Mark Hoath & Anor v Comcen Pty Ltd & Ors [2004] NSWSC 682 | Case summary

Under the column headed "Remarks" was stated: "As documented in proceedings 1599/02. Supreme Court of NSW". 5 The claims set out in the proofs of debt are the subject of proceedings in this Court in No. 1599/02 in which Hoath and Mortgage are the Plaintiffs and Connect Internet Solutions Pty Ltd, Comcen Pty Ltd, Spin Internet Services Pty Ltd, Liam Bal, and Peter Stevens are the Defendants. The proceedings are defended and have not yet been heard and determined. In his letter to the administrator dated 28 April 2003 Hoath provided some further particulars of the basis upon which the amounts of damages in respect of the items claimed in Mortgage's proof of debt were calculated. There were further communications on the same day between Hoath and the administrator as to evidence in support of the claims but it is unnecessary to refer to the details. 6 On 16 May 2003 the administrator sent to Hoath and Mortgage a Notice of Rejection of Formal Proof of Debt or Claim. By each notice he advised that the claims had been wholly disallowed. The grounds for disallowance were as follows: "By facsimile dated 28 April 2003 required (sic) you to provide evidence supporting your claim. No such evidence has been received. Accordingly your claim has not been adequately particularised". 7 As stated in the Interlocutory Process, the appeal was brought pursuant to s 554A(3) Corporations Act 1990 (NSW) (the Act). However that provision applies in circumstances where the liquidator admits a debt or claim of no certain value and the person aggrieved seeks to appeal to the court against the liquidator's estimate of the debt or claim. The section does not apply in the circumstances of this case in which the claims were rejected. Accordingly, the hearing proceeded on the basis that the appeal was pursuant to s 1321 of the Act under which the court is empowered to confirm, reserve or modify the act or decision of the administrator, and make such orders and give such directions as it thinks fit. 8 The scope of the court's task was considered in Re Galaxy Media Pty Ltd [2001] NSWSC 917 by Santow J. Relevantly, he said: "33 Thus I agree with the submissions of the Plaintiffs that the Court's task in approaching the question de novo, is to bring to bear a proper rigour in reviewing all the relevant facts in their context, to determine whether indeed the debt should have been admitted or rejected, doing so by applying legal principle to those facts afresh. However, the onus still remains on the party challenging the liquidator's determination. The Court will not upset the liquidator's determination unless properly satisfied that that onus has been discharged, though there may well come a point where the onus shifts in an evidentiary sense. 34. In carrying out such a de novo review, I therefore so approach the matter, in determining whether the onus upon the parties challenging the liquidator's decision has been discharged. If I am unable to conclude either way (as to whether the proof should be admitted) then the liquidator's decision must stand". 9 In these proceedings the Defendants opposed the appeal so that Hoath and Mortgage bore the onus of proving that the debts or claims should have been admitted and were legally enforceable. Hoath's claims 10 Hoath submitted to the administrator a claim for $6,417.00 for work completed in April 2001, and a claim for $12,834.00 for payment in lieu of notice in May 2001. 11 During the hearing he informed the court that the claim for $12,834.00 for payment in lieu of notice was not pressed. 12 In respect of his claim for $6,417.00 for work completed in April 2001 Hoath relied upon his affidavit of 8 April 2004. His evidence was not challenged and I accept it. He said that early in September 2000 he had a conversation with Mr Bal and Mr Stevens in the context of discussing the proposed merger of the company and Spin Internet Services Pty Ltd (Spin) in which he asked what he would be paid. He also said that he asked "… is it possible for me to charge through my companies, they have tax losses that I would like to take advantage of". He said that this was agreed. 13 Hoath said that his job was to look after the e-Talk joint venture for the companies and he did so from late November 2000 to April 2001. During this period he would ask Mr Bal who should be invoiced for the work, and then send invoices to either the company or to Spin as directed. He said that under this arrangement he sent an invoice from itjobs.com.au Pty Ltd to Spin dated 2 January 2001 for $6,417.00 for an item described as "Contracting Service for Mark Hoath", and on 9 February 2001 he sent a similar invoice for an item described as "Contracting for Mark Hoath (January)". 14 Hoath said that in April 2001, as requested by Mr Bal, he sent an invoice to e-Talk.com Pty Ltd. The invoice was from Pacific Web Ltd for an item described as "Technical and Business Services" for the amount of $6,417.00. Pacific Web Ltd operated from Vanuatu and was one of Hoath's companies. This invoice was not paid. Hoath's proof of debt is in respect of this claim. 15 Hoath also relied upon the statement in the administrator's report to the creditors of the company dated 20 November 2002 which stated, inter alia, "… sub-contracting costs were due to Mr Mark Hoath being utilised as an advisor, this arrangement ended in April 2001". 16 Hoath submitted to the court that the arrangement was that a company chosen by him would send an invoice in respect of his services to such company as Mr Bal directed. 17 Mr Johnson submitted that there was no evidence which established its liability to Hoath personally, or at all, for the services. He referred to para 41(a) of the Further Amended Statement of Claim in No. 1599/02 in which Hoath alleged that the arrangement he made in September 2000 was that he "… would be immediately contracted through companies of Hoath's choosing to provide consulting services to Comcen and/or Spin and would be remunerated on the same basis as Bal and Stevens being $70,000.00 pa paid monthly in arrears and invoiced as directed by Bal and/or Stevens". 18 He also submitted that there was no evidence that the services were provided to the company or that Hoath contracted on his own behalf to provide them. He said there was no evidence to support the claim and the only evidence contradicted it. 19 In my opinion Hoath has altogether failed to prove that the company is liable to him for his claim. I find that, from the outset and consistent with his proposal, there was no agreement pursuant to which Hoath was personally liable to the company for the provision of services or was personally entitled to claim remuneration for them. 20 I am satisfied that the arrangement was to the effect that Hoath's services would be provided to a company nominated by Mr Bal and its liability for payment would be to the company which Hoath identified as the one to which he was sub-contractor for the particular job. Such an arrangement is consistent with para 41(d) of the pleading referred to, and with the parties on the invoices and in furtherance of Hoath's wish that his companies take advantage of tax losses. Furthermore, no support for Hoath's case is found from the entry in the administrator's report. It says nothing as to the identity of the parties to, or the terms of, the arrangement concerning the use of Hoath as an advisor. It is also clear from the context that the phrase "were due" in the statement "The sub-contractor's costs were due to Mr Mark Hoath … " should be understood to mean "attributable" and not "were payable". 21 Accordingly, the appeal against the disallowance of this claim must be rejected. Pursuant to s 1321 of the Act I confirm the administrator's decision to reject Hoath's proof of debt. Mortgage's claims 22 Mortgage submitted to the administrator a claim arising out of the use by the company of the domain name "dragon.net.au" between October 2000 and October 2002 for damages in the sum of $508,725.00; a claim arising out of the use by the company of an internet protocol address (the IP address) and of an autonomous system number (the AS number) for damages in the sum of $9,500.00; and a claim for damages in respect of certain computer hardware for the sum of $45,000.00. 23 The claim in respect of the domain name is based upon allegations of its wrongful use by the company, and of conduct by the company in breach of s 52 Trade Practices Act 1974 (Cth). In essence, it is alleged that Mortgage was the owner of the domain name and that by its use the company passed itself off as the owner of the name and as the entity entitled to operate it. In particular, it was claimed that since about September 2000 in using the dragon.net website the company diverted customers from that site to its own website to the detriment of Mortgage. It was further claimed that the company should account to Mortgage for the benefits and profits received as a result of such conduct. 24 The claim in respect of the intellectual property being the IP address and the AS number is in conversion, and is based upon allegations of wrongful use of this property by the company. As I understand this claim it is alleged that the usage of this property was necessarily in association with the usage by the company of the domain name and that, assuming the claims may be considered separately, the company should account to Mortgage for the benefits and profits received as a result of such conduct. 25 The claim in respect of the computer hardware is in bailment and/or conversion. As I understand this claim it is alleged that for a period of six months from about 7 September 2000 the company was the bailee of these goods of which Mortgage was the owner. It is further alleged that after the expiration of the period Mortgage made demand for the return of the goods to no avail, and to date they have not been returned. Alternatively, damages are claimed for the loss of the goods by reason of the negligence of the company as a bailee. 26 The company denies each claim. It contends that Mortgage has failed to prove that at any relevant time it was the owner of any of the domain name, the IP address and AS number, and the computer hardware, and/or has failed to prove any interest in, or entitlement to, these items sufficient to found any of the claims of the company. 27 It was not disputed that the trust known as "The Hoath Family Trust" was established by trust deed made 28 September 1994 and Hoath was appointed sole trustee and guardian. On 7 January 1997 the business name "Dragon net" was registered in New South Wales with Hoath as proprietor as trustee of The Hoath Family Trust. 28 It was also not disputed that in about February 1997 Hoath, on behalf of the trust, was allocated an IP range and at some time prior to May 1998 AS number 7592 was issued to the trust on his application. 29 It is common ground that as well as being a director of Mortgage, Hoath was a director of aggregate.com.au (formerly dragon) ACN 079 187 858 from 2 July 1997 to 7 March 2004. He was a director of itfirst.com.au Pty Limited (ITFIRST) between 15 May 1998 and the date of the appointment of its liquidator on 3 October 2000.

30 In his affidavit of 8 April 2004 Hoath stated that on about 2 July 1997 dragon.net.au Pty Ltd (ACN 079 187 858) was appointed trustee of the trust. He said that he arranged this appointment in his capacity as the trust's guardian and as sole director of dragon.net.au Pty Ltd (dragon). The records of the appointment were lost in what he described as the "Redfern Theft". 31 In the same affidavit he said that on about 18 May 1998 the trust transferred to Mortgage, inter alia, the domain name, the IP range and the AS number. The records of this transfer were also lost in the "Redfern Theft". He said that he signed the agreement, and a copy of it was in evidence. Under the agreement dragon purportedly sold to Mortgage its business as an internet service provider including specified assets and stock for the price of $122,994.23. Relevantly the assets included four IP addresses within the range allocated to the trust valued at $1,000.00, the AS number valued at $500.00, and the domain name valued at $250.00. 32 Mortgage's claim to ownership of the domain name, IP address and AS number depends upon whether this agreement effected a lawful transfer of the trust's property to it. In answer to Mortgage's claim the company contends that Mortgage has failed to establish that dragon was properly appointed as trustee of the trust and was thus never in a position to transfer the trust assets to Mortgage. 33 As to entitlement, Hoath submitted that Mortgage always had the right to use the domain name and was its owner (T p 110). He put (T p 4, 3 May 2004) that essentially, on or about 18 May 1998, there was a company restructure and the assets in the Hoath Family Trust including the domain name were transferred to Mortgage. It was put that Mortgage did not subsequently sell or transfer the domain name and remained its owner, and that the usage by the company of the domain name was not pursuant to any agreement with Mortgage for it to do so. 34 The root of Mortgage's claim to entitlement of ownership or interest in the domain name, IP address and AS number is the sale agreement said to have been signed on 18 May 1998, an unsigned and undated copy of which was in evidence (Exhibit C pp 95-103). The vendor was therein described as follows: "dragon.net.au Pty Ltd (ACN 079 187 858) of Level 3, 50 Park Street, Sydney, New South Wales (as Trustee for the Hoath Family Trust) trading as Dragon net". 35 The purchaser was described as follows: "mortgage.com.au Pty Ltd (ACN 079 435 028) trading as Virtual Internet Service Provide of Australia of Level 3, 50 Park Street, Sydney, New South Wales". 36 By special condition 2 the vendor undertook to change its name within 14 days after settlement to enable the purchaser to take a transfer of the registered business names "Dragon.net". As evidence that this condition was fulfilled Mortgage relied upon a document entitled "Business Name Extract" and dated 13 March 2001 which shows that the business name "DRAGON NET" was owned by Hoath personally between its date of registration on 2 September 1997 and 9 September 1998, and by Mortgage from 9 September 1998 until the date of deregistration on 2 September 2000. Also relied upon was a Certificate of Registration of Business Name as to registration of the same business name in New South Wales which described the proprietor as "Mark Hoath as Trustee for the Hoath Family Trust". Registration was for the period 7 January 1997 to 13 July 1998. 37 In issue was whether the vendor had been validly appointed trustee of the Hoath Family Trust and had any authority under the trust deed to sell the property the subject of the sale and whether Mortgage acquired ownership of it under the sale agreement. 38 In evidence was a copy of a document entitled "The Hoath Family Trust". According to the schedule it was made on 28 September 1994 with Hoath named sole trustee and also sole guardian. Clause 20 governs the resignation of trustee and guardian and, relevantly, provides: "20(a) Any Trustee or Guardian and any person who may by succession become a Trustee or Guardian may resign or renounce such position by notice in writing to the Trustee. Upon the giving of such notice the person giving the same shall for all purposes hereunder cease to be a Trustee or Guardian as the case may be and shall cease to be subject to the disqualification if any provided for in Clause 29 (b) hereof provided a sole surviving Trustee or Guardian shall not resign except by appointing a new Trustee or Guardian in its or his place. … (c) A copy of all notices of changes in the Trusteeship shall be endorsed on or attached to these presents and every such notice shall be sufficient evidence to any person having dealings with the Trustee of this deed as to the facts to which it relates". 39 There was no evidence of the appointment of dragon as trustee in Hoath's place under cl 20(a). There was no evidence of the existence of a notice of change of trusteeship, and there was no evidence of the endorsement on, or attachment to, such notice to the trust deed. There was therefore no evidence of compliance with cl 20(c). 40 The evidence of appointment of dragon as trustee was confined to that in Hoath's affidavit sworn 8 April 2004, para 22, which states: "On or about 2 July 1997 dragon.net.au Pty Ltd (a.c.n. 079 187 858) was appointed as TRUSTEE of THE HOATH FAMILY TRUST. This appointment was done by myself as Guardian of the Trust and agreed to by myself as sole director of dragon.net.au Pty Ltd. The records of such appointment being lost in the "Redfern theft"". 41 In my opinion the proper construction of the trust deed, with particular regard to cl 20(a) and (c) requires as mandatory the endorsement on, or attachment to, the trust deed itself of a copy of notice of change of trusteeship before such change is effective. (Lewis v Nortex Pty Limited [2001] NSWSC 511 per Young, CJ in Eq, paras 10, 43-50). 42 In my opinion Hoath's evidence provides no proof of compliance with the requirements for change of trustee and the valid appointment of dragon. The records referred to were not further described or identified and there is no basis for an assumption that they included those which demonstrate compliance with the trust deed. No attempt was made to prove the contents of any document included in those records pursuant to s 48.5 Evidence Act 1995 (NSW) on the ground that it was not available. The statement that the appointment was done by Hoath as guardian of the trust itself raises questions (unresolved) as to whether Hoath understood and/or had regard to those requirements. 43 Accordingly, it has not been proved that the trustee was changed from Hoath to dragon or that any lawful change of trustee was made. Without such proof dragon had no authority as trustee, or at all, to sell the domain name, IP address and AS number which was the property of the Trust. 44 In the circumstances I hold that under the sale agreement Mortgage acquired no ownership or interest in the property. (It should be noted that there was no evidence that Mortgage was a bona fide purchaser without notice of dragon's defective title, and no submission was made to that effect. Without deciding, it seems that any such submission would be likely to fail given that at all relevant times Hoath was trustee, and a director of both the vendor and the purchaser under the agreement). 45 Mr Johnson pointed out that there was no evidence that duty to the extent required under s 54 Duties Act 1997 (NSW) had been paid in respect of the alleged change of trusteeship absent which, pursuant to s 304(1), any relevant instrument was inadmissible and not available for use in law or equity for any purpose. In light of my finding it is unnecessary to say more than to observe that the effect of the legislation operates as a further obstacle to proof of Mortgage's claim absent evidence of compliance with the requirements for payment of duty. 46 Bearing in mind that the claim against the company is in respect of its use of the specified items for the period 10 October 2000 to 10 October 2002 it is necessary to consider whether Mortgage has proved that it had an interest in them by way of ownership or otherwise for that period which did not depend upon the sale agreement of about 18 May 1998. 47 It must be accepted that the contents of the Further Amended Statement of Claim in No. 1599/02 to which frequent reference was made does not prove the facts and matters alleged therein, although it was sometimes helpful in following Hoath's submissions. The pleading is not taken as evidence of matters which assist in proof of Mortgage's claims. 48 In submission Hoath drew particular attention to a sale agreement made 7 September 2000 between ITFIRST (administrator appointed) as vendor and Spin as purchaser. The agreement was for the sale and purchase of all of the vendor's hardware and intellectual property as specified in the document (Exhibit C pp 255; 356). He acknowledged that it did not evidence transfer of the domain name and said that ITFIRST was never the owner of it. However there was an assertion to the contrary by Spin in its facsimile dated 21 August 2001 (Exhibit C, p 365). 49 As earlier noted, the business names extract (Exhibit C p 104) records that Mortgage ceased carrying on business as an internet service provider under the business name "Dragon Net" on 2 September 2000 the date on which the business was deregistered. I also note the assertion by Hoath (T p 45, 46, 3 May 2004) that prior to 7 September 2000 the domain name was under his control. 50 Reference should also be made to the application to Connect dated 15 February 2002 on behalf of dragon for the domain name "dragon.net.au" signed by Hoath. The ACN of the applicant is 084 888 120, different from that of aggregate.com.au Pty Limited (formerly dragon) which was 079 187 858. The application refers to the Domain Name Administration Policy (Exhibit C, p 375) which contains in cl 8(a) and (b) warranties by the applicant that the information provided is true and correct and that at the time of application and at all times thereafter the applicant has the right to use the applicant's net.au domain name. 51 It is clear that this application gave rise to the correspondence (Exhibits E, 5 March 2002 and G, 13 March 2002) in which the company, through its solicitors, asserted its right to use the domain name as having been acquired from the liquidators of ITFIRST when that company was placed in liquidation. I understand this to be a reference to the sale agreement of 7 September 2000 between Spin and ITFIRST. 52 It is also clear that these letters dispute Hoath's submission made in relation to the agreement of 7 September 2000 that ITFIRST was never the owner of the domain name. As to these competing contentions the evidence does not enable any finding to be made as to which, if any, is correct. 53 In my opinion the effect of the application for the domain name on 15 February 2002 contradicts Mortgage's claim to own it for the period 10 October 2000 to 10 October 2002. If, as Hoath submitted, Mortgage has been the owner continuously since 18 May 1998 it is difficult to find any logical explanation for him causing the application to be made by dragon in which he warranted as true that dragon had the right to use it when no attempt was made in these proceedings to show that it did. 54 The difficulty confronting Mortgage in the present proceedings is the absence of evidence which enables a finding to be made that it was the owner of the domain name, IP address and AS number, and that such use which the company made of this property rendered it liable to Mortgage. As Mortgage acquired no entitlement to this property under the transaction of 18 May 1998 such entitlement must rest on some other basis. No other basis was either identified or proven. 55 As I understand it, Hoath submitted that from about the time of the agreement between Spin and ITFIRST of 7 September 2000 there was an arrangement or arrangements pursuant to which Mortgage allowed Spin to use the domain name and other items which subsequently led to their use by the company. However there was no evidence which proved these matters. Although there was evidence of the use by the company of this property during the period of the claim, the evidence did not address the circumstances in which such usage took place or the arrangements by which it did. On the evidence before the court the true position remains a matter of speculation. 56 Furthermore, it seems to me that the evidence of cessation of use of the business name on 2 September 2000, of the claim made by Spin in its facsimile dated 21 August 2001 that it acquired the property under the 7 September 2000 agreement, of the application of 15 February 2002, and of the claims stated in the correspondence Exhibits E and G tended strongly to undermine Mortgage's claim to entitlement. It demonstrates that Mortgage required clear evidence to support its claim in order to succeed. It was not forthcoming. 57 With regard to the claim for computer hardware I understand it is in respect of the material described in the Further Amended Statement of Claim in No. 1599/02, para 31. Although in this pleading it is alleged that Mortgage at all material times was the owner of the hardware there was no evidence which proved the fact of ownership. It was further alleged (paras 39, 40) that on 7 September 2000 an oral agreement was made under which the hardware was provided to Spin by way of bailment for six months. However there was no evidence which proved the alleged agreement. The pleading contains further allegations as to the use of the hardware by the company and of other matters relevant to the claims for relief sought in those proceedings. In relation to Mortgage's present claim these allegations were left as such, unsupported by evidence. 58 I accept Mr Johnson's submission that other than by way of assertion unsupported by admissible evidence there was no evidence that Mortgage is or was the owner of any of the items of computer hardware specified in the proof of debt. Furthermore, there was no evidence that such use the company did make of this hardware rendered it liable to Mortgage on any count. 59 Nothing would be served by analysing each of the documents referred to by Hoath during the lengthy submissions made in support of Mortgage's claim. None of them, either of itself or with others, prove that the company's use of the items claimed in the proof of debt made it liable to Mortgage for damages. As a reading of the transcript shows (eg T p 108; p 3, 3 May 2004) Hoath was invited on many occasions to demonstrate support for the claim as evidenced by the documents but he was unable to do so. 60 It is convenient to refer to the principles in Galaxy (para 8 above). Mortgage bears the onus of demonstrating that its claim was wrongly rejected and should have been admitted. The decision should not be upset unless the court is properly satisfied that the onus has been discharged, and if it is unable to conclude either way the decision must stand. 61 It is to be kept in mind that the issue was not whether the company was entitled to use the domain name and the other items during the specified period but whether the evidence was sufficient to prove Mortgage's claim against the company arising out of such use. Having reviewed with rigour all of the evidence I am well satisfied that Mortgage has failed to discharge its onus of proving that the claims stated in the proof of debt should have been admitted. 62 Accordingly, the appeal against the disallowance of this claim must be rejected. Pursuant to s 1321 of the Act I confirm the administrator's decision to reject Mortgage's proof of debt. Conclusion 63 For the above reasons the orders proposed are that the decisions to reject the proofs of debt be confirmed. In the circumstances it is appropriate that I direct the Defendants to bring in short minutes and to afford the parties the opportunity to address me in relation to costs. Arrangements should be made with my Associate by 12 August 2004 for the re-listing of the matter. **********

Mark Hoath & Anor v Comcen Pty Ltd & Ors

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