant will be put to considerable time and expense to re-engineer its software, website and processes.

Principles

The Supreme Court has inherent power to stay execution of a judgment or order "in any situation where the requirement of justice demands it": Tringali v Stewardson Stubbs & Collett Pty Ltd [1966] 1 NSWR 354 at 360. Section 67 of the Civil Procedure Act 2005 (NSW) also confers a general power on the Court, subject to the Uniform Civil Procedure Rules 2005 (NSW), to stay proceedings.
The onus is upon an applicant to demonstrate a proper basis for a stay that will be fair to all parties: Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 at 694-695. The applicant must identify the circumstances that warrant a departure from the general rule that the judgment below should be presumed to be correct and is appropriate to be enforced: Hickie v Land and Enviro Corp Pty Ltd [2014] NSWSC 472 at [17]. A party is entitled to the fruits of its victory unless the unsuccessful party can demonstrate that sufficient reasons exist for the granting of a stay: UGL Rail Pty Ltd v Wilkinson Murray Pty Ltd (No 2) [2015] NSWSC 23 at [10]. However, there is no need for the applicant to demonstrate any special or exceptional circumstances: Yolarno Pty Ltd v Shandong Delisi Food Co Ltd [2022] NSWCA 30 at [4] (per Macfarlan JA).
The question for the court is to ask what the interests of justice require. As McColl JA explained in Kalafair Pty Ltd v Digi-Tech (Aust) Pty Ltd [2002] NSWSCA 383; (2002) 55 NSWLR 737 at [18]: Thus the relevant principles are analogous to those which govern the grant of interlocutory relief before trial to protect the status quo. The appellant must show that the appeal raises serious issues for the determination of the appellate court, and that there is a real risk that he will suffer prejudice or damage, if a stay is not granted which will be redressed by a successful appeal. This requirement will be satisfied if the appeal will be rendered abortive or nugatory unless a stay is granted. If these pre-conditions are established the Court will then consider the balance of convenience.
A stay may be granted on terms that the appellant give to the judgment creditor security in terms defined by the Court as appropriate to the fair adjustment of the rights of the parties: Alexander v Cambridge at 697. As Campbell AJA summarised the position in Penson v Titan (No 2) [2015] NSWCA 403 at [45]-[46]: When a stay is granted the court should endeavour to preserve the status quo by protecting the judgment creditor from the risk of loss by framing orders, which, as far as practical, ensure that the existing value of the judgment appealed against will still be available to the judgment creditors if the appeal fails: Kalifair v Digi-Tech at [28]. One way in which this might be done is by requiring security as a condition of a stay; another is requiring an undertaking in the nature of a Mareva order: Kalifair at [28]-[32]. See also Mao v AMP Superannuation Limited [2017] NSWCA 296 at [7] (per White JA).

Submissions

The applicant submitted that complying with the injunction will bring about a change in the status quo, as the applicant will have to make a fundamental change in its business offering, business systems and business model. This will make a significant call on the applicant's personnel and financial resources, as it will need to change its automated systems to make sure that it does not breach the terms of the injunction pending the outcome of any appeal.
The respondent submits that it is disappointing to see that the applicant only turned its mind to this problem after judgment was handed down, where these proceedings have been on foot since September 2023. Further, there was no real evidence that the applicant was being put to unnecessary time and cost in adhering to the terms of the injunction. Where the judgment is prima facie correct, the applicant should not be permitted to continue to breach its contractual obligations whilst any appeal is underway

Consideration

As to whether there are serious issues to be determined on appeal, the applicant requires a further week to determine whether to file an appeal. I have been given a draft Notice of Appeal. I am prepared to proceed on the basis that, if an appeal is lodged, it will raise serious issues for determination. I do not criticise the applicant for taking time to make that decision.
Turning to the balance of convenience, the respondent queried whether the undertaking as to damages may be hollow where the applicant is a $100 company, subject to a fixed and floating charge in favour of a Canadian bank. The applicant supplemented its undertaking with an undertaking as to damages from its Canadian parent company. The parent company appears to have financial substance, albeit it is yet to make a profit. In any event, given the parent's undertaking, I have put the matter raised by the respondent to one side.
There are five matters which lead me to conclude that the interests of justice require that the application for a stay be refused. First, when endeavouring to preserve the status quo, it is important to identify what the status quo is. As matters presently stand, the status quo is that the respondent is entitled to the benefit of a 12 month restraint of trade clause. The status quo is not the applicant's business model and systems.
The restraint period began on 6 September 2023, nearly three months ago. Assuming for the moment that the applicant does decide to file an appeal within a week, this brings us to 27 November 2023. The end of court term approaches. Even if the Court of Appeal were to decide to expedite the appeal, it seems unlikely that the Court of Appeal would able to hear the appeal before the beginning of the next Court term, in February 2024, or to hand down a judgment until March or April 2024. By then, half of the restraint period will have passed. If a stay is granted, it will likely substantially destroy the subject matter of these proceedings by the time an appeal is determined.
Second, I granted an injunction inter alia as I concluded that damages were unlikely to prove an adequate remedy and would be difficult to assess: Tyro v Kounta at [149]. If the applicant is unsuccessful on appeal then, absent the injunction, it will be difficult to assess damages sustained during the period of the stay. The same difficulties will attend the assessment of damages to be paid by the applicant or its parent company under the undertaking as to damages. If the applicant succeeds on appeal, then presumably it will have been unable to acquire additional customers or expand its business as a consequence of the injunction; such losses may also be difficult to quantify. One or other party will be burdened with the difficulty of proving loss. I consider that this difficulty should be placed at the feet of the party who was unsuccessful at trial.
Third, the applicant had been aware since September 2021 that the respondent maintained that the contractual restraint had the meaning which I have confirmed. Nonetheless, the applicant proceeded to set up its business models and automated systems, as described by Ms Bull. In June 2023, the applicant's management noted the litigation risk inherent in its approach: We may be limited in our ability to switch certain customers to our embedded payments solution by virtue of the terms and conditions of partnerships we have with third party payments processors. Further, our third party partners have in the past and may in the future allege that we have improperly engaged with certain customers. Any such allegations could… expose us to a risk of litigation or other liabilities, which would be costly, time consuming, distracting to management and adversely affect our ability to successfully sell our POS and payments solutions together as one unified offering.
Having taken a considered risk in setting up its business models contrary to the position pointed out by the respondent at the time, I do not think that the applicant should, by a stay, be provided with an extended opportunity to engage in conduct which prima facie is in breach of its contractual obligations.
Fourth, the injunction does not prevent the applicant from undertaking business generally or implementing its business model at all. It simply restricts the applicants from operating vis-a-vis the Merchants. The respondent acknowledged at the hearing that it took no issue with the applicant engaging in mass marketing, nor inadvertent breaches of the injunction.
Finally, it is relevant that that the applicant turned its mind to this problem on the evening of Thursday, 16 November 2023, and it is now only Monday, 20 November 2023. The applicant has spent one or two business days and maybe four calendar days focussing on this problem. Ms Bull's evidence of the difficulties and cost involved in complying with the injunction is non-specific. It may just be too early to say that complying with the injunction is too difficult.
For these reasons I refuse the stay. I dismiss the applicant's notice of motion filed on 19 November 2023 with costs. I note that the respondent may seek to vary the costs order to seek costs on a solicitor-client basis, pursuant to the indemnity in clause 19 of the Agency Agreement.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 December 2023

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