Monies in a bank account create in the person entitled to those monies a chose in action against the bank to have a sum equivalent to the credit balance in the account paid to him. There is, however, no property in any such sum nor any immediate right to possession of defined monies, in notes or coinage, equivalent to the value of the credit balance. Thus there cannot be a successful claim in conversion in respect of a balance in a bank account. ( Citations omitted ). As the action pleaded was conversion of the contents of a bank account, the cause of action in conversion must fail. " (BC9703869 at 9).
123 Powell JA said (at BC9703869 at 2):
" … it is sufficient to record that the debt which is represented by a credit in a bank account, not being a chattel, but being a chose in action, cannot, in law, be the subject of a claim for conversation. (sic)."
124 Although Doodeward v Spence (1908) 6 CLR 406 at 418-419 does not deal with the question of whether a chose in action can be the subject matter of a claim in conversion, Ferguson v Eakin is binding on me and clearly establishes that there can be no claim in conversion or detinue of a chose in action. In England, the Court of Appeal has come to the same conclusion. (OBG Ltd v Allan [2005] QB 762). I considered the authorities on this question in Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951. I there noted that an argument may be available at an appellate level, on the basis of Canadian and Californian authority, particularly Kremen v Cohen, that the torts do extend to intangible property, although I accepted that it was not open to a trial judge in NSW to so conclude. (For a review of US authority before Kremen v Cohen, see V.D. Ricks, 'The Conversion of Intangible Property: Bursting the Ancient Trover Bottle with New Wine' (1991) BYU L Rev. 1681).
125 That is not to say that where there is a wrongful dealing with a document, such as a cheque or share certificate, or perhaps a non-negotiable document evidencing a debt, the plaintiff cannot, in conversion, recover the value of the chose in action with which the defendant interfered. In Balkin & Davis, Law of Torts, 3 ed, page 76, the learned authors say:
" Tangible property, of course, can be the subject matter of conversion, and intangible property such as cheques, shares, insurance policies and the like is not necessarily excluded. Thus, although cheques are of value only as choses in action, the courts have satisfied the demands of commercial convenience by allowing the full value represented by them to be recovered in actions for conversion. So, where a banker has not handled actual cash or notes but has merely made the appropriate entries by way of credit or debit balances, the courts will treat the conversion as being of the goods, that is, of the piece of paper, the cheque, under which the money was transferred, and the value of the goods converted as being the sum represented by the cheque.
This doctrine, which is certainly applicable to all negotiable instruments, makes substantial inroads on any possible rule, traceable to the former fiction of losing and finding, that conversion does not lie in respect of rights in intangible property. "
126 The internet registrar gave Mr Hoath the exclusive right to use the domain name dragon.net.au, the IP addresses and the AS number. I will assume, without deciding, that Mr Hoath had a right in property. Undoubtedly it was a valuable right. In Kremen v Cohen, the US Court of Appeals for the Ninth Circuit held that the right to the use of a domain name was intangible property (at 1030). An alternative view is that it is the product of a contract for services (J. Prendergast, 'Kremen v Cohen: The "Knotty" Saga of sex.com' (2004-2005) 45 Jurimetrics 75 at 84 ff.) The evidence in this case indicates that the right is not only valuable but assignable, and that a registrant has the exclusive right to the use of the domain name. These are all indicia of property, if the rights against the internet registrar are enforceable. The enforceability of those rights was not argued. I will assume, without deciding, that Mr Hoath's right to the domain name, IP addresses and AS number was a proprietary right. The property is intangible.
127 Mr Hoath is not entitled to sue in conversion for interference with such intangible property, unless he can bring himself within the scope of the legal fiction by which, in some cases, plaintiffs have recovered as damages the value of intangible rights which have been interfered with by a defendant's interfering with a document which embodies or evidences those rights. Therefore, the question is whether or not Mr Hoath's rights to the domain name, the IP addresses and the AS number were contained in or represented by a document with which the defendants dealt, in a way which was repugnant to his ownership or immediate right of possession of the document.
128 In Lloyds Bank Ltd v The Chartered Bank of India, Australia & China [1929] 1 KB 40, Scrutton LJ explained the basis upon which a bank can be liable for conversion by paying part of a debt it owes its customer, on its customer's cheque, procured through fraud. His Lordship said (at 55-56):
" Conversion primarily is conversion of chattels, and the relation of bank to customer is that of debtor and creditor. As no specific coins in a bank are the property of any specific customer there might appear to be some difficulty in holding that a bank, which paid part of what it owed its customer to some other person not authorized to receive it, had converted its customer's chattels; but a series of decisions binding on this Court, culminating in Morison's case ([1914] 3 K.B. 356) and Underwood's case ([1924] 1 K.B. 775), have surmounted the difficulty by treating the conversion as of the chattel, the piece of paper, the cheque under which the money was collected, and the value of the chattel converted as the money received under it: see the explanation of Phillimore L.J. in Morisons's case ([1914] 3 K.B. 378). "
129 It is not clear to what extent the principle can apply to non-negotiable instruments. In Bavins & Sims v London & South Western Bank Ltd [1900] 1 QB 270, the Court of Appeal did not decide whether more than nominal damages could be recovered in conversion of an order which was not a negotiable instrument. In Smith v Lloyds TSB Group plc [2001] QB 541, it was held that where a cheque had been materially altered by the fraud of a third party, it was a valueless piece of paper and ceased to be a cheque. As it no longer represented a chose in action for the amount of the cheque, damages did not lie in conversion for the face value of the cheque, even though the collecting bank obtained the face value. (See also in the case of a forged cheque, Koster's Premier Pottery Pty Ltd v Bank of Adelaide (1981) 28 SASR 355). Likewise, in Clegg v Baretta (1887) 56 LT 775, it was held that the damages in detinue for a deposit note evidencing a debt owed by a bank to its customer was not the value of the debt, as would have been the case had the deposit note been a negotiable instrument, but the difference between the expense and trouble of proving title to the debt and what would be saved by being able to cash the deposit note at the bank. On the other hand, the learned authors of Balkin & Davis, Law of Torts, 3 ed, (at p 76) say that:
" It would seem that whenever a particular intangible right is represented in the ordinary course of business by a special written instrument, even though not negotiable, the value of the right is recoverable in an action for conversion of the instrument; so, a life insurance policy or a guarantee might be converted … similarly, shares may be converted … "
130 Thus, in Watson v McLean (1858) E B & E 78; 120 ER 435, the defendant converted a life insurance policy to which the plaintiffs, being trustees in bankruptcy of the assured, were entitled. The plaintiffs obtained the moneys owed under the policy from the insurance office. The Court of Exchequer Chamber held that the defendants were liable in conversion and the proper measure of damages was the amount the defendants received from the insurance company, as the plaintiffs, had they had the instrument, would have been able to obtain that amount from the insurance company.
131 In Solloway v McLaughlin [1938] AC 247 and BBMB Finance (Hong Kong) Ltd v Eda Holdings Limited [1991] 2 All ER 129, the House of Lords held that defendants were liable in conversion for the market value of shares where they unlawfully sold shares, by unlawfully dealing with the share certificates. A share is a chose in action, but a defendant will be liable in conversion by selling the share through dealing with the document which evidences the chose.
132 For Mr Hoath to be able to recover damages for conversion of the domain name, the IP addresses and the AS number, it is necessary first to identify the chattel with which the defendants interfered. Secondly, it is necessary to determine whether Mr Hoath was the owner or was entitled to the immediate right to possession of that chattel. Thirdly, it is necessary to determine whether the defendants dealt with the chattel in a manner repugnant to Mr Hoath's rights. If those issues are decided favourably to Mr Hoath, then it would be consistent with the legal fiction applicable to the interference with choses in action by wrongful dealing with documents for him to be allowed damages for conversion for the value of the intangible property, consisting of his right to use the domain name, the IP addresses and the AS number.
133 A person may be liable in conversion for wrongful dealing with goods even though he does not have the physical possession or custody of the goods. In Hiort v Bott (1847) LR 9 Ex 86, the plaintiff's barley was held by the London and Northwestern Railway Company. The plaintiff's broker sent an invoice and delivery order for the barley to the defendant which made the barley deliverable to the order of consignor or consignee. The barley had not been ordered by the defendant. By the fraud of the broker, the defendant was induced to endorse the delivery order to the broker. Armed with the delivery order, the broker obtained delivery of the barley from the railway company. The defendant was held liable for the conversion of the barley by its having endorsed the delivery order, by means of which the broker made away with the barley. In M'Combie v Davies 7 East 5; (1805) 6 East 538 at 540; 102 ER 1393, a broker transferred the ownership of the plaintiff's goods in a warehouse into the name of the defendant, who advanced money on security of the goods and later refused to transfer the goods to the plaintiff. The defendant did not handle the goods. Lord Ellenborough CJ said (at 1394-1395):
" According to Lord Holt in Baldwin v Cole (1704) 6 Mod Rep 212 the very assuming to oneself the property and right of disposing of another man's goods is a conversion: and certainly a man is guilty of a conversion who takes my property by assignment from another who has no authority to dispose of it; for what is that but assisting that other in carrying his wrongful act into effect. "
134 If the defendants have dealt with a chattel, even though they did not physically handle it, in a way which is repugnant to Mr Hoath's ownership or right to immediate possession of the chattel, with a consequent loss of the value of his rights to use the domain name, IP address and AS number, then it would be consistent with principle that he could maintain a claim in conversion in respect of that property. However, it does not follow that there can be a tortious conversion of intangible property if the plaintiff does not own or have the right to possess the chattel in which the intangible property is embodied.
135 Mr Hoath's right to use the domain name, the IP addresses and the AS number was recorded in an electronic form on the database of the internet registrar. Either directly, or by making false representations to Connect or APNIC, the defendants altered, or caused the internet registrar to alter, the records on the electronic database, and thereby interfered with Mr Hoath's right to use the domain name, the IP addresses and the AS number. However, Mr Hoath was never the owner and nor did he have a right to possession of the chattel or chattels being, I infer, a hard disk, or a server, or some other piece of computer equipment, on which the information as to his right to use the domain name, IP addresses and AS number was stored. In my view, the defendants did not act in a way which was repugnant to any right which Mr Hoath had to the ownership or possession of a chattel. That is to say, although Spin and Com-Cen's interference with the internet registrar's records has deprived Mr Hoath of what I assume is his intangible property, namely the right to use the domain name, the IP addresses and AS number, they have not interfered with his ownership or right to possession of goods. Accordingly, the fiction by which a person may recover damages in conversion for the loss of a chose in action where the defendant has wrongly dealt in a chattel which contains, or, possibly, evidences, the chose, is of no avail to him. It would only be if the law of conversion were extended to dealings in intangible property that Mr Hoath could sustain these causes of action.
136 As mentioned above, this question was considered by the United States Court of Appeals for the 9th Circuit in Kremen v Cohen. The Court held that in California, the tort of conversion was available whether the property converted was tangible or intangible (at 1031-1033). Its conclusion that there may be conversion of intangible property, irrespective of whether a document embodying or evidencing the chose in action is dealt with, is not open to me to consider. (Optus Networks Ltd v Telecom Vanuatu Ltd [2005] NSWSC 951 at [19], [20].)
137 The Court of Appeals went on to say that under Californian law, even if there were a requirement for there to be some connection between the intangible right and a document, it was not necessary that the document dealt with be one in which the plaintiff's intangible interest had merged (at 1033). The Court said that the domain name system was a collection of documents in which the plaintiff's right to the domain name was stored and that this was sufficient, even if there were "some vestigial merger requirement".
138 However, the Court did not address the question of whether, if there were a requirement for some connection of the intangible property with a document or tangible object, it was also necessary that the plaintiff own or have a right to immediate possession of that document or tangible object, and that the defendant interfere with the plaintiff's ownership or right of immediate possession of that document or object.
139 The authority which binds me is that "the essence of conversion is the dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel". (Penfold Wines Ltd v Elliott at 229; Ferguson v Eakin, BC9703869 at 9). That requirement was not addressed in Kremen v Cohen. Notwithstanding Kremen v Cohen, I do not consider that it is open to Mr Hoath or Mortgage to claim damages in conversion (or detinue) in respect of such intangible property.
5. Computer Hardware
140 Under the sale agreement with ITFirst, Spin purchased four PAPL modems and one CISCO 2514 Router located at Melbourne.
141 The defendants admit that following the making of the agreement of 7 September 2000 and before November 2000, Com-Cen took possession of additional computer hardware located at premises in Redfern, Newcastle, Gosford, Glebe and Melbourne and obtained access to those premises. The computer hardware of which Com-Cen obtained possession consisted of six servers and five routers. The six servers consisted of one email server, one radius authentication server, one web server running Windows NT, and three Unix proxy servers. One of the Unix proxy servers was located in Newcastle. One was located in Melbourne. Each of the other servers was located at Redfern. The five routers consisted of two Cisco 2500 routers, two Cisco 2514 routers, and one Ascend Max 6060 router. None of this equipment was acquired under the sale agreement with ITFirst. The defendants did not pay for it. They admit that Mr Hoath and Mortgage have demanded its return and that it has not been returned.
142 The defendants also admit that in about September 2000, Mr Bal operated a business of providing computer hardware on short-term rental, and that he had a customer who required a router capable of aggregating three Telstra ONRAMP-2 services. They admit that Mr Bal asked Mr Hoath if Mr Hoath had such a router and could provide it to Mr Bal's customer for the three weeks of the Sydney Olympics. It is admitted that Mortgage owned an Ascend Max 1800 router, that it was configured by Mr Hoath and provided by Mortgage to Mr Bal who supplied it to his customer.
143 The plaintiffs allege that Mr Bal has not returned the Ascend Max 1800 to Mr Hoath or Mortgage. This allegation is denied. There is no evidence from either Mr Hoath or Mr Bal as to whether or not this router was returned by Mr Bal. The plaintiffs assumed the burden of proving that the Ascend Max 1800 had not been returned. They have not discharged that onus.
144 Mr Bal deposed that whilst the email server was delivered to Com-Cen's premises in the period following the purchase of the Dragon customers, once information had been transferred from that server onto Com-Cen's system, Mr Hoath removed it from Com-Cen's premises. There was no contrary evidence. Even though the defendants did not plead that that item of equipment had been returned, it has not been established by either Mortgage or Mr Hoath that the defendants have retained possession of the equipment after demand for its return was made.
145 Mr Bal says that he was unable to determine what became of the Radius authentication server and the web server running Windows NT. No admissible evidence was given by the defendants in relation to the Unix Proxy server located at 70 William Lane, Redfern, of which Com-Cen took possession. In relation to the Unix Proxy server located at Newcastle, there was evidence from the defendants that Mr Stevens attended at the Newcastle premises and returned that equipment to Com-Cen's premises. There is no evidence, and the defendants did not contend, that it was returned from Com-Cen's premises to the plaintiffs. In relation to the Unix server in Melbourne, Mr Bal said that he did not remove the item, which it admitted was located at the third party room of AAPT (Connect) in Melbourne, nor instruct any person to remove it. Mr Bal deposed that he was not aware of the location of that item. However, Com-Cen admitted that it took possession of the item. It does not allege that it returned it.
146 One Cisco 2500 router of which Com-Cen took possession was situated in Newcastle. Mr Bal deposed that it broke down in about October or November 2000. He says that he told Mr Hoath that he would replace it with one of Com-Cen's servers and "bring that one back". He says that he arranged for one of his employees to attend the premises at Newcastle to install a router belonging to Com-Cen, and to return the Cisco 2500 router to Com-Cen's premises. Again, Com-Cen does not allege that it returned the equipment to the plaintiffs.
147 Another Cisco 2500 router was located at West Gosford. Mr Bal instructed an employee to replace that item with a router belonging to Com-Cen and to return it to Com-Cen's premises. Again, Com-Cen does not allege that it returned the equipment to the plaintiffs.
148 A Cisco 2514 router was located at the AAPT centre in Ross Street, Glebe. Mr Bal says that he did not remove the equipment, nor instruct any other person to do so and he is not aware of where that router is located. However, the defendants admit that Com-Cen took possession of it. They do not allege that it was returned to the plaintiffs. Another Cisco 2514 router was located at the premises of AAPT (Connect) in Melbourne. Mr Bal says that he did not remove that item, nor instruct any person to do so and that he is not aware of its location. Again, the defendants admit that Com-Cen took possession of that equipment. They do not allege that the equipment was returned. Mr Hoath says that none of the equipment referred to in paragraph 31 of the statement of claim was returned. The defendants did not adduce any evidence to show that any of it was. It is admitted on the pleadings that in May 2001 Mr Hoath attempted to recover one of the routers and was told by a Mr Georgiopoulos, an employee of Com-Cen, that "Liam said you have to prove its yours before we give it to you." It is admitted on the pleadings that a written demand for the return of the goods was made on 19 April 2002.
149 The defendants have pleaded a defence of res judicata in relation to this claim. Mortgage lodged a proof of debt claiming $45,000 in conversion or detinue in relation to the computer hardware. Nicholas J held that there was no evidence that Mortgage was the owner of any of the hardware and there was no evidence that such use as Com-Cen made of the hardware rendered it liable to Mortgage on any account.
5.1 Mortgage's Title to Sue
150 The hardware of which Com-Cen took possession, had been used by Mortgage in connection with its business as an internet service provider. It was submitted for the defendants that Mortgage had not established that it was the owner of the computer equipment and that it had not shown that it was entitled to sue for damages for the detention of the computer of the equipment. It appears that the computer equipment which the defendants admitted to having received was owned either by Mr Hoath or by Mortgage. Mr Hoath contended that the equipment was owned by Mortgage, although he did not prove that fact. He gave evidence that documents relevant to the proof of Mortgage's ownership of the equipment were stolen from premises at Redfern. His primary submission was that Mortgage had been in the possession of the equipment, as the equipment had been used in the course of Mortgage's business up to 7 September 2000. He submitted that Mortgage had the immediate right to the possession of the computers at the time they were delivered to Com-Cen, and it was irrelevant whether or not he could prove that Mortgage was also the owner of the equipment. I agree with this submission. It is not open to the defendants to assert the title of a third party as an answer to the claim by their bailor to the return of the goods. The principle was succinctly formulated by Lord Denman CJ in Betteley v Reed (1843) 4 QB 511; 114 ER 991 at 517-518; 993-994:
" To allow a depositary of goods or money, who has acknowledged the title of one person, to set up the title of another who makes no claim or has abandoned all claim, would enable the depositary to keep for himself that to which he does not pretend to have any title himself whatsoever. "
151 Com-Cen, as bailee of the goods, can only set up the title of the true owner of the goods against Mortgage, assuming Mortgage is not the true owner, if it were defending the action on behalf of, and with the authority of, the true owner, or had committed the act of conversion complained of on the authority of the true owner, or had returned the goods to the true owner. (Biddle v Bond (1865) 6 B & S 225; 122 ER 1179 at 234, 1182; Edwards v Amos (1945) 62 WN (NSW) 204 at 206; Standard Electric Apparatus Laboratories Pty Ltd v Stenner [1960] NSWR 447 at 451).
152 The right of a person in possession of goods to maintain conversion without having to prove ownership is well established. (For relatively recent examples, Standard Electric Apparatus Laboratories Pty Ltd v Stenner at 450-451; Perpetual Trustees & National Executors of Tasmania Ltd v Perkins (1989) Aust Torts Reports 80-295 at 69,201-69,204; Gatward v Alley (1940) 40 SR (NSW) 174 at 180; Flack v Chairman, National Crime Authority (1997) 80 FCR 137 and on appeal (1998) 86 FCR 16). In Gatward v Alley, Jordan CJ said (at 180):
" De facto possession of a chose in possession is prima facie evidence of ownership, and also of itself creates a legal right to possess which is enforceable against anyone who cannot prove that he has a superior right to possess: any person who interferes with this legal right, without being able to prove a superior right, is therefore a wrongdoer. "
153 As Mortgage had possession of the goods in the course of its business, and as it gave possession of the goods to Com-Cen for the limited purpose of allowing Com-Cen to migrate the customers acquired by Spin from ITFirst to Com-Cen's network and on the basis that the computers would be returned within six months, it is no answer to the defendants to say that Mortgage is unable to prove how it acquired ownership of the goods. Mr Hoath says that the documents establishing Mortgage's ownership were stolen from premises at Redfern. It is immaterial whether that is so or not. Com-Cen does not seek to justify its failure to return the goods by claiming to be acting under the authority of their true owner. It does not claim to have returned the goods to their true owner.
5.2 Res Judicata
154 Nor is Com-Cen entitled to plead res judicata as a defence to this claim. The defence of res judicata can be pleaded where the cause of action put in suit in earlier proceedings has merged in the judgment in the earlier proceedings. (Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 507-508). The judgment given by Nicholas J was to disallow Mortgage's appeal from the rejection by the administrator of its proof of debt. The administrator, when deciding to admit or reject a proof, is not in a position of a court giving judgment in an action. He is carrying out an administrative function. In Ogilvy-Grant v East (1983) 7 ACLR 669, McPherson J considered the principles governing the requirement of leave before a creditor can maintain an action against a company in liquidation. His Honour said (at 671-672):
" As a matter of history, a winding up by the court was and remains today an administration conducted by the court: Re Phoenix Oil & Transport Co Ltd (No 2) [1958] 1 Ch 565, 570. Both because of this, and because it was before the Judicature Act an administration conducted in Chancery, it was inevitable that there should be restrictions on the bringing of proceedings, whether at common law or otherwise, during the course of that administration. What is substituted for litigation in the ordinary form is a procedure by which a claimant lodges a verified proof of debt with the liquidator, who admits or rejects it wholly or in part, and from whom an appeal lies to a judge, who determines that appeal de novo primarily on affidavit material: Re Kentwood Constructions Ltd [1960] 1 WLR 646. There can be no doubt that ordinarily such a procedure is, and is designed to be, much more expeditious and less expensive than ordinary proceedings by way of action. If this means that it occasionally has the consequence that the attainment of perfect justice is sacrificed to expedience, it may be justified by the circumstances that on appeal it is possible under modern rules of procedure for the judge in appropriate cases to make orders for discovery and even for the delivery of pleadings where it appears necessary or desirable to do so.