New South Wales Supreme Court 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. 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) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Einstein J Friday 24 October 2003 ex tempore Revised 30 October 2003 5374/03 Impact Traders Pty Limited v Australia and New Zealand Banking Group Limited JUDGMENT The Notice of Motion 1 In proceedings number 5374 of 2003 the plaintiff by notice of motion filed on 24 October 2003 seeks a number of orders concerning the merchant facility agreement entered into between the plaintiff of the one part and the Australia and New Zealand Banking Group Limited of the other part. 2 Notwithstanding the terms of the notice of motion the evidence before the Court at least at an interlocutory level establishes that there is one merchant agreement between those parties. That that is the case is made plain from the evidence given by Mr Scott in paragraph 8 (a), (b) and (c) of his affidavit of 23 October 2003. A number of merchant numbers have apparently been issued over time to the plaintiff, all being part of the one merchant agreement. The general conditions 3 The general conditions which form part of that merchant agreement are appended to the affidavit of Mr Szekely of 20 October 2003. A copy of those general conditions will be appended to the form of the revised Judgment as "Appendix A". 4 Particularly important amongst those conditions are conditions 2, 4, 5 and 6 (iv) (vii) which is set out below: " 2. Provision of Merchant Facilities (i) ANZ agrees to provide the Merchant with the Merchant Facilities in accordance with the Agreement. ANZ agrees to do this in exchange for the Merchant carrying out the Merchant's obligations under the Agreement. (ii) ANZ will provide the Merchant Facilities unless: (a) the Agreement is terminated; or (b) the Merchant Facilities are suspended in accordance with the Agreement; or (c) there is a change in Law or to the regulations, by-laws or rules of a Nominated Card Scheme that prevents ANZ providing the Merchant Facilities… 4. Nominated Cards (i) The merchant must: (a) accept Nominated Cards in accordance with the Agreement; and (b) stop accepting Nominated Card immediately if: - ANZ gives the Merchant a notice to do so; or - any of the events described in condition 2 (ii) occur. (ii) To remove any doubt the Merchant must not accept a Nominated Card as payment for goods or services by: (a) mail or telephone order; or (b) if the Nominated Card is a credit card, payment for goods or services via the Internet, unless specifically authorised in writing by ANZ. 5. Honouring Nominated Cards and Permitted Uses (i) The Merchant must accept valid Nominated Cards and must supply goods or services to the Cardholder at the Merchant's normal prices which are charged to the general public. (ii) A Nominated Card is valid if: (a) the Nominated Card has current validity dates; (b) the Nominated Card has not been visibly altered or tampered with in any way; (c) the Nominated Card is signed on the back in the designated area for card signatures; (d) the Nominated Card is not on a current Warning Bulletin; (e) the embossed account number on the Nominated Card corresponds with the number printed, encoded or otherwise shown on the Nominated Card; (f) the signature on the reverse of the Nominated Card has not been altered or defaced; and (g) the Nominated Card meets each of the criteria for validity set out in the Merchant Operating Guides. (iii) The Merchant must not: (a) make any representation in connection with any goods or services or any Nominated Card which may bind ANZ; (b) make any representation to any Cardholder concerning ANZ's products or policies; (c) pledge the credit of ANZ in any way; (d) take part in the preparation of any documents purporting to provide for credit to be provided by ANZ to the Cardholder; (e) engage in any conduct which is false, misleading or deceptive concerning goods or services supplied by the Merchant, ANZ's products or policies, or in any other dealings with the Cardholder; (f) use a Nominated Card in a Credit Transaction to give a Cardholder cash. The Merchant may use a Nominated Card in a Debit Transaction to give a Cardholder cash provided the Merchant has prominently displayed in the Premises the Merchant's policy on cash out and partial cash out services including any applicable fees; or (g) use a Nominated Card issued in the name of the Merchant in any Transaction to pay for goods or services or to provide cash where the Transaction is not a bona fide sale or where the Transaction is for the purpose of funding the working capital of the Merchant's business. Where the Merchant is a partnership, no Nominated Card issued in the name of a partner is to be used in any such Transaction. Where the Merchant is a company, no Nominated Card issued in the name of a director or secretary is to be used in any such Transaction. Any Cardholder making enquiries concerning the matters raised in paragraphs (b) to (d) above must be directed to contact ANZ. 6. Processing Transactions … (iv) The Merchant must ensure any goods purchased via a mail, telephone or Internet order Transaction are despatched to the Cardholder immediately after processing that sales Transaction , either manually or through an Electronic Terminal, to ANZ… (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: "While useful guidance is provided by the manner of exercise of the discretion in other cases, and by the factors considered in those cases to favour the exercise of the discretion in a particular way, each case must depend upon its own facts. It would be contrary to what I understand to be the accepted law in this country, to confine the exercise of a judicial discretion by judge made rigid formulae." 14 At page 214 McLelland J cited the full High Court decision in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622, 623 where the Court had said that in dealing with application for interlocutory injunctions: "The court addresses itself in all cases, patent as well as other, to two main enquiries. The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief… The second enquiry…is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted." 15 At page 214 McLelland J further referred to Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729 at 736, 737, where the Court of Appeal explained the special sense in which the expression "probability" was used by the High Court in the Beecham case, and in particular had said that it did not refer either to a prediction as to the ultimate result or to a better than even chance of ultimate success. The Court said that: "the degree of probability or likelihood of success is simply that which the court thinks sufficient, in the particular case, to warrant preservation of the status quo." 16 As McLelland J reminds us at page 214, the Court had already stated that in that case the balance of convenience was very strongly in favour of the granting of interlocutory relief (to preserve the status quo), and accordingly the Court's statement, McLelland J believed, might be generalised by saying: ". . . that the degree of likelihood of success to be demonstrated is that which the Court thinks sufficient, in the particular case, to warrant consideration of where the balance of convenience lies." 17 At pages 214-215 McLelland J also cited from the Privy Council decision in Eng Mee Yong v Letchumanan [1980] AC 331 at 337 where the Privy Council had expressed the relevant principle in terms derived from the American Cyanamid case as follows: "The court's power to grant an interlocutory injunction...is discretionary. It may be granted in all cases in which it appears to the court to be just and convenient to do so...The guiding principle in granting an interlocutory injunction is the balance of convenience; there is no requirement that before an interlocutory injunction is granted the plaintiff should satisfy the court that there is a `probability', a `prima facie case' or a `strong prima facie case' that if the action goes to trial he will succeed; but before any question of balance of convenience can arise the party seeking the injunction must satisfy the court that his claim is neither frivolous nor vexatious; in other words that the evidence before the court discloses that there is a serious question to be tried..." 18 McLelland J at page 215 expressed the view that what was said in the Eng Mee Yong case is not inconsistent in substance with what is said in the Shercliff case notwithstanding that the form of words used in the two cases is different, and in the Eng Mee Yong case, the expressions "probability" and "prima facie case" seem to be used in somewhat different senses to those in which the same expressions are used in the Beecham case as explained in the Shercliff case. McLelland J pointed out that it must be remembered that: ""No court should consider itself fettered by the form of words as if it were a phrase in an Act of Parliament which must be accepted and construed as it stands": Australian Apple and Pear Marketing Board v Tonking (1942) 66 CLR 77 at 110." 19 McLelland J further noted that in considering the question of the "balance of convenience" as contemplated in the Eng Mee Yong case and the American Cyanamid case, the relative apparent strength of each party's case may be a relevant matter. As McLelland J pointed out this accords with what the Supreme Court of Victoria said Magna Alloys & Research v Coffey [1981] VR 23 in the following passage relating to the High Court's judgment in the Beecham Group case: "Having regard to the fact that the High Court cited the judgment of James LJ in Plimpton v Spiller ..with approval, the reference in Beecham's case...to a probability of success should not be understood as meaning that the plaintiff must show that at trial it is more probable than not that he will succeed. Indeed the High Court made it clear that that is not the issue for the judge to determine, for in the passage already cited the Court said:...the Court does not...give or withhold interlocutory relief upon a forecast as to the ultimate result of the case.' Rather the High Court should be understood as referring to the degree of probability which may be high or low. No doubt the strength or weakness of the plaintiff's case will be relevant when the judge comes to the question of the balance of convenience, if he ever does." 20 At page 216 McLelland J cited Lord Diplock's judgment in American Cyanamide in terms of the power to grant interlocutory injunctions. The passage was as follows: "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, ". . . the decisions to which I have already referred provide authoritative guidance (not however to be interpreted as `rigid formulae') as to how this task of the court should normally be approached, but do not deny the proposition that the ultimate task of the court is as I have described it." 22 I approach the present application for interlocutory relief applying the principles as expressed by McLelland J. The matter is put shortly by Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 2nd edition at [2168]: "What the plaintiff must prove is that he has a serious, not a speculative, case which has a real possibility of ultimate success and that he has property or other interests which might be jeopardized if no interlocutory relief were granted. Then it becomes a matter of seeing if, in all the circumstances of the case, the court should nonetheless exercise its discretion by declining to issue an interlocutory injunction." 23 Likewise in Meagher, Gummow and Lehane at [2174] the learned authors say: "What is meant by saying that the court must take into account the balance of convenience and the question of hardship is that it must consider carefully what effects the granting of an injunction will have on both parties, and in particular whether to grant one would cause hardship to the defendant or to refuse one would cause hardship to the plaintiff." Mandatory Injunctions 24 It is further appropriate in dealing with the principles to deal with the principles applicable to the grant of mandatory injunctions. Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4th Edition by Meagher, Heydon and Leeming at [21-395] comment as follows: "Seventhly, mandatory injunctions are comparatively rare. There are even dicta suggesting they should issue only in the most exceptional circumstances, and that this applies to final injunctions. The interlocutory mandatory injunction is a particularly rara avis . This is partly because a mandatory injunction is usually more onerous for a defendant to comply with than a prohibitory one; moreover, the usual purpose of an interlocutory injunction is to preserve the status quo, a consideration inapplicable to mandatory injunctions. But there is nothing to prevent a court from issuing an interlocutory mandatory injunction… In truth, a judge hearing an application for an interlocutory mandatory injunction must apply exactly the same tests as he would in the case of an application for an interlocutory prohibitory injunction, not some different or more exacting test; nor is the fact that the relief sought is mandatory, a ground for refusing relief; but in the application of the normal tests, often but not always, the fact that the relief sought is mandatory will tilt the balance of convenience in the defendant's favour". 25 Ultimately, as it seems to me, the jurisdiction to make mandatory interlocutory orders: "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. 10. I also reviewed the Daily Transaction List. Annexed and marked "A" is a copy of the Daily Transaction List for the Plaintiff for September 2003. I obtained the origin of the foreign credit cards by typing in the credit card number which I obtained from Eagle and MasterCard and Visa Online. I found that these credit cards were issued in the United States. 11. The First Eagle Report and Daily Transaction list revealed that there had been a large number of transactions on American credit cards and there were a number of declined transactions attempted to be processed on these credit cards. I am aware and it is common knowledge within the ANZ Merchant Fraud Section that orders for goods to be delivered to South East Asia using credit cards issued in the United States are highly likely to be fraudulent. I have not seen in the last 8 months a non-fraudulent transaction for goods ordered from Indonesia using an American credit card . Transactions in even amounts are also a common indicator of fraudulent transactions. In addition the pattern of the transactions in Eagle indicates that larger even amounts were attempted to be processed. If the transaction was unsuccessful, smaller even amounts were attempted using the same credit cards. This is a common feature of fraudulent transactions. The close timing in which the cards were attempted to be processed was also suspicious. 12. I telephoned Mr Peter Szekely on 17 September 2003 to discuss the suspicious transactions on the First Eagle Report. I refer to paragraph 37 of Mr Szekely's Affidavit. The conversation is not accurately recorded in the affidavit. Mr Szekely and I had two conversations on 17 September 2003. The first was to the following effect: JS: "My name is Jake I'm calling from the ANZ Bank. Are you aware that there have been a large amount of suspicious transactions through your merchant facility? Can you tell me what was ordered and where the goods were sent?" PS: "Why?". JS: "We have reason to believe the transactions may be fraudulent." PS: "What makes you think that?" JS: "There are a number of card credits for even amounts from the same batch of American issued credit cards. There are numerous declined transactions attempted to be processed on these cards also." PS: "The goods are going to be sent to Indonesia." JS: "There have been big amounts of fraud lately with goods ordered on American cards and being shipped to Indonesia. Hold off sending any goods until I can verify these transactions for you." The call ended and I arranged for all transactions processed by the Plaintiff between 12 September 2003 and 19 September 2003 on credit cards issued in the United States to be verified. 13. I rang a number of issuing banks in the United States on selected credit cards where I was able to obtain information over the phone. I was able to obtain information over the phone from only one bank in the time available and that bank informed me that the relevant card had been blocked. Where one card is blocked, from previous experience, it was my view that the confirmation of one proven fraudulent transaction in combination with the transactions shown on Eagle that there was a very high probability that all or at least many of the suspect transactions were fraudulent. I also sent faxes to selected issuing banks seeking verification. Annexed and marked "B" is a bundle of the faxes. On 18 September 2003 I received a fax from Citi Credit in reply to my fax confirming the fraudulent use of the credit card. A copy of this fax is included as the last fax in the bundle marked "D". 14. Later on 17 September 2003, after I received verbal verification from the issuing bank in the United States that the transaction in question was fraudulent and formed the opinion set out above, I telephoned Mr Szekely again and we had a conversation to the following effect: JS: "We have received confirmation that the transactions in question are indeed fraudulent." PS: "What can we do to fix the problem?" JS: "How do you process your transactions?" PS: "We receive the orders, process the cards then decide if we send any goods out or not. We will call the customer then send out the goods." JS: "Why don't you verify the customer first before processing the transaction?" PS: "That is not our policy." JS: "You have received around $38,000 of fraudulent transactions recently. This is money which you've now become liable for as they were hand keyed. 15. If a merchant hand keys a transaction and does not obtain the cardholder's signature, and the transaction is subsequently found to be fraudulent, the issuing bank will charge the amount back to the merchant's banker (in this case, ANZ). The merchant's banker is liable for the charge-backs but is entitled to charge the amount back to the merchant. However, where the cardholder's signature is obtained, for example, in over the counter transactions, the issuing bank cannot charge-back the amount to the merchant's banker. 16. 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". Following that conversation I expected that the Plaintiff would not take any further orders from Indonesia. 18. On or about 26 September 2003, I reviewed an Eagle report on facility number 2087211 ( the Second Eagle Report ). The Second Eagle Report indicated that the Plaintiff processed $65,244 on overseas credit cards between 17 September 2003 and 26 September 2003 . I also conducted an on-screen check of the origin of the overseas issued credit cards and found that the cards were issued in the United States. 19. On 26 September 2003 I telephoned Mr Szekely. I refer to paragraph 43 of Mr Szekely's affidavit. The conversation is not accurately recorded there. My recollection of that conversation is that it included words to the following effect: JS: "We have noticed you have processed more transactions on American cards. Are these orders also from Indonesia?" PS: "Yes." JS: "I advised you before not to process credit cards transactions from Indonesia". PS: "But you didn't give us much help how to detect fraudulent cards. How should we know what is fraudulent and what is not?" JS: "I told you if the order is from Indonesia it is extremely high risk and that you must not accept future orders from there. I gave you advice on how to minimise fraud from overseas orders and told you not to accept any future orders from Indonesia." PS: "We also had a legitimate order from Indonesia. Our biggest problem is the fraudulent transactions from Australia - and not the ones from overseas. We can quite efficiently verify those." JS: "Can you tell me about the legitimate transactions from Indonesia?" Mr Szekely did not respond and the conversation continued in words to the effect: J S: "I told you orders from within Australia are usually safer, the problem you are having here is with overseas orders, not domestic". 20. During that conversation I did not say words to the effect: JS: "You processed about $100,000 worth of suspicious transactions. If you delivered the goods your business is not going to be in the position to cover the charge backs." Rather I said words to the effect: JS: "You processed about $100,000 worth of suspicious transactions. If you delivered the goods the goods will be lost." 21. In response to Mr Szekely's comment in words to the effect: PS: "The fact that we processed payments doesn't necessarily mean that we supplied the goods. We verify them first." I said words to the following effect: JS: "I have told you, you cannot operate your business this way. You have to get verification before you process transactions. We are answerable to VISA and MasterCard and if you process one more suspicious order I will have no choice but terminate your merchant account." 22. My concern was that the Plaintiff would continue to operate his business in the same way which I believed was in breach of clauses 6(iv) and 6(vii) of the General Conditions of the Merchant Facility Agreement , which is Annexure "C" to Mr Szekely's Affidavit (discussed below). I also believed that further conduct of his business in breach of the General Conditions and without appropriate verification prior to processing would result in further fraudulent transactions, which would be charged back by the credit card schemes to ANZ and ultimately by the ANZ back to the Plaintiff . This would cause loss to both ANZ and the Plaintiff . I believed that where the Plaintiff had delivered goods on fraudulent orders it would also suffer loss on the value of those goods and on transport costs. 23. During our conversation, Mr Szekely did not say words to the effect: PS: "OK we will stop taking overseas orders right now but don't threaten me, I am not a criminal, and have done nothing wrong. I don't understand where this telephone conversation is going and want you to let me have it in writing. I don't like misunderstandings." Rather the conversation continued in words to the following effect: PS: "You can't tell us how to run our business. We get lot of orders from Indonesia and other overseas places and we will process what we want". JS: " All of these orders are being verified as fraud". PS: "We are not going to change how we do business". I did not say words to the effect: JS: "You will get it in writing." 24. Following that conversation I believed that the Plaintiff intended to disregard the concerns which I had expressed to him, that he had refused to alter his business practices and in particular that the Plaintiff would not cease taking credit card orders for goods to be supplied into Indonesia – a method by which, in my experience, credit card fraud was commonly perpetrated. 25. Annexed and marked "C" is a copy of my email to Jai Thomas, Fraud Operations Manager, summarising my telephone discussions with Mr Szekely on 17 and 26 September 2003. 26. I refer to clause 6(iv) of the General Conditions of the Merchant Facility Agreement, which is Annexure "C" to Mr Szekely's Affidavit. It is a condition of the Merchant Facility Agreement that goods are despatched immediately after processing the sales transaction. Following my telephone conversations with Mr Szekely, I believed that the Plaintiff's method of processing transactions as set out in paragraph 35 of Mr Szekely's Affidavit and the Overseas Credit Card Orders DCC procedures, Annexure "D" to Mr Szekely's Affidavit, was a breach of this condition. The obligation in Clause 6(iv) is, in my opinion, a material and very important one. The method which according to Mr Szekely, the Plaintiff, was employing of processing a substantial deposit and only then taking any steps to verify the transaction and inadequate steps at that meant that a sizeable part of the transaction would first be processed so that the Plaintiff would be credited for that part by ANZ and that would occur before verification or any despatch of goods. The Plaintiff would therefore be credited with a "deposit" on a transaction which may never proceed and in circumstances where it was not itself even prepared to despatch goods. The only risk to the Plaintiff if the transaction did not proceed or was subsequently found to be fraudulent was that in due course (usually up to 1 to 3 months) a charge-back for the deposit would be made to the Plaintiff . I believed that by this method the Plaintiff could obtain immediate access to ANZ's funds in relation to transactions which were not completed. 27. I refer to clause 6(vii) of the General Conditions of the Merchant Facility Agreement, which is Annexure "C" to Mr Szekely's Affidavit. Clause 6(vii) requires the Plaintiff to use reasonable care in processing transactions to detect forged or unauthorised use of a credit card and comply with requirements set out in the Merchant Guidelines, Exhibit "PS1" to Mr Szekely's Affidavit. I refer to paragraph 35 of Mr Szekely's Affidavit and the Overseas Credit Card Orders DCC procedures, Annexure "D" to Mr Szekely's Affidavit. I believed the Plaintiff did not use reasonable care in processing transactions to detect unauthorised use of a credit card. The effect of the Plaintiff's method of processing orders is that the Plaintiff would receive a credit for the deposit amount from ANZ immediately the order is processed. At the time of processing, the Plaintiff had not carried out any inquiries. I also refer to the method of "verification" set out in Annexure "D" to Mr Szekely's Affidavit. I believed that that procedure is inadequate because the "verification" did not involve carrying out the inquiries referred to in the Merchant Guidelines, which are Exhibit "PS1" to Mr Szekely's Affidavit. In particular, page 11 of the Merchant Guidelines provides security tips for Internet order merchants, including obtaining an authorisation if the merchant has any doubts about a transaction, taking extra precautions when dealing with orders from overseas and requesting the customer to fax the front and back of their credit card and suitable identification for high value transactions. I believed that the plaintiff took none of these steps and none form part of the "verification" procedure set out in Annexure "D" to Mr Szekely's Affidavit. I further believed that the procedure set out in Annexure "D" to Mr Szekely's affidavit makes breaches of clause 6(vi) and 6(vii) of the General Conditions a formal part of the plaintiff's business operations. 28. After the telephone conversation on 26 September 2003, I totalled the amount of suspicious transactions from 12 to 26 September 2003, which amounted to $104,000 ( the Suspicious Transactions ) . Annexed and marked "D" is a copy of the schedule I prepared. As I believed that the Plaintiff's method of processing the transactions was a serious breach of the General Conditions as outlined above and the Plaintiff was not willing to change its business practices, and those business practices in my opinion would cause loss to the Plaintiff and to ANZ by way of future charge-backs to the credit card supplier to ANZ and then by ANZ to the Plaintiff, I decided to suspend the credit card merchant facilities . I also believed that in cases of fraudulent transactions where the Plaintiff sent the goods the Plaintiff would suffer not only the loss occasioned by the charge-back but also the loss of any goods supplied by it and associated transport and administration costs. 29. On 26 September 2003, following consideration of the factors set out above, I telephoned Mr Szekely again. I refer to paragraph 46 of Mr Szekely's Affidavit. The conversation is not accurately recorded there. In particular I said words to the following effect: JS: "A decision has been made and ANZ will be suspending your merchant facility and have had to dishonour a cheque of yours for $100,000 to cover the existing fraudulent transactions" When Mr Szekely asked why I would be suspending the merchant facility, I did not say: JS: "Because you intended to cover this cheque with funds from fraudulent transactions." Instead the conversation continued in words to the following effect: JS: "Because you continued to process large amounts of fraudulent transactions after we told you to get verification first. The cheque had to be dishonoured to cover the fraudulent transactions already processed. You have processed $104,000 of suspicious transactions and you have a current balance of only $18,000 in your account." PS: " Did you notice that we have a $75,000 overdraft facility?" JS: "It is not ANZ's policy to lend money to merchants so they can cover fraudulent transactions or money that is already owed to the Bank." PS "And did you notice the amount of money deposited into the account today?" JS: "No, nothing is showing on your account now." PS: "You are wrong. You are very wrong. We have more than enough money to cover any "suspicious" transaction as well as the $100,000 cheque as well, which was for our most important supplier, Canon." At that stage the Plaintiff had $18,000 in his account and he needed $204,000 in his account to cover the cheque and the charge-back exposure. JS: "It doesn't matter if you say you have enough money to cover the charge-backs. You have breached the General Conditions of the Merchant Facility Agreement and we've advised you to change your business practices and you have refused to do so. We cannot keep a merchant who continues to breach the General Conditions and process large amounts of fraudulent transactions." 30. It is important to act quickly to identify fraudulent transactions and inform the merchants of these transactions. I had telephoned Mr Szekely on 17 September 2003, provided him with advice on detecting fraudulent transactions and told him not to process credit cards for supply to Indonesia. Mr Szekely failed to follow the advice. He continued to follow the procedures which were in breach of the General Conditions of the Merchant Facility Agreement and the Merchant Guidelines and contrary to my instruction that he not process credit card orders for supply to Indonesia. 31. On 29 September 2003, ANZ notified the Plaintiff in writing that it has suspended merchant number 2087211. Annexure "E" of Mr Szekely's affidavit is a copy of the fax. At this stage ANZ exercised its rights under Section 30 of the Plaintiff's Merchant Agreement to suspend that Agreement. The notice referred only to the merchant number 2087211, and not merchant number 1837640 (Hornsby shop) or merchant number 2205433 (Chatswood Shop). The Chatswood and Hornsby merchant numbers were however referred to in a subsequent notice on 3 October 2003. On 29 September 2003 ANZ also informed the Plaintiff's solicitors by email that ANZ planned to withhold payment for the suspicious transactions into the Plaintiff's bank account for 30 days or until ANZ received confirmation that the transactions are fraudulent. In my view, this was in accordance with clause 10(iii)(a) of the General Conditions. Annexed and marked "E" is a copy of the email. 32. On or about 7 October 2003, I received a report for the month of September 2003 from MasterCard , which lists merchants appearing in SAFE (being a preliminary report ANZ received before a merchant appears on MasterCard Online) with over US $10,000 in fraudulent transactions during the month. SAFE tells us when a merchant has processed above an acceptable amount (at present US$10,000) of fraudulent transactions and we know from this to take action against a merchant. ANZ receives final Mastercard reports three months after the relevant month. If we do not act on the SAFE report Mastercard will impose liability on ANZ for all charge-backs for the months between the SAFE report and the final month end preliminary report and for the balance of a 12 month period . This report is generated by the Merchant Online Status Tracking, a database of merchants identified by MasterCard for risk. Annexed and marked "F" is a copy of the report. Annexed and marked "G" is an extract from MasterCard's Excessive Counterfeit Merchant Program. As the Plaintiff had 10 counterfeit transactions in September 2003 totalling more than US $25,000, the Plaintiff was in Tier 3 of the Excessive Counterfeit Program. As part of MasterCard's Excessive Counterfeit Merchant Program MasterCard required ANZ to terminate the Plaintiff's merchant agreement and enter the Plaintiff into MATCH or accept charge-back liability for one year . 33. MATCH is a reporting system accessible by financial institutions. It contains a list of merchants whose facilities have been terminated or removed. A financial institution would first check MATCH before issuing facilities to a merchant. 34. ANZ would have to accept liability for the charge-back of transactions where the cardholder's signature is obtained. This is in contrast to the usual position, where ANZ would be able to dispute a charge-back by the issuing bank if the merchant obtained the customer's signature. 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 . 35. On 7 October 2003 ANZ terminated the Plaintiff's Business Overdraft Facility effective immediately on the basis that ANZ had formed the opinion that there had been a material adverse change in the Plaintiff's business, assets or financial condition. Annexed and marked "H" is a copy of the letter from ANZ to the Plaintiff. 36. Annexed and marked "I" is a fax I received from HSBC on 20 October 2003. 37. On 23 October 2003, ANZ terminated the Plaintiff's Merchant Agreement in writing effective 30 days from 23 October 2003 but reserved its right to terminate immediately. Annexed and marked "J" is a letter from ANZ to the Plaintiff dated 23 October 2003. 38. Annexed and marked "K" is a copy of VisionPlus print-out for facility number 2087211. The print-out shows unauthorised transactions and notes entered by members of the Merchant Fraud Section for 20 April to 22 September 2003. 39. Annexed and marked "L" is a bundle of documents relating to unauthorised transactions processed by the Plaintiff. The bundle includes cardholders' statements and letters sent by ANZ to the Plaintiff in relation to the chargebacks. 40. I believe that granting the injunction sought by the Plaintiff in the Summons would result in prejudice to ANZ. The effect of the injunction would be that: · ANZ would be forced to accept the risk of liability for the charge-back in accordance with MasterCard's Excessive Counterfeit Merchant Program for 12 months; · Unless ANZ accepted the charge-back risks, which it is not prepared to do, ANZ would breach its agreement with MasterCard and that would place at risk ANZ's entitlement to act as a Mastercard acquirer; and · ANZ will be exposed to loss on credits to the Plaintiff's account on processing credit card transactions in circumstances where I believe the Plaintiff has acted and is likely to continue to act in breach of its obligations under the merchant agreement. 41. Attached and marked "M" is a print-out of an extract from the Plaintiff's website. I note that in addition to payment by credit card the Plaintiff offers to accept payment by BPay and bank cheque for goods. 42. I believe that ANZ will suffer loss as a result of the fraudulent transactions if the Plaintiff is permitted to reinstate the facilities." [Affidavit of Mr Scott of 23 October 2003, paras 9-42] [emphasis added] 28 Mr Szekely's version of the events which occurred in terms of the telephone calls in respect of which his affidavit gave detail included the following: "Phone call from ANZ on 17 September 2003 37. I received a telephone call on 17 September 2003 during the course of which a conversation to the following effect took place:- JS: "My name is Jake I'm calling from the ANZ Bank. Are you aware that there have been a large amount of suspicious transactions through your merchant facility. PS: "What makes you think that?" JS: "There are a number of card credits for even amounts from the same batch of American issued credit cards." PS: "What can we do to fix the problem?" JS: "Orders from inside Australia are safe but orders from Indonesia are almost always fraudulent. These are all going to be charged back to you and if you deliver the goods you will be in no position to cover the charge backs." PS: "There is a big difference between processing the credit card transaction and delivery of goods. We always verify the transactions before delivery." JS: "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. PS: "Thank you. I will look at them." JS: "The web site is www.paymentech.com\banlookup\Banklookup.asp 38. This was the first time I had any conversation with anyone from the ANZ Bank giving advice in respect of alleged fraudulent transactions in respect of my company's business. 39. I checked the web site I had been given within the next day or so and again a number of times on different days however the site was inaccessible. 40. I received the Merchant Guide about 2 days later and read it. I did not find that guide of any assistance. 41. Exhibited to me at the time of affirming this affidavit and marked PS#" is a copy of that guide. 42. There was a telephone number for assistance in the Merchant Guide which I called when I finished reading it and had a conversation to the following effect:-. PS: "We have received an internet order from an Australian customer in Thailand. I want to verify the transaction. Can you help me?" ANZ: "You will have to make your own judgment about that. You are the one that is taking the risk" We then continued maintaining our internal procedures. Phone call with ANZ on 26 September 2003 43. I had a telephone conversation on the morning of 26 September 2003, I am not sure if he called or I if I was returning his call, to the following effect in which Jake spoke in a loud voice and in an arrogant and aggressive tone:- JS : "I warned you before not to process fraudulent credit cards" PS: "But you didn't give us much help how to detect these cards. How should we know what is fraudulent and what is not." JS : "I told you if the order is from Indonesia it is fraudulent." PS: "This is not what you said .You gave me a web site to check if the credit card is issued in the same country and if it is not, don't deliver the goods. The web site that you suggested doesn't work. We also had a legitimate order from Indonesia. Our biggest problem is the fraudulent transactions from Australia - and not the ones from overseas. We can quite efficiently verify those. It has always been our risk. The bank is very quick with the charge backs and not so quick when it comes to real solutions for internet businesses. If the card owner disputes the charge, the bank will take the money back from us anyway." JS: "You processed about 100 thousand dollars worth of suspicious transactions. If you delivered the goods your business is not going to be in the position to cover the charge backs." PS: "The fact that we processed payments doesn't necessarily mean that we supplied the goods. We verify them first." JS: "If you process one more suspicious order I will terminate your merchant account." PS: "OK we will stop taking overseas orders right now but don't threaten me, I am not a criminal, and have done nothing wrong. I don't understand where this telephone conversation is going and want you to let me have it in writing. I don't like misunderstandings." JS: "You will get it in writing." I never received it in writing. 44. After completing that telephone conversation (about 12:30pm) I rang the manager of our company's internet operation, Neil Thomas and had a conversation with him to the following effect:- PS: We have to immediately stop processing any more deposits on internet orders from overseas. Were any deposits taken on any orders from Indonesia earlier today?" NT: "Yes two deposits of $5,000 each were processed." PS: "Ring Jake at ANZ now and tell him of those two processed deposits and tell him that we have stopped processing deposits on all orders from overseas." Second Phone call with ANZ on 26 September 2003 45. A few days later I had a conversation with Neil Thomas to the following effect:- PS: "Did you get on to Jake?" NT: "Yes. I told him that we have stopped processing orders from overseas but we have already processed 2 deposits earlier today. We don't have the facilities to reverse them and I just want to confirm that this will not affect our account." PS: "What did he say?" NT: "OK. That's fine. I will talk to Peter later today. Third Phone call with ANZ on 26 September 2003 46. I received a telephone call in the afternoon of 26 September 2003 from Jake and I returned that call during the course of which a conversation to the following effect took place with Jacob Scott starting off talking in an angry voice and I responded similarly:- JS: "I terminated your merchant facilities and dishonoured a cheque of yours for $100,000" PS: " You must be joking." JS: " No." PS: "And why did you do that?" JS: "Because you intended to cover this cheque with funds from fraudulent transactions. You have between $50,000 to $100,000 of suspicious transactions on your account which leaves you a balance of only $18,000." PS: "Did you notice that we have a $75,000 overdraft facility?" JS was silent. PS "And did you notice the amount of money deposited into the account today?" JS : "Do you have two accounts?" PS : "No we only have one. You are wrong. You are very wrong. We have more than enough money to cover any "suspicious" transaction as well as the $100,000 cheque as well, which was for our most important supplier, Canon. What is your full name, Jake? JS: "Just Jake for the purpose of this conversation." PS: "I want to talk to your supervisor and I/m making notes of this conversation. What is his name?" JS: "He will ring you back and my name is Jacob Scott." PS: "You are causing an enormous damage to my business, by dishonouring a cheque that was fully covered." Jacob Scott then said in a much more subdued voice. JS: "That has already been done. I can't change that. I have warned you before not to process fraudulent credit cards." PS: You don't give me any help how to tell which one is fraudulent. It is all too easy for crooks to come up with a credit card number that will be approved by the bank, and it is also very easy for the bank to say that it is the merchant's risk to accept any internet payment." JS: "If it is ordered from Indonesia, it is fraudulent." PS: "Wrong again. We can show you a legitimate transaction from Indonesia, and fraudulent ones from Australia. It has always been our risk, and the bank has always been very quick smart with the charge backs. Just because we process a deposit, it doesn't mean we process the order. We have to protect our business, we can't count on the bank to help us in any way." JS: "I am going to freeze your account." PS: "Could you please let me have that in writing." JS: "I will." PS: "I am no criminal, I have been banking with ANZ for 15 years. Don't threaten me, I did nothing wrong. I will contact the Ombudsman's office. I never received the letter he said he would send. 47. On the morning of 29 September 2003 I telephoned Jacob Scott and a recorded message said he was on leave and to contact Liam of the ANZ Fraud Division in Melbourne and gave a different telephone number. 48. I then asked my company's financial controller, Paddy Kilroe-Smith, who I had kept informed of the situation with the Bank, to telephone Liam. 49. After Paddy had advised me of the details of his conversation with Liam I telephoned Sharleen the company's Business Manager at ANZ Bank and asked her if she could refer me to someone higher in authority than Liam to help us in understanding exactly what the restrictions would mean and how the problem could be resolved. 50. Sharleen called me back later in the day and told me I had to talk to Liam. 51. Later on 29 September 2003 I received a DCC Merchant Facilities "suspended" notice by fax from the ANZ Bank advising if I have an inquiry re the decision of ANZ Bank I should ring Jacob Scott. The notice was dated 29 September 2003 and signed Jacob Scott. Annexed hereto and marked "#" is a copy of that notice. 1 October 2003 – Wednesday 52. I am informed by my solicitor Charles Roth and verily believe that on 1 October 2003 he forwarded a letter of that date by email to Louise Halliday from the dispute resolution branch of the ANZ Bank. annexed hereto and marked "#" is a copy of that letter. 53. I am informed by my solicitor Charles Roth and verily believe that he had a telephone conversation on 1 October 2003 with Louise Halliday to the following effect: LH: "I am calling to respond to your letter. What cheques have been dishonoured other than $104,000" CR: "I only know what's on the bank statement but I will get instructions. I would like prior notice from you of an intention to dishonour any further cheques" LH: "There have been additional suspicious transactions processed totalling $10,000. We consider them suspicious because they are for round amounts." CR: "I will get instructions as there may be an explanation for that, but in any event there is no justification for freezing my client's account. " LH: "According to what I have been told the account is not frozen. Would you let me know what cheques your client requires to be represented. Also according to our records the internet facility has not been closed. The URL site has been down for the last 2 days but is manually operable and has been used by ANZ. We will speak again to try to reach a resolution." CR: "I would prefer to reach a solution without recourse to litigation so we can preserve the client's business. LH: "I agree we should work towards a resolution." 2 October 2003 - Thursday 54. On 2 October 2003 I had a conference call with Liam, Ms Halliday and Charles Roth to the following effect:-. Liam: "All restrictions from the account will be lifted as of 3 October and the funds in the account will be available to be drawn on with the exception of the $147,000 which we consider to be suspicious transactions." PS: "I have held back processing credit card transactions which had been swiped in my stores because I did not know if I would be able to access the account as it was frozen. Can I key those credit card transactions manually now on the stores' EFTPOS terminals. Liam: "No." PS: "Even though these transactions were actually swiped in the stores." Liam: "That's right." 3 October 2003 – Friday 55. I tried to transfer $100 through the internet between 2 ANZ accounts of the plaintiff however I received an error message to the effect that the account was frozen. 56. I then telephoned Liam and informed him of the above and he said words to the following effect:- "The account had been completely stopped but now it is accessible. I'm surprised that the internet transfer didn't work. To access funds you should go to the local branch and ask the teller to withdraw the amount. The teller will contact me and I will authorise any amount above the $147,000." 57. We also had a conversation about some "disappeared" cheques which was the subject of earlier communication and which he could not trace. 58. We then had a further conversation to the following effect:- PS: " How can I access the overdraft? There was no response. PS: "Can I immediately draw against cash and cheque deposits, as usual?" Liam: "Cash shouldn't be a problem, cheques would be the decision of the branch. Obviously the fact that you still have operational Merchant Facilities in our retail stores is an oversight on their behalf and as of now we terminate the 2 retail accounts as well." PS: "I can't help thinking that Mr Scott didn't like me on the occasion of our phone conversation last Friday and decided to destroy me and my business." Liam "No, it is about not taking notice of his instruction not to process suspicious transactions." PS: "That's not what happened. The bank doesn't give us any help to verify any transaction." Liam: "There are several ways available that the bank suggests." PS: "Please, name just one." Liam: "Asking for photocopy of both sides of the credit card and photocopy of a matching photo ID" PS: "We tried that before. Until we received 2 identical credit cards and 2 identical drivers licences with 2 different names on them." Liam: "And didn't that look suspicious to you?" 59. I then telephoned Ms Halliday and had a conversation to the following effect:- PS: "How can I access the overdraft and can I immediately draw against cash and cheque deposits, as usual?" LH: According to the latest information I have the overdraft facility has been cancelled and the account is no longer accessible in any form. 60. I then had numerous problems with attempts to pay staff wages by electronic transfer without success and even after calls to ANZ On-Line and Liam it could not be done Liam advised me we could go the local branch but he had been told that they can't check the signature at the branch where we bank every day as they have to request the North Willoughby branch to verify the signatures. I then paid the wages by cash but I couldn't pay the staff members who were not working on the day. 61. I then received a telephone call from a Canon representative who said words to the effect of :- "I am from the credit department of Canon. You are now on credit hold as your cheque has been dishonoured. Your deliveries have been stopped until the account is paid." 62. I went to the branch to ask for another cheque for Canon. I asked for a $20,000 cheque. The teller checked the account balance which was about $168,000 and he declined to issue the cheque. 63. I then received a telephone call from Robert Barnabas of ANZ who said he had been appointed to try to resolve the situation and we had a conversation to the following effect:- RB: "What are the most important things for me to arrange immediately." PS: "I am trying to keep our business afloat. I need to urgently transfer wages to my employees' accounts and I have had a $20,000 cheque to Canon declined. " RB: "I will call you back shortly". 64. At 4:30 pm he called me and we had a conversation to the following effect:- RB: "Go back to the branch and you can get enough cash to cover the wages." PS: "The problem is not the lack of cash. The problem is to deposit the wages to the accounts of the staff members who are not working today." RB: "I need time to go through the situation and will ring you back on Monday afternoon" 6 October 2003 – Monday 65. At 1:15pm I rang Robert Barnabas and then to clarify some points I e-mailed the "Available Funds" spreadsheet and the "Immediate Needs" document and I informed him of our procedure to verify overseas credit card transactions. He said: "An independent review was being undertaken". 66. At 3:45 pm I received a telephone call from Robert Barnabas and he asked for our merchant numbers. I asked if there was any progress and he said that the review was in progress. 67. At 5:00 pm I received a call from Robert Barnabas. He said to me: "E-mail a statement that the goods for the $ 104k list of suspicious transactions were never dispatched to show that our business did not suffer major financial losses caused by fraudulent transactions and was able to trade." 68. At 5:30 pm I received a call from Robert Barnabas. He asked me to prepare interim financial statements for the 2002-2003 financial year and possibly July-September as well. He said these should be submitted to Sharleen early Tuesday morning as they wanted to check if the unsecured overdraft is still sustainable. RB: "Is putting additional security in place an option." PS: "I would give consideration to that. Why are we treated as criminals?" RB: "Processing $104,000 fraudulent transactions in a month is at best reckless". PS: "What about the $43,000 that has been deposited when is that being released? Those transactions are not suspicious. It's a fabrication" RB: The $43,000 suspicious transaction list is still not verified. It should be finished by Wednesday. Have you started to organize merchant facilities with another bank?" PS: "Yes but it will take at least 2 weeks." Oct 7 – Tuesday 69. I receive notice that a cheque for $19,844.00 to Standalone Design has been dishonoured. 70. Shortly thereafter, I was informed by Charles Roth and verily believe that he had spoken to Robert Barnabas a short time ago and that he has arranged for Peter Farrell to attend at my shop to try to sort things out for me and that he had the authority to do so. 71. At 12:10 I received a call from Robert Barnabas. He said: "No merchant facilities would be available." I asked him if a bank cheque for $55,000.00 could be made available to pay Canon. He said he would talk to Peter Farrell about all issues regarding the account. 72. Annexed hereto marked "**" is a copy of an email I received from the defendant on 7 October 2002. 73. At 2:15pm I met with Peter Farrell of ANZ Bank. He introduced himself to me and handed me a letter dated 7 October 2003 signed by him and which terminated the plaintiff's overdraft facility. We had a conversation to the following effect:- PF: "In the future you have to talk to me if you want to draw against uncleared funds. PS: "What about the "disappeared" cheques." PF: "If they are not on your bank statement they wouldn't have been presented." He had with him a printed copy of my "Available Funds" spreadsheet which he showed me. The "disappeared" cheques worksheet had " not presented " written on it by hand. PS: "What would you say if I proved you wrong?" I then showed him the copy of the dishonoured Standalone Design cheque. He acted surprised and did not respond. PF: "We could consider the possibility of temporary merchant facilities if you signed a form giving us tangible security in case you don't follow the conditions." PS: "I do not have a problem with that, but I need to know the conditions." 8 October 2003 – Wednesday 74. At 9:00am I called Peter Farrell and we had a conversation to the following effect:- PS: "The $43,000 deposit was supposed to be sorted out by the end of business today. What is the situation." PF: "I will advise tomorrow morning. I am still investigating the "disappeared" cheques. 75. A representative of Maxwell, a supplier telephoned me and told me our cheque to them had been dishonoured. 9 October 2003 – Thursday 76. I had a telephone conversation with Peter Farrell and he told me words to the following effect:- "The $43,000 has been released. We will transfer the suspicious funds of $104,000 to a suspense account and lift the restrictions on the account and all transactions will appear on the statement same day as before. I promise that the account will be operational as normal by Monday 13 October 2003 I am still investigating the fate of the "disappeared" cheques and will send the details in writing. As far as I know there were no debit requests dishonoured, but if you give me specifics I can investigate. I am still trying to clarify conditions of temporary merchant facilities. 77. I had a further telephone conversation with Peter Farrell and he told me words to the following effect:- PF: "The bank has dishonoured every cheque but one for $572 listed as "disappeared". Exact details will follow on e-mail." I then received a fax dated 9 October 2003 from ANZ Bank. A copy of that fax is annexed hereto marked "**". 10 October 2003 – Friday 78. I receive a telephone call from Maxwell's credit department advising that me that our credit rating has been downgraded. The plaintiff had not previously had a set credit limit with Maxwell and it is now $150,000. 79. I received an email from Canon advising we were losing allocations of stock due to the credit hold. Subsequent consequences 81. On 15th October 2003 I received a telephone call from Westpac where I had made an application on behalf of the plaintiff for credit card merchant facilities advising me that our merchant account application had been declined. 82. Darren Moore. Priority Business Banking Manager, said word to the effect:- "We have declined your application based on confidential information and it is unlikely that an application would be accepted from you by any other bank." 83. On 16 October 2003 I contacted Bill Field from Think Technologies which company sells banking solutions through their Card Access Services. 84. I explained our situation to him in detail and he advised me that they can set up a temporary solution for us using one of their merchant accounts through St George until they can arrange one under our own name. 85. On the same day the facility was made available to us in the form of an internet based VET (virtual EFTPOS terminal), and we started to key in the unprocessed transactions. 86. We continued processing the transactions on the next day, 17 October 2003 until the system became inoperable. 87. I was contacted by Bill Field who said words to the following effect:- "You have processed approximately $120,000 approved and $35,000 declined transactions. The high percentage (30%) of declined transactions triggered the bank's security mechanism and that locked us out of the system." The system was completely different to what our staff was used to and every declined transaction was tried and re-tried. The real volume of declined transactions was approximately $9,000 but the multiplication effect created the problem. Bill Field also said words tot he effect of:- "I promise to get the system back operating by tomorrow." 88. It did not become operational again I have now been informed that the merchant account we used with St George has been cancelled by St George. 89. I had a telephone conversation with the managing director of Card Access Services on ## when he said to me: "You need to get your own merchant account before you get access to the funds." 90. The plaintiff as at 19 October 2003 has no merchant facilities available to it and cannot viably continue its operations without such facility. 91. At no time did the plaintiff process any overseas orders in circumstances where the amount involved in such orders and which remained unverified by its system exceeded the amount of the plaintiff's facilities with the defendant bank." [Affidavit of Mr Szekely of 20 October 2003, paras 37-91] The serious question issue 29 I turn first to the serious case question. Mr Segal of counsel who appears for the plaintiff has taken the Court directly to the provisions in the general conditions to which I have referred which treat with the rights of the ANZ to suspend or to terminate the agreement. Those provisions are in the following terms: " 30. Suspension of Merchant Facility (i) ANZ reserves the right to suspend the Merchant Facilities immediately upon notice to the Merchant if: (a) ANZ believes that continued use or non-use of the Merchant Facility may cause loss to the Merchant or ANZ ; or (b) if the Merchant has breached any of its material obligations under the Agreement . When exercising this right ANZ is not required to notify the Merchant of the date upon which the suspension will end. (ii) When ANZ suspends the Merchant Facilities: (a) the Merchant must not accept any Nominated Cards as payment for goods or services; and (b) ANZ is not obliged to accept any Transactions processed by the Merchant after notification of suspension. (iii) ANZ may during the period of suspension terminate the Merchant Facilities pursuant to condition 31 . 31. Termination (i) Either the Merchant or ANZ may at any time terminate the Agreement by giving the other notice in writing. The notice does not need to include any reason and will take effect 30 days after the date on which it is given. (ii) ANZ may terminate the Agreement immediately by notice to the Merchant should any of the following occur: (a) an Insolvency Event occurs in relation to the Merchant; (b) the Merchant breaches any of its material obligations under the Agreement; (c) the Merchant does not process any Transactions with ANZ for a continuous period of six months; (d) it becomes illegal or impossible in practice for ANZ to continue to provide the Merchant Facilities to the Merchant; (e) the Agreement becomes wholly or partly void, voidable or unenforceable or a claim is made to that effect; (f) the Merchant processes a Transaction that the Merchant knew, or ought to have known, was fraudulent; or (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: "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. I certify that paragraphs 1 - 40 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 24 October 2003 ex tempore and revised on 30 October 2003 ___________________ Susan Piggott Associate 30 October 2003 Last Modified: 11/06/2003 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.