Magistrates Court (Civil Division) Act 1992, s28,

Barnett v Tasmania Water and Sewage Corporation Pty Ltd [2018] TASFC 7

National Provincial Bank v Ainsworth [1965] UKHL 1; [1965] 1 AC 1175

1. This is an appeal from a decision of Magistrate R Webster delivered on 6 September 2023. The action which is the subject of the appeal arose from an arrangement between the parties in December 2013 whereby the appellant was to invest, on behalf of the respondent, $10,000 paid to him by the respondent in the digital currency Bitcoin. The magistrate held that the appellant did, in fact, use the money to acquire a quantity of Bitcoin on behalf of the respondent. The dispute relates to a portion of the acquired Bitcoin, together with other crypto currency that originated from the acquired Bitcoin, which the appellant has retained as a fee for his services.
2. The action asserted a number of causes of action but the only ones upheld by the magistrate were claims in detinue and conversion. In particular, although the magistrate accepted that the appellant was entitled to a fee, his Honour held that he was not entitled to claim a portion of the Bitcoin he had acquired for the respondent to satisfy that entitlement. The magistrate found that all of the cryptocurrency should have been returned to the respondent upon demand. The assessment of damages took into account the significant increase in the value of Bitcoin between the time of its acquisition pursuant to this arrangement and the trial of the action, as well as an adjustment to account in monetary terms for the fee.
3. Although the notice of appeal contains several grounds, only one was maintained at trial. That ground asserts that the magistrate erred by finding that the torts of detinue and conversion had been established on the evidence.

1. The appeal is authorised by s 28 of the Magistrates Court (Civil Division) Act 1992. In Barnett v Tasmania Water and Sewage Corporation Pty Ltd [2018] TASFC 7, the Full Court confirmed that the nature of such an appeal is as a rehearing conducted on the evidence before the magistrate. The Court went on to summarise the proper approach as follows:

"Nevertheless, it was necessary for the appellant to demonstrate error. The primary judge was to conduct a 'real review' of the evidence, and of the magistrate's reasons for judgment, to determine whether the magistrate erred in fact or law. If the court concluded that the magistrate erred in fact, it was required to make its own findings of fact and to formulate its own reasoning based on those findings. The court hearing the appeal was, however, not to interfere with the magistrate's findings of fact unless, allowing for the magistrate's advantage in seeing and hearing the witnesses, the findings are demonstrated to be wrong by 'incontrovertible facts or uncontested testimony', or they are 'glaringly improbable' or 'contrary to compelling inferences': Fox v Percy [2003] HCA 22, 214 CLR 118 at [29]; Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31, 241 CLR 357 at [76]; Robinson Helicopter Company Incorporated v McDermott [2016] HCA 22, 331 ALR 550 at [43]."

1. As the magistrate explained, Bitcoin is a form of digital currency. It is used as money but also is seen by some as a store of value, and hence an appropriate investment. It is traded on currency markets and its value from time to time is determined accordingly. Its price is known to be relatively volatile. Bitcoin exists solely in digital form and is held by individuals by use of "wallets", which secure the owner's access to the digital resource by the use of private keys, akin to a pin. A single Bitcoin represents a unit of value of this currency, and can be divided into decimal places.
2. Because of its digital nature, it is intangible. However, the magistrate held that it constitutes property. In particular, his Honour concluded that the relevant software "restricts control of a holding to the person in possession of the relevant private key or pin" and these holding rights "are definable, identifiable by third parties, capable of assumption by third parties and sufficiently stable to satisfy the test" in National Provincial Bank v Ainsworth [1965] UKHL 1; [1965] 1 AC 1175. In other words, the person who holds the wallet, which contains the private key, will exclusively control the Bitcoin related to it. His Honour's findings concerning Bitcoin amounting to property, for the purpose of the causes of action in detinue and conversion, has not been challenged in this appeal.
3. The following summary of the facts is, unless otherwise stated, derived from unchallenged findings of the magistrate. I should note at the outset that the appellant, the respondent and his wife all gave evidence. The evidence of the respondent and his wife on the one hand, and the appellant on the other, differed on some critical issues. His Honour accepted the evidence of the respondent and his wife, finding them to be credible witnesses, but made contrary findings in respect of the appellant. His Honour concluded that he was not prepared to accept the appellant's evidence "unless it is corroborated by clear, unambiguous and reliable evidence". I note also that, in some respects, the relevant exchanges between the parties were contained in email correspondence, which was accepted into evidence.
4. The parties had known each other for a lengthy period prior to the relevant events. The respondent conducted a chiropractic practice and the appellant operated a business which included cleaning and servicing fish tanks. He provided those services to the respondent. The respondent had become interested in investing in Bitcoin, and, coincidently, the appellant was in the process of setting up a business which included assisting clients to purchase Bitcoin. The business was known as "Get Paid in Bitcoin". On 5 December 2013, the appellant registered a company, Get Paid in Bitcoin Pty Ltd, with the Australian Securities and Investments Commission. It can be accepted that he intended to operate the business through this company.
5. From mid-2013, the parties had been discussing the respondent's interest in investing in Bitcoin. In late November, the respondent asked the appellant to assist him with this investment, and in particular to invest some money on his behalf. He subsequently specified that the proposed investment would be in the sum of $10,000. On 5 December 2013, the appellant sent an email to the respondent which included discussion about the number of Bitcoins he might expect to obtain for $10,000 at various prices and the best way to approach such a purchase. The email also included the following:

"Both scenarios will require a bit of extra time and research, so we would have to discuss a fee, but I'm open to a percent over base scenario if that suits you better".

1. It is clear from the email that "base scenario" referred to the investment of $10,000.
2. On 18 December 2013, the appellant forwarded a further email to the respondent's wife which included details of his bank account for deposit of the purchase monies. The name of the account was stated as "Get Paid in Bitcoin", without any reference to the incorporation of that name. A bank statement of that account shows the full name of the account as "Get Paid in Bitcoin PL T-As Get Paid in Bitcoin Business cheque account". It also demonstrates that between 23 and 24 December 2013, the respondent paid $10,000 into that account in three separate increments.
3. The magistrate found that thereafter, the appellant continued to clean the respondent's fish tank and, when he did so, the respondent regularly enquired of him as to whether he had invested the money. He received a negative response to each such enquiry. In July 2014, the respondent insisted that the appellant provide the Bitcoin to him. On the next visit, the appellant provided the respondent with a Bitcoin wallet, telling him that the wallet had "10.5 Bitcoins on it and that was the end of the transaction". He provided no further explanation as to the details of the acquisition of the Bitcoin. Although the respondent raised concerns at the trial about how much Bitcoin the appellant had actually secured for him with the $10,000, the magistrate was satisfied that the appellant had, in fact, acquired 10.5 Bitcoin. Some of this was provided from Bitcoin that the appellant already owned and some secured by purchase.
4. The respondent did nothing further until September 2017, when he contacted the appellant to ask how to access the Bitcoin. The appellant recommended an app, but the respondent was unable to use it. He then contacted a Bitcoin trader, Andreas Hufschmidt, who determined that the wallet only provided access to six Bitcoin. Prior to this, through a process known as "forking", each Bitcoin had generated a right to two other forms of crypto currency known as Bitcoin cash and Bitcoin gold. The 10.5 Bitcoin had generated 4.5 of each. These currencies were not available through the wallet.
5. The respondent then contacted the appellant to enquire as to the whereabouts of the missing crypto currency. The parties, including the respondent's wife, met in November 2017. On the version of that meeting accepted by the magistrate, the appellant agreed to provide the remaining Bitcoin to the respondent but raised the question of his fee. The appellant suggested that he retain one Bitcoin for that purpose but the respondent did not agree to this. Although the appellant claimed in evidence that the parties had reached agreement about the retention of some of the outstanding Bitcoin as a fee, the magistrate accepted the respondent's version that there was no agreement reached about a fee at all at this meeting.
6. Shortly after the meeting, the appellant transferred 3 Bitcoins to the respondent. This left outstanding 1.5 Bitcoin, 4.5 Bitcoin gold and 4.5 Bitcoin cash.
7. In a further exchange of correspondence in March 2018, the respondent made a written demand on the appellant that he provide him with the outstanding Bitcoin, Bitcoin cash and Bitcoin gold. The appellant responded by an email dated 15 March 2018 in which he claimed, among other things, that they had discussed a fee of 10%, and that he had purchased the Bitcoins which were provided to the respondent "several months before they were transferred to you". In a responding email, the respondent requested advice from the appellant as to whether he had been dealing with "you or your company or both".
8. The respondent commenced the action on 25 February 2020. In addition to the claims in detinue and conversion, he also claimed damages for breach of contract and negligence. The magistrate dismissed the claims in contract and negligence. In respect of the claim in contract, his Honour determined that the agreement by the appellant to provide services to the respondent was without consideration and "accordingly there can be no enforceable contract". This finding is somewhat surprising given that the magistrate also found that the appellant had communicated to the respondent at the outset that he intended to charge a fee for his services and that "it was reasonable for him to do so". The magistrate ultimately incorporated his assessment of a reasonable fee into the assessment of damages for detinue and conversion. However, despite the appeal being in the nature of a rehearing, the respondent has not challenged the magistrate's dismissal of either claim.
9. In respect of the claims in detinue and conversion, the magistrate, as I have already noted, concluded that the possession of Bitcoin through the wallet and private key provided to a purchaser, is a proprietary right. His Honour rejected a claim by the appellant that the respondent had asked him to hold on to the Bitcoin after July 2014, and found that the appellant had acted inconsistently with the rights of the respondent on at least three occasions:
   • By only providing the respondent with six Bitcoin in July 2014, after the respondent had requested all of it.
   • Transferring three Bitcoin after the meeting on November 2017 and retaining the balance together with the Bitcoin cash and Bitcoin gold.
   • Refusing to transfer the remaining entitlement to the crypto currency despite the claimant's demand in March 2018 that he do so.
10. The magistrate found that this conduct was inconsistent with the rights of the respondent as the owner of the relevant crypto currency and constituted conversion of that property. In relation to detinue, his Honour was satisfied that the respondent had an immediate right to possession of the Bitcoin from the time of its purchase, and in relation to the Bitcoin cash and Bitcoin gold from the time that it became available, and that by refusing the respondent's demand to return these assets, the appellant was also liable in detinue.
11. The magistrate's assessment of damages has not been challenged by either party on this appeal. His Honour essentially calculated the market value of the crypto currency retained by the appellant, adjusting the calculation to take account of variation in value over the period over which the property has been unlawfully detained. His Honour assessed the damages attributable to the Bitcoin at $41,000 and the Bitcoin cash and gold at $2,000. He rejected a claim for aggravated damages but awarded exemplary damages in the sum of $4,500. His Honour then deducted $1,500 as the appellant's fee, and awarded damages in the net sum of $46,000. There was also an award of interest, which when calculated, took the final award beyond the Court's jurisdictional limit of $50,000. Accordingly, judgment was entered in the sum of $50,000.
12. The appellant makes three primary arguments to support the sole ground of appeal. I will deal with each in turn.

1. The appellant argues that the magistrate relied on the demand in March 2018 to establish the causes of action in both detinue and conversion, but that this fact was not pleaded in the respondent's claim. Accordingly, it is submitted by Mr McTaggart SC, on behalf of the appellant, that both causes of action should have been dismissed.
2. It is true that the demand contained in the letter of 5 March 2018 was not specifically pleaded by the respondent. However, the fact that the respondent demanded the return of the crypto currency by that letter was contained in the respondent's affidavit which was filed in the Magistrates Court on 15 September 2020, and a copy of the letter was annexed to that affidavit. This was well before the commencement of the trial on 6 November 2020. Further, the claim clearly notified the appellant that in respect of detinue and conversion, it was alleged that the appellant had unlawfully kept and resisted the respondent's ownership of the relevant crypto currency, despite his repeated demands for the return of the property. It also alleged specifically the demands for the return of the Bitcoin in July 2014 and in October 2017. The existence of these demands was in accordance with the evidence of the respondent, which had been accepted by the magistrate, and in my view were sufficient in any event to support the claims in detinue and conversion.
3. Accordingly, there is no merit in this argument. In any event, even if there was, the appellant should not be permitted to raise this point on appeal. The said affidavit of the respondent asserting the demand and annexing the letter in which it was contained, was admitted in evidence at trial without objection, despite the magistrate enquiring of the appellant's counsel as to whether there was any such objection. Further, the absence of pleading with respect to the specific demand contained in the letter was not otherwise raised by the appellant's counsel during the trial. In those circumstances, it would be unjust to permit this argument to be raised on appeal. Had the matter been raised at the trial, it could have been appropriately dealt with by an application for amendment. Given that the respondent's case was clearly based on the refusal by the appellant to return the crypto currency despite repeated demands, and the relevant email was contained in the affidavit served before trial, it is almost certain that such amendment would have been granted.
4. In my view, there is no merit in this argument

The appellant's possession of the crypto currency

1. At trial and on the pleadings, the appellant asserted that his dealings with the respondent were on behalf of his company and therefore that any agreement to assist the respondent was with the company, not him personally. The magistrate rejected this argument on the basis that, although the company in fact existed at the relevant time, and there was evidence that the $10,000 was paid into an account in the name of the company, its existence had not been disclosed to the respondent at the time of the relevant events. The appellant no longer challenges that finding. It was the subject of ground 2 which has now been abandoned. However, he asserts that the evidence established that it was actually the company, not him personally, that acquired and had possession of the disputed crypto currency at all relevant times, and in particular at the time that the respondent demanded its return. Accordingly, the argument is that as a matter of actual fact, the appellant did not have possession of the Bitcoin when demands where made for its return, and the respondent's knowledge about this is irrelevant.
2. Mr McTaggart submits that there is no evidence or finding by the magistrate to the contrary. It is argued that an essential element of both detinue and conversion, is that the respondent demanded the return of the relevant property from the person in possession of it when the demand is made. Because the demand was made on the appellant personally, and the company, not him, was in possession of the crypto currency at that time, both actions must fail.
3. The magistrate's findings about this question are contained at [45]:

"In addition, I find the claimant dealt with the defendant personally and not his company. The reasons for this finding largely turn on the credit findings I have made with respect to the parties. In addition the emails between the parties in November and December 2013 were all signed off by the defendant and sent to/by him personally either to an email address he used to run his fish tank/aquariums business or to/from a personal email address. An email address for 'Get Paid in Bitcoin' is not seen to be used in the evidence until 2017. The name 'Get Paid in Bitcoin' does appear in an email from the defendant to the claimant of 18 December 2013, together with the bank account details the claimant was to deposit his $10000 into, in which the defendant says his 'Bitcoin business numbers are as follows: ......'. There is no mention in the email of the words 'Pty Ltd', the email from the defendant is from a private email address and simply saying his business is called 'Get Paid in Bitcoin' does not establish that business is being run by the Company."

1. Thereafter, the magistrate's findings and discussion refer only to the appellant and make no mention of the company. This includes the finding that it was the appellant who purchased the relevant Bitcoin, and refused its return.
2. Both parties accept that the magistrate correctly recited the elements of both detinue and conversion in his reasons for judgment. It is also correct to observe that in the circumstances of this case, it was necessary for the respondent to establish that the appellant was in actual possession of the crypto currency when the demands for its return were made and refused by him. This is a primary element of the tort of detinue, and was conduct relied upon to establish the inconsistent dealing necessary to establish the tort of conversion. It is clear the magistrate proceeded on the basis that the appellant was in actual possession of the crypto currency at the relevant time.
3. There is no doubt that the evidence established that the $10,000 was paid into an account, which in actual fact was in the name of the company. However, the evidence also overwhelmingly established that it was the appellant personally who not only dealt with the respondent, but was also in actual control of the Bitcoin. In this regard, the proprietary nature of a person's interest in Crypto currency is important. The excludability of the asset and hence its value, arises from personal control of the wallet and private keys. As the magistrate observed, the conduct and communications of the appellant conveyed that it was he, personally, that exercised this control. He did not claim throughout the course of the relevant dealings that he was only doing so on behalf of the company. The mere fact that money went into and came out of an account in the name of the company does not change this reality. Further and in any event, the appellant confirmed in evidence that he was the alter ego of the company. There is no suggestion that anyone else was involved. The fact was confirmed by the appellant in his re-examination when he was asked by his counsel to explain his understanding of legal personalities. He replied:

"I presume because I was the sole shareholder of Get Paid in Bitcoin that .... me and Get Paid in Bitcoin is the same entity."

1. The nature of Bitcoin and the defendant's control over it makes it clear in my view that he was in possession of the relevant property at all material times. It is trite law that a person is in possession of property if that person has actual control of the property and an intention to possess it. See Pollock and Wright, an Essay on Possession in the Common Law, Clarendon Press Oxford 1888_._ In this case, I am satisfied that the appellant's relationship to the crypto currency in dispute satisfied those criteria.
2. Accordingly, I reject this argument.

1. The basis of this argument is that if the appellant was entitled to retain 1.5 Bitcoin as his fee, then the claims in detinue and conversion must fail because the respondent was not entitled to immediate possession of the property. In other words, you cannot lawfully and with consequences demand the return of property which you are not entitled to have in the first place.
2. The appellant asserted that it had always been understood by the respondent that the appellant would be entitled to a fee for his services. He claimed that although the quantification of the fee had been deferred, he and the respondent eventually agreed that he would retain the relevant crypto currency as the fee. The magistrate rejected that there had been such an agreement, but concluded that the respondent understood there would be a fee, and relied on expert evidence to assess a reasonable fee. He utilised this assessment in the calculation of damages. The issue which arises is that the magistrate assessed the fee as a percentage of the $10,000, and allowed this as a cash sum. This assessment was on the basis that the fee was payable as a monetary sum over and above the money used to purchase the crypto currency, $10,000. The appellant argues that the fee ought to have been allowed as a deduction from the $10,000 and on this basis, it should be reflected in the retained crypto currency.
3. I reject this argument. I am satisfied that the magistrate correctly dealt with the question of a fee, and in particular, correctly calculated it for the purposes of assessment of damages as a monetary percentage of the original $10,000 purchase price, which was payable over and above the $10,000. The arrangement between the parties was clear, the respondent wanted to purchase $10,000 worth of Bitcoin. The appellant understood this and in fact acquired that amount of Bitcoin with the respondent's money. The question of the fee was left to be determined at a later time. The magistrate found that there was never any agreement about its actual quantification but assessed it for the purpose of the assessment of damages on the basis described above. This was completely reasonable. The concept of the fee as extra monetary compensation payable to the appellant for securing $10,000 worth of Bitcoin was in accordance with this arrangement. It was also consistent with the original suggestion made by the appellant in his initial email of 5 December 2013 that he was "open to a percent over base scenario". The magistrate accepted the respondent's evidence that although the appellant subsequently sought to have his fee constituted by Bitcoin, the respondent did not agree to this. The magistrate's calculation of the fee as a monetary sum for the purpose of the assessment of damages is unimpeachable. It is not suggested that 15% is unreasonable. It was in fact more than the appellant had suggested in his initial email.
4. I am satisfied that the magistrate correctly dealt with this question. I reject the appellant's argument about this.

1. I can detect no error in the magistrate's determination of the claim in detinue and conversion. The sole ground of appeal has not been made out. Accordingly, the appeal is dismissed.