EZYPAY NZ LTD V YKC LTD HC WN CIV-2007-485-1496 [2007] NZHC 694 (23 July 2007)

IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
                                                                 CIV-2007-485-1496



               BETWEEN                     EZYPAY NEW ZEALAND LIMITED
                                           Plaint iff


              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
proceeding


EZYPAY NZ LTD V YKC LTD HC WN CIV-2007-485-1496 23 July 2007

seeking 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 accepted

by 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
                collect ion 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,
                relat ing 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
obligat ion 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 the

agreement 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
plaint iff'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 the

law 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 supervision

       The 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
       covena nt 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
       perfor mance 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
 
     specifica lly 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
relat ionship 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
unt il 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 be

terminated 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 Baxendale
principles, 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
apparent ly 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
thresho ld.

[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
fro m Ezypay to change them back. Secondly, if the defendant were prevented from
communicat
ing 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
dissat isfact ion 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
condit ions 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
       indir ectly 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
restrict ing 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
plaint
iff who fears that defamatory material may be published will generally not
extend to an order restricting the publication which has
not yet occurred. The
American 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.   
          The

plaintiff'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"



Solicitors
Martelli McKegg Wells & Cormack, Auckland, for plaintiff
Morrison
Kent, Auckland, for the defendant