Sheather v Staples Waste Removals Pty Limited (No 2)
[2014] FCA 84
•19 February 2014
FEDERAL COURT OF AUSTRALIA
Sheather v Staples Waste Removals Pty Limited (No 2) [2014] FCA 84
Citation: Sheather v Staples Waste Removals Pty Limited (No 2) [2014] FCA 84 Appeal from: Staples Waste Removals Pty Limited v Arev Computer Centre Pty Ltd (No 2) [2012] FMCA 214 Parties: JOHN ALICK SHEATHER v STAPLES WASTE REMOVALS PTY LIMITED and SVEN EDWIN BJORNSSON File number: NSD 716 of 2012 Parties: SVEN EDWIN BJORNSSON v STAPLES WASTE REMOVALS PTY LIMITED and JOHN ALICK SHEATHER File number: NSD 747 of 2012 Judge: NICHOLAS J Date of judgment: 19 February 2014 Corrigendum: 18 March 2014 Catchwords: AGENCY – appeal against finding of a relationship of agency arising out of registration by appellant of domain name for and in name of respondent – where arrangements between appellant and respondent wholly oral – where competing accounts of relevant conversation – where credibility based findings made – whether primary judge failed to consider evidence inconsistent with witness’ account of relevant conversations – whether primary judge’s findings glaringly improbable or contrary to compelling inferences.
ACCESSORIAL LIABILITY – appeal against finding that solicitor liable for knowingly assisting in appellant’s fraudulent breach of fiduciary duty under second limb of Barnes v Addy – where appellant was solicitor’s client – whether solicitor entitled to act on client’s instructions – whether solicitor entitled to accept correctness of instructions – whether solicitor wilfully blind to client’s fraudulent design – whether circumstances would have indicated to an honest and reasonable solicitor that client was acting in breach of fiduciary duty.
EQUITABLE COMPENSATION – appeal against calculation of amount payable – where multiple respondents joined – where proceeding against one respondent settled on basis that it be discontinued and covenant not to sue given in return for settlement sum – whether allowance should be made for receipt of settlement sum in determining amount of equitable compensation payable by other respondents – whether allowance should be made for respondent’s work and effort in obtaining and maintaining registration of domain name for benefit of respondent.
Legislation: Trade Practices Act 1974 (Cth) ss 52, 75B Cases cited: Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1
Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 509
Barnes v Addy (1874) LR 9 Ch App 244
Browne v Dunn (1894) 6 R 67
Carl Zeiss Stiftung v Herbert Smith (No 2) [1969] 2 Ch 276
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Fox v Percy (2003) 214 CLR 118
Muschinski v Dodds (1985) 160 CLR 583
Target Holdings Ltd v Redferns [1996] 1 AC 421
The Queen v Crabbe (1985) 156 CLR 464
Warman International Limited v Dwyer (1995) 182 CLR 544
Way v Latilla [1937] 3 All ER 759
Westpac Banking Corporation v Bell Group Limited (in liq) (No 3) (2012) 44 WAR 1
Yorke v Lucas (1985) 158 CLR 661Criminal Law: The General Part, 2nd ed. (1961)
Date of hearing: 5 and 6 November 2012 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 141 Counsel for John Alick Sheather: Mr A Scotting with Mr C Conde Solicitor for John Alick Sheather: Yeldham Price O’Brien Lusk Counsel for Sven Edwin Bjornsson Mr C Alexander Solicitor for Sven Edwin Bjornsson Stuart Latham Solicitor Counsel for Staples Waste Removals Pty Limited Ms J Beamount Solicitor for Staples Waste Removals Pty Limited Hartnett Lawyers FEDERAL COURT OF AUSTRALIA
Sheather v Staples Waste Removals Pty Limited (No 2) [2014] FCA 84
CORRIGENDUM
1. In paragraph [72], delete “Staple’s” and insert “Staples’”.
2. In paragraph [99], delete “has” and insert “had” before “deceived”.
3. In paragraph [123], insert “Staples would” before “pay him a share of any resulting profit in the event the Domain Name was later sold.”
4. In paragraph [125], delete “has” and insert “had” before “made as a result of his breach of fiduciary duty.”
5. In paragraph [126], delete “Mr Sheather” and insert “Mr Staples”.
6. In paragraph [133], delete “13 April 2013” and insert “13 April 2010 (being the date of the relevant internal record)”.
7. In paragraph [133], insert “Express” after “Corporate”.
8. In paragraph [134], delete “his” from the second dot point and insert “a”.
I certify that the preceding eight (8) numbered paragraphs are a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Nicholas. Associate:
Dated: 18 March 2014
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 716 of 2012
ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA
BETWEEN: JOHN ALICK SHEATHER
Appellant
AND: STAPLES WASTE REMOVALS PTY LIMITED
First RespondentSVEN EDWIN BJORNSSON
Second Respondent
JUDGE:
NICHOLAS J
DATE OF ORDER:
19 february 2014
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The parties’ legal representatives confer for the purpose of agreeing upon the calculation of interest on an award of equitable compensation in the amount of $23,580.
2.The appellant is to file and serve a minute of the agreed interest calculation within 7 days.
3.The appellant is to file and serve its written submissions in relation to costs (limited to 3 pages) within 7 days.
4.The first respondent is to file and serve its written submissions in relation to costs (limited to 3 pages) within 7 days.
5.The appellant and the first respondent are to file and serve any submissions in reply (limited to 2 pages) within 14 days.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 747 of 2012
ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA
BETWEEN: SVEN EDWIN BJORNSSON
AppellantAND: STAPLES WASTE REMOVALS PTY LIMITED
First RespondentJOHN ALICK SHEATHER
Second Respondent
JUDGE:
NICHOLAS J
DATE OF ORDER:
19 february 2014
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The parties’ legal representatives confer for the purpose of agreeing upon the calculation of interest on an award of equitable compensation in the amount of $23,580.
2.The appellant is to file and serve a minute of the agreed interest calculation within 7 days.
3.The appellant is to file and serve its written submissions in relation to costs (limited to 3 pages) within 7 days.
4.The first respondent is to file and serve its written submissions in relation to costs (limited to 3 pages) within 7 days.
5.The appellant and the first respondent are to file and serve any submissions in reply (limited to 2 pages) within 14 days.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 716 of 2012
ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA
BETWEEN: JOHN ALICK SHEATHER
AppellantAND: STAPLES WASTE REMOVALS PTY LIMITED
First RespondentSVEN EDWIN BJORNSSON
Second Respondent
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 747 of 2012
ON APPEAL FROM THE FEDERAL CIRCUIT COURT OF AUSTRALIA
BETWEEN: SVEN EDWIN BJORNSSON
AppellantAND: STAPLES WASTE REMOVALS PTY LIMITED
First RespondentJOHN ALICK SHEATHER
Second Respondent
JUDGE:
NICHOLAS J
DATE:
19 february 2014
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
Before me are two appeals and two cross-appeals arising out of proceedings brought by Staples Waste Removals Pty Ltd (Staples) in the Federal Magistrates Court of Australia (as it then was) against various parties including, relevantly, the appellant in NSD 716 of 2012, Mr John Sheather, and the appellant in NSD 747 of 2012, Mr Sven Bjornsson.
Mr Bjornsson is a computer consultant who, through a company called Arev Computer Centre Pty Ltd (Arev), provided services to Staples, and other companies associated with Staples’ former managing director, Mr Bruce Staples, and other members of his family including, in particular, his brother.
In October 2002 Mr Bjornsson procured the registration of the domain name “staples.com.au” (the Domain Name). In May 2010 Mr Bjornsson transferred the Domain Name to Corporate Express Australia Pty Ltd (Corporate Express) for $75,000 plus GST.
The primary judge held that Mr Bjornsson procured registration of the Domain Name not for his own benefit, but as the agent of Staples, and that he breached his fiduciary duty to Staples by transferring the Domain Name to Corporate Express. The primary judge also held that Mr Sheather, who acted as Mr Bjornsson’s solicitor in connection with the transfer of the Domain Name to Corporate Express, was also liable to Staples for knowingly participating in Mr Bjornsson’s breach of fiduciary duty.
The primary judge made two declarations. He declared that Mr Bjornsson breached his fiduciary duty to Staples, and engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (the TPA) when causing the Domain Name to be transferred to Corporate Express without Staples’ knowledge or authority. His Honour also declared that Mr Sheather participated in Mr Bjornsson’s breach of fiduciary duty with knowledge of Mr Bjornsson’s dishonest and fraudulent design, and that Mr Sheather was knowingly concerned in, or a party to, Mr Bjornsson’s contravention of s 52 of the TPA within the meaning of s 75B(1)(c) of the TPA.
The primary judge ordered that Mr Bjornsson and Mr Sheather pay Staples the sum of $55,000 plus interest in the sum of $9,434. His Honour also ordered that Mr Bjornsson indemnify Mr Sheather for any amounts paid by Mr Sheather to Staples pursuant to those orders. Mr Bjornsson and Mr Sheather were also ordered to pay Staples’ costs of the proceeding. They now appeal against the primary judge’s declarations and orders. Staples’ cross-appeal relates to the quantum of the monetary award.
Mr Bjornsson and Mr Sheather challenge the primary judge’s finding that Mr Bjornsson owed fiduciary duties to Staples. In short, they contend that the primary judge should have found that Mr Bjornsson did not register the Domain Name as agent for Staples, but on his own behalf with the knowledge and approval of Mr Staples. Mr Sheather also contends that, even if Mr Bjornsson owed fiduciary duties to Staples, the evidence does not support the primary judge’s finding that Mr Sheather participated with knowledge in any dishonest and fraudulent design on the part of Mr Bjornsson or that he was knowingly concerned in, or party to, any contravention by Mr Bjornsson of s 52 of the TPA.
THE PRIMARY JUDGE’S REASONS
The primary judge’s factual findings
It is apparent from the primary judge’s reasons that his Honour did not consider the evidence of Mr Staples, Mr Bjornsson or Mr Sheather to be wholly reliable. In particular, his Honour found that their evidence had been strongly coloured by their own perceptions of the arrangement made between Mr Staples and Mr Bjornsson in 2002 and that Mr Staples’ and Mr Bjornsson’s evidence as to terms of that arrangement was affected by a substantial degree of reconstruction. In addition to the difficulties stemming from the lapse of time, the primary judge also detected a tendency on the part of the witnesses to tailor their recollections to their respective cases. However, it is apparent that his Honour accepted much of Mr Staples’ evidence and that, generally speaking, he preferred Mr Staples’ evidence to Mr Bjornsson’s evidence at least in relation to the terms of the arrangement made between them in 2002.
The primary judge found that at all relevant times, Staples carried on the business of waste collection. His Honour also found that, as was common ground, Staples had never made use of the Domain Name and that the initial registration fee and all subsequent renewal fees were all paid by Mr Bjornsson. In particular, his Honour found that the initial registration fee of $499 was paid to Melbourne IT in October 2002, followed by a number of two yearly renewal fees each in the amount of $140, the first paid in July 2004, and the second in October 2006.
According to the primary judge’s findings, NetRegistry replaced Melbourne IT as registering authority for the Domain Name in October 2008 at Mr Bjornsson’s instigation. Another two renewal fees were paid to NetRegistry (the amounts paid are not the subject of findings but the evidence showed that the amounts involved were small) followed by, last of all, a fee of $220 that was paid to NetRegistry in May 2010 following the “purchase” of the Domain Name by Corporate Express. Most, if not all, of these expenses, were paid by Mr Bjornsson with his personal credit card.
His Honour also found, as was common ground, that there was only one discussion between Mr Staples and Mr Bjornsson concerning the Domain Name prior to 2010, and that this occurred in 2002, prior to Mr Bjornsson registering the Domain Name with Melbourne IT.
The primary judge recounted the evidence given by each of Mr Staples and Mr Bjornsson in relation to their dealings in 2002. The account given by Mr Bjornsson was more specific and detailed than that given by Mr Staples. According to Mr Bjornsson, the only discussions between Mr Staples and himself in 2002 occurred in a telephone conversation that took place shortly prior to registration of the Domain Name. Although Mr Staples accepted that he had a limited recollection of what was said between them, it is clear that he had some recollection of meeting at his office with Mr Bjornsson and of being persuaded by Mr Bjornsson that Staples should apply for the Domain Name.
His Honour preferred Mr Staples’ evidence that he met with Mr Bjornsson at Mr Staples’ office. According to Mr Staples’ account of the meeting, which his Honour generally accepted, Mr Bjornsson suggested that Staples might register the Domain Name to “take advantage of new technology” and because “[i]t might be handy in the future for the business to have a website”.
Mr Staples also gave evidence, which his Honour appears to have accepted, that he expected Mr Bjornsson would invoice Staples for the registration fees in respect of the Domain Name in due course, and that the Domain Name would be would be available to Staples for use in its business in the future. However, Mr Bjornsson never passed on any registration or renewal fees to Staples for payment.
The primary judge also accepted Mr Staples’ evidence that he said nothing to Mr Bjornsson which might be understood as conferring authority upon Mr Bjornsson to treat the Domain Name as his own property to the exclusion of Staples. In doing so his Honour expressly rejected Mr Bjornsson’s evidence that in his conversation with Mr Staples in 2002 Mr Staples indicated that Staples had no interest in acquiring the Domain Name, that Mr Bjornsson could register it if he wished, and that he could do whatever he liked with it.
The primary judge found that the next contact between Mr Staples and Mr Bjornsson occurred in 2010 after Mr Bjornsson had been contacted by various people expressing interest in acquiring the Domain Name. Mr Bjornsson was first contacted by such a person via email in January 2010. A person who described himself as Sam Wahlberg, but who made no mention of Corporate Express, asked Mr Bjornsson whether he would be interested in selling the Domain Name. Mr Bjornsson then invited Mr Wahlberg to make an offer. Mr Wahlburg offered $1,000. In a further series of emails that was exchanged between Mr Bjornsson and Mr Wahlberg, this offer was increased by Mr Wahlberg to $7,000.
The primary judge found that in early March 2010 Mr Bjornsson was contacted by Ms Borgenstam of Melbourne IT on behalf of an unidentified client. She indicated to Mr Bjornsson that her client was willing to pay $10,000 for the Domain Name. At around this time Mr Bjornsson contacted Mr Staples. He told Mr Staples that he had received an offer of $10,000 for the Domain Name. During the course of this conversation, as recounted by the primary judge, Mr Bjornsson claims to have asked Mr Staples whether Staples wanted the Domain Name, or whether Mr Bjornsson could sell it. According Mr Bjornsson, Mr Staples told him that he could sell it. It is apparent from his Honour’s reasons that he did not accept Mr Bjornsson’s evidence on this point, though it appears that his Honour accepted that Mr Staples authorised Mr Bjornsson to continue the negotiations. Subject to that matter, the primary judge did not consider it necessary to resolve the conflict in evidence between Mr Bjornsson and Mr Staples in relation to the telephone conversation that took place between them in early March 2010.
The primary judge found that in the course of his dealings with Ms Borgenstam, Mr Bjornsson consciously gave her the impression, and others with whom he negotiated, that he was acting on behalf of Staples with the approval of its director, Mr Staples.
After some further email communications between Mr Staples and Mr Bjornsson, the two spoke by telephone on 15 April 2010. According to Mr Staples’ account of this conversation, Mr Bjornsson advised him that the offer was now $50,000. According to Mr Staples, he asked Mr Bjornsson in this conversation what percentage commission he expected to receive, to which Mr Bjornsson replied, 50%. Mr Staples said that he then told Mr Bjornsson that he would need to discuss the matter with his brother. Mr Staples also said that Mr Bjornsson reminded him during this conversation that Mr Bjornsson had paid all the renewal fees.
According to the primary judge’s findings, by this stage Mr Bjornsson was communicating directly with Mr Haigh of Corporate Express. The offer of $50,000 was conveyed by letter of 15 April 2010 and was expressed be on terms that the offer would remain open for acceptance until 5pm on 16 April 2010 with the transfer of the Domain Name to occur by no later than 30 April 2010. On the same day that Mr Bjornsson received the offer of $50,000, he wrote back to Mr Haigh indicating that “we were thinking far more in the range of $100,000 + GST”. It was not clear to his Honour whether Mr Bjornsson responded to the letter before or after his conversation with Mr Staples. However, his Honour was satisfied that Mr Staples expected Mr Bjornsson would try to extract a higher offer.
At around this time Mr Staples requested that his son-in-law, Mr Paul, and his accountant, Mr Robertson, make further enquiries of Mr Bjornsson. According to the primary judge, they did so, with mixed success, and it began to appear to Mr Staples that Mr Bjornsson was not consulting him sufficiently.
The primary judge found that Mr Bjornsson contacted Mr Sheather on 15 April 2010 after he had spoken to Mr Staples. His Honour observed that by this time Mr Bjornsson was, or at least may have become, mistrustful of Mr Staples. According to the primary judge, it is at this point that the evidence of Mr Sheather becomes important.
His Honour described Mr Sheather as a significant witness who admitted early in his cross-examination to having a very poor memory, and who was highly reliant when giving evidence upon file notes which he had made at the time of relevant events. His Honour expressed reservations about the reliability of Mr Sheather’s oral evidence, as well as reliability of Mr Sheather’s file notes both in terms of their completeness and accuracy. However, in spite of his reservations in relation to Mr Sheather’s file notes, his Honour’s reasons show that he was, generally speaking, willing to accept that the file notes reflected Mr Sheather’s genuine attempts to record matters which he considered required recording.
The primary judge set out the contents of Mr Sheather’s first file note made on 15 April 2010 at [76] of his reasons. The file note was in the following terms:
t/a on Sven re Staples Waste Removals. He was responsible for all aspects of the domain name except used client’s ABN. Clients knew nothing about it & wanted nothing to do with it. He has paid all fees for past 10 years. They can sell direct to pchser & by pass him if they want. Buyer wants money to be delayed 7 days to allow time for reg’n to be effective. We agree funds s/b held in stakeholders a/c. Client’s son in law w/b in touch with him shortly. I said I believe he has a claim but am no sure on what basis just yet. We to talk next week.
The primary judge found that on the morning of 20 April 2010, Mr Bjornsson reached an oral agreement with Mr Derek Brown of Corporate Express which was confirmed in an email sent the next day to Mr Haigh with a copy to Mr Sheather. The agreed price was $82,500 inclusive of GST.
In the afternoon of 20 April 2010, Mr Bjornsson met with Mr Sheather. The primary judge set out the contents of Mr Sheather’s file note made on 20 April 2010 at [52] of his reasons. This file note was in the following terms:
conf Sven re staples domain name. Background - SB sw name Staples.com.au was avail. He recognised potential future value. At that time name had to relate to an existing entity. SB asked Bruce Staples if he interested in name. He said no but happy for SB to use Staples Waste Removals ACN. Bruce agreed. SB paid $500 reg’n (possibly via Arev). Also paid renewals for next 10 years. Staples from USA now has agreed to pay him $82500 for name. SB now needs to get Bruce to sign form & have monies trfrd to our trust a/c. John York is a/cant for Staples - he want to speak to SB but SB does not like John at all. We say Staples has no interest in name - simply did SB a favour by allowing him to use their ACN. However, SB is prepared to split profit with them on a fair basis to be negotiated. SB to prepare a statement of history of matter incl conversations etc. before we take matter further.
The primary judge found that during their meeting on 20 April 2010, Mr Sheather gave advice to Mr Bjornsson which encouraged him to think that he could claim the whole beneficial interest in the proceeds of the sale of the Domain Name. It also appeared to his Honour that Mr Sheather’s advice to Mr Bjornsson led him to think that he should cease to communicate candidly with Mr Staples as to his claims and intentions in relation to the proposed sale.
On 21 April 2010, at Mr Sheather’s request, Mr Bjornsson prepared a chronology which he forwarded to Mr Sheather on the same day. This chronology (referred to by the primary judge at [53] of his reasons) included a brief description of the events of October 2002, including an entry with respect to the telephone conversation between Mr Bjornsson and Mr Staples said by Mr Bjornsson to have occurred prior to registration of the Domain Name. As previously mentioned, the primary judge preferred Mr Staples’ evidence to the effect that there had been a face-to-face meeting between Mr Staples and Mr Bjornsson concerning the Domain Name.
The chronology prepared by Mr Bjornsson was later revised by him for the purpose of the litigation. A more detailed version dated 11 April 2011 included an account of the telephone conversation that Mr Bjornsson claimed to have had with Mr Staples in October 2002. The revised chronology was exhibited to an affidavit by Mr Bjornsson. The primary judge was critical of Mr Bjornsson’s reliance upon this revised chronology which he suggested pointed to “contrivance” rather than actual and honest recollection.
In his reasons the primary judge referred at [54] to written advice provided by Mr Sheather to Mr Bjornsson in an email dated 22 April 2010. In this email Mr Sheather stated:
…
So far as SWR P/L is concerned I think we agreed that this was a deal between you and Bruce. Bruce allowed you to use his Co name & ACN for your own purposes as he was not interested at all in what you had in mind.
On the other hand, because of your involvement, in the IT industry you had developed an interest in domain names. You saw the potential for a name like “Staples” being of value in the future. Bruce was happy to assist you in your gamble so long as he had no involvement. You did all the work and paid all expenses for the 8 years since 2002.
Because this particular gamble has paid off, you are prepared to make a gift to Bruce of part of the monies that are left after all expenses including taxation.
This frolic involved you and Bruce only, no one else.
Obviously we need a fairly detailed account of the conversations between you and Bruce at the time he gave his permission but presumably the matter was never mentioned again until the purchase offer was made just recently.
What do you think?
…
On the morning of 21 April 2010 Mr Bjornsson sent an email to Mr Staples’ assistant which indicated that “we are getting closer” but which did not reveal that an informal agreement had been reached to sell the Domain Name for $82,500. In this email Mr Bjornsson enquired whether Mr Staples had signed the transfer document which he had previously sent to Mr Staples. That evening, Mr Staples responded to Mr Bjornsson’s email. He indicated that there would be tax implications in selling the Domain Name and that it would therefore be appropriate to involve Mr Staples’ accountants in the transaction. In his email Mr Staples requested that Mr Bjornsson provide him with the purchaser’s details so that he could arrange for his accountant to liaise with the purchaser. He also indicated that he would arrange for his son-in-law, Mr Paul, to contact Mr Bjornsson the following day.
According to the primary judge, no further information was provided to Mr Staples in response to his request. In the meantime, Mr Sheather commenced to negotiate with Corporate Express the terms of a domain name assignment agreement. He received a draft agreement from Corporate Express on 4 May 2010 with an indication that it wished to exchange and settle on 6 May 2010. In his communications with Corporate Express, Mr Sheather insisted that the purchase price was to be paid into his trust account as solicitor for Mr Bjornsson. To this end he obtained from Mr Bjornsson a written authority to receive all monies from Corporate Express on Mr Bjornsson’s behalf.
The primary judge found that Mr Sheather took these actions even though he was aware that the relevant register of domain names showed that the registered owner of the Domain Name was Staples, that the draft assignment agreement showed that Staples was the transferor and that it included a warranty that Staples had unencumbered and exclusive ownership of the Domain Name. His Honour also observed that Mr Sheather appeared to have thought at this time that Mr Staples would need to execute the agreement or give Mr Bjornsson authority to do so on behalf of Staples.
In the early evening of 4 May 2010, Mr Sheather sent an email to Mr Bjornsson in which he indicated that the person who would sign the assignment agreement on behalf of the vendor would need to be an authorised representative of Staples appointed by its board of directors. In the same email Mr Sheather asked Mr Bjornsson whether he thought that Mr Staples would sign the agreement.
According to the primary judge, on 5 May 2010 Mr Bjornsson spent time with his wife who was then in hospital. However, Mr Bjornsson kept in close contact with Mr Sheather by telephone and by email. Mr Sheather’s file notes for 5 May 2010 indicate that he spoke with Mr Staples, at Mr Bjornsson’s request, and told Mr Staples that the purchaser wanted to settle the following day. The file notes also indicate that Mr Staples told Mr Sheather that he had been trying to get information from Mr Bjornsson without success. Mr Staples also told Mr Sheather, according to the file notes, that a “50% commission [was] not on in any circumstances.” Mr Staples added that he was not comfortable with the proposed arrangement, that he did not want money paid into Mr Sheather’s trust account, that he wanted to negotiate a deal, but there was no way that Mr Bjornsson would get 50% commission.
The primary judge found that Mr Sheather gave assurances to Mr Staples that Mr Robertson would be provided with a copy of the draft assignment agreement. His Honour found that this never occurred because Mr Bjornsson later gave Mr Sheather specific instructions not to provide the document to Mr Robertson.
The file notes made by Mr Sheather on 5 May 2010 indicate that he later spoke to Mr Bjornsson and discussed the possibility of transferring the Domain Name into Mr Bjornsson’s name. During the course of their conversations, Mr Sheather told Mr Bjornsson that he believed “Staples will try to screw him.” Later that same day, according to Mr Sheather’s file notes, he and Mr Bjornsson spoke again, at which time they decided that a business name would be registered in Mr Bjornsson’s name, that the Domain Name would be then be transferred to him as proprietor of that business name and that the Domain Name would then be transferred by Mr Bjornsson to Corporate Express. Mr Sheather’s file notes also confirm that he was instructed by Mr Bjornsson not to make contact with Mr Robertson.
The primary judge found that Mr Sheather expressly encouraged Mr Bjornsson to adopt the strategy of acquiring legal title to the Domain Name in his own name, and then conveying it to Corporate Express without authority and agreement from Mr Staples. His Honour referred in his reasons to the possibility that Mr Bjornsson considered transferring the Domain Name into his own name some time before 5 May 2010. However, his Honour found that Mr Bjornsson did not give serious consideration to this possibility at an earlier time because he knew that it would involve assuming an authority to act in the name of Staples that he did not have. His Honour further found that Mr Bjornsson must have known, and decided, that he would need to keep this transfer secret from Mr Staples to stop him attempting to block the transfer of the Domain Name.
His Honour found that on 6 May 2010 Mr Bjornsson arranged to transfer the Domain Name from Staples to himself using the business name “Staples Photography” which he registered on that day. His Honour found that Mr Bjornsson was able to do this because he was identified as the “registered contact person” in respect of the Domain Name. Later that day Mr Bjornsson told Mr Sheather that he had informed Corporate Express that the Domain Name needed to be transferred into the name of Mr Bjornsson trading as Staples Photography for tax reasons.
His Honour also found that, later on 6 May 2010, Mr Sheather made amendments to the assignment agreement so that it referred to the transferor as Mr Bjornsson. The assignment agreement, as amended by Mr Sheather, was then signed by Mr Bjornsson and witnessed by Mr Sheather. Exchange of agreements took place electronically later that day.
By the assignment agreement which he executed, Mr Bjornsson purported to transfer and assign to Corporate Express all right, title, interest and goodwill in the Domain Name. Among other things the agreement provided for the payment of the purchase price to Mr Sheather to be held by him pending receipt of written authority from Corporate Express authorising its release to Mr Bjornsson. The agreement also included warranties and representations by Mr Bjornsson to Corporate Express that Mr Bjornsson had unencumbered and exclusive ownership of the Domain Name.
Mr Staples discovered that Mr Bjornsson had transferred the Domain Name to Corporate Express in the evening of 7 May 2010 after Mr Paul conducted an internet registry search. Upon hearing this news Mr Staples telephoned Mr Bjornsson. The following morning Mr Bjornsson sent an email to Mr Sheather instructing him to transfer $30,000 to a bank account operated by Mr Bjornsson.
In the meantime Mr Staples contacted Corporate Express in an effort to halt or unwind the sale. This prompted Corporate Express to send a request to Mr Sheather on 10 May 2010 that he not release the proceeds of the sale while they investigated Mr Staples’ claims. The primary judge found that Mr Sheather ignored this request, and instead urged Corporate Express not to provide Mr Staples with any information. On the same day Mr Sheather transferred $40,000 to Mr Bjornsson. He transferred another $10,000 to Mr Bjornsson on 19 May 2010. Mr Sheather transferred further amounts to Mr Bjornsson on subsequent occasions.
According to the primary judge, Mr Staples was able to arrange a meeting between Mr Bjornsson and Mr Robertson which was held at Mr Sheather’s office in the afternoon of 10 May 2010. Mr Robertson gave evidence which was accepted by the primary judge in its entirety. The primary judge’s reasons include a detailed recitation of Mr Robertson’s account of his meeting with Mr Bjornsson and Mr Sheather.
On 24 May 2010 Mr Sheather gave Mr Bjornsson a tax invoice for $3,888.50. The primary judge’s reasons suggest that this amount may have been withdrawn from Mr Sheather’s trust account and transferred into the trust account of another firm that was acting for both Mr Bjornsson and Mr Sheather in the proceeding brought against them by Staples. In any event, it is apparent that, aside from this sum of money, the proceeds of sale were disbursed by Mr Sheather to Mr Bjornsson. No amount was ever paid by Mr Bjornsson to Staples in relation to the Domain Name.
The primary judge’s legal analysis
The primary judge found that NetRegistry’s records showed two important things: first, Staples was the sole legal owner of the licence for the Domain Name until 6 May 2010; secondly, Mr Bjornsson was, up until that time, the designated “contact person” for the registered owner. There was a suggestion in the evidence, the correctness of which the primary judge appears to have accepted or at least assumed, that the designated “contact person” had ostensible authority to transfer the relevant domain name on behalf of its registered owner. On this analysis, the relationship between the registered owner and the designated contact person is one of principal and agent with the agent having ostensible authority to create a transfer of the relevant domain name on his or her principal’s behalf. As the primary judge correctly observed, whatever the contact person’s ostensible authority vis á vis the registering authority (eg. NetRegistry) or a third party purchaser (eg. Corporate Express) the designated contact person would be in breach of the fiduciary duty owed to his or her principal if he or she transferred the relevant domain name without his or her principal’s express or implied authority.
It was never suggested by Mr Bjornsson or Mr Sheather that Mr Bjornsson obtained Mr Staples’ express or implied authority to transfer the Domain Name to Corporate Express on behalf of Staples. Their case was that no such authority was required because Mr Bjornsson was, at least in the eyes of equity, the true owner of the Domain Name, and that Staples, even though it may have held legal title, had no beneficial interest in the Domain Name. On this point, the primary judge described the arguments advanced by Mr Bjornsson and Mr Sheather at trial in these terms:
[28]Mr Bjornsson and his solicitor, Mr Sheather, do not now claim that Mr Staples ever gave actual authority to Mr Bjornsson after 2002 to sell and transfer the domain name without obtaining further authority from him. Nor do they deny that Mr Staples’s statements to Messrs Bjornsson and Sheather during April and before 6 May 2010 showed that he was insisting upon his company’s right to approve and authorise any proposed transfer of the domain name to Corporate Express or any other person. They do not contend that, as between Staples Waste Removals and Mr Bjornsson, a contract or estoppel prevented Staples Waste Removals from withholding Mr Bjornsson’s authority to act in its name, nor from now asserting the absence of Mr Bjornsson’s actual authority as agent to transfer the licence registered in its name.
[29]Rather, the respondents’ case is that Staples Waste Removals’ legal ownership of the licence, and the absence of actual authority given during 2010 for Mr Bjornsson to transfer the licence to Corporate Express, could be ignored or should now [sic] treated by the Court as immaterial, because at all relevant times Mr Bjornsson had the whole unqualified beneficial ownership of the domain name which would be recognised in a Court of Equity. Mr Bjornsson’s ignoring of the terms of the legal ownership of the licence, and of the absence of his actual authority to transfer the licence in the name of the legal owner, involved, in their submissions, only justifiable ‘self help’ by the true sole beneficial owner.
[30]The respondents rest their case on the effect of the arrangement made between Mr Staples and Mr Bjornsson in October 2002, coupled with Mr Bjornsson’s subsequent actions in registering and renewing the domain name. They do not assert any equitable defence or rights arising from the events of 2010 themselves. At the heart of their case is, therefore, a need to make findings as to the parties’ statements and intentions in the 2002 arrangement.
Hence, the case against Mr Bjornsson based upon his alleged breach of a fiduciary duty he owed to Staples, centred upon the terms of the 2002 arrangement made between Mr Bjornsson and Mr Staples. As to this the primary judge found:
[137] In my opinion, a correct understanding of the 2002 arrangement, confirmed by the parties’ later statements and conduct, points on the balance of probabilities to there being an implicit agreement or common understanding that, if Mr Bjornsson was able to register and maintain Staples Waste Removals as the licensee of the domain name, and if it acquired value of any kind in the future, then the parties would conduct negotiations for an agreement, in which Staples Waste Removals would fairly recompense Mr Bjornsson for his initiative and efforts. In my opinion, the commercial relationship of the parties in 2002, the informality of their arrangement at that time, and the speculative nature of the asset acquired by Staples Waste Removals upon the registration of the domain name, support such a conclusion. The evidence of the parties which have I accepted also supports and confirms it.
[138]In summary, in my opinion, on all the evidence it is most likely that that [sic] the 2002 conversation gave Mr Bjornsson authority from Staples Waste Removals to obtain for it a licence to the ‘staples.com.au’ domain name, leaving the future remuneration or other benefit to Mr Bjornsson to be decided by agreement in the future if, and when, any commercial use or value for the name emerged. I also consider it probable that both Mr Bjornsson and Mr Staples subjectively understood in 2002 and subsequently that this was this [sic] effect of their conversation, and that both of them appreciated that, if the domain name were registered and acquired value, it would be necessary to discuss and agree upon how the value would be used or realised, and how Mr Bjornsson’s efforts would be remunerated or rewarded.
After considering various other arguments which I need not repeat, the primary judge added:
[144]I also consider that the circumstances do not support the implication of a resulting or constructive trust merely from Mr Bjornsson’s payment of the registration and renewal fees for the licence. This is because I consider that, at least, there was a common intention or understanding – arising from the terms and circumstances of the 2002 arrangement, as well as from a direct relationship of the domain name to the business operations of Staples Waste Removals which was essential to the licence under its licence conditions – that Staples Waste Removals would be the sole and entire owner of the domain name, and that Mr Bjornsson’s expectations of sharing in any commercial value attaching to its acquisition would arise from his role as a commercial agent whose efforts had obtained and preserved the property of his principal. In my opinion, equity would normally recognise this common intention by imposing obligations on the principal by way of reimbursement, remuneration or commission, in the event that the property became valuable. The situation, in my opinion, was not analogous to that of joint property owners who, in the absence of actual intent, are presumed to intend that their beneficial interests in valuable real estate or other property will reflect their unequal monetary contributions to its acquisition.
[145]Nor do I accept that the situation now before the court is analogous to the ‘family joint venture windfall’ line of cases identified by Young CJ in Eq in Henderson v Miles (No.2) [2005] NSWSC 867 at [13] and following, which applied the principle identified by Deane J in Muschinski v Dodds (1985) 160 CLR 583 which I shall quote below. On my findings, it was always understood that Staples Waste Removals would be the owner of the domain name, and that Mr Bjornsson’s relationship to the owner in relation to the asset would be that of an agent for reward whose efforts assisted the acquisition, maintenance, and realisation of the asset. Moreover, in my opinion, the relationship was ended abruptly by Mr Bjornsson’s own actions, and before Mr Bjornsson’s reward could be addressed by negotiation and agreement. In these circumstances, the ‘conscience’ of equity is invoked by Staples Waste Removals as a result of Mr Bjornsson’s abuse of his position as an agent, rather than by any unconscionable retention of a windfall by Staples Waste Removals.
[146]In effect, the transaction appears to me most analogous to a commercial joint venture or arrangement, in which each side was expected to perform different commercial roles, and to receive different benefits from the acquisition by Staples Waste Removals of a licence to the domain name. The parties implicitly understood in 2002 that the domain name could only, under the licence conditions, be acquired by Staples Waste Removals and not by Mr Bjornsson, and that it was required, and intended, to be held for the potential business purposes of Staples Waste Removals and not for those of Mr Bjornsson. The parties anticipated a speculative possibility of profit to the licensee from the sale of the domain name, if Staples Waste Removals had no need for the name and if another eligible business wished to purchase it. However, as I have found, their implicit understanding was that Mr Bjornsson would share in any such profit, and be remunerated for his activities in his capacity as agent for the licensee, by a commission or share in the profit which would be agreed in the future. Equity’s present concern is, in my opinion, that Mr Bjornsson’s actions by way of ‘self-help’ to safeguard his share in the profit have unconscionably disregarded his agency role under the parties’ arrangement.
On the primary judge’s analysis of the 2002 arrangements Mr Bjornsson was appointed as Staples’ agent to register and maintain the Domain Name which would be owned by Staples. Nevertheless, his Honour recognised that both Mr Bjornsson and Staples expected that Mr Bjornsson would be remunerated for his efforts in acting as Staples’ agent should Staples choose to use the Domain Name or should the Domain Name be sold for a profit to a third party.
The primary judge found that in transferring the Domain Name to Corporate Express without Staples’ authority, Mr Bjornsson breached the fiduciary duty he owed to Staples. Further, his Honour held that in transferring the Domain Name to Corporate Express, Mr Bjornsson acted with fraudulent intent to deprive Staples of its ownership of the Domain Name. He concluded that Mr Bjornsson should pay Staples equitable compensation in the amount of $55,500.
There are two points to make in relation to the amount of equitable compensation awarded to Staples.
First, the primary judge calculated the amount of equitable compensation by taking the net sale price (ie. after allowing for GST and registration costs) which his Honour considered would have been paid to Staples but for Mr Bjornsson’s breach of fiduciary duty ($74,000) and deducting from that figure a percentage that, in his Honour’s estimation, fairly reflected Mr Bjornsson’s work and effort as well as his expectation (as it stood immediately prior to the sale) in relation to any profits from sale. His Honour assessed this percentage at 25% ($18,500).
Secondly, the primary judge concluded that no credit should be given to Mr Bjornsson on account of Staples having received $33,000 as a result of a settlement entered into between Staples and Corporate Express prior to trial. In concluding that no such credit should be given, the primary judge considered the terms of the relevant deed of settlement pursuant to which Staples agreed to discontinue its proceeding against Corporate Express and, among other things, not to commence any fresh proceeding against it or any of its servants or agents in return for the payment of $33,000. The primary judge explained his conclusion on this point as follows:
[175]Taking into account the terms of the deed of settlement and the circumstances in which it took effect, I am not satisfied that I can apportion all or any part of the monies which were paid to Staples Waste Removals as appropriately deducted from the equitable compensation which would be appropriately awarded against Mr Bjornsson under my above approach. Clearly those monies compensated Staples Waste Removals for possibly substantial and unquantified expenses in pursuing Corporate Express in litigation, and also for foregoing present and future claims and rights which were additional and separate from the loss of the proceeds received by Mr Bjornsson. As I have noted, this included a speculative but real contingency that Staples Waste Removals might have squeezed a higher price from Corporate Express than was accepted by Mr Bjornsson. Taking these matters into consideration, and in the absence of any evidence or submissions showing how I could rationally dissect the monies received from Corporate Express, I do not consider that the respondents have established the basis for a quantified deduction to prevent ‘double’ compensation or over-compensation being received by Staples Waste Removals as a result of Mr Bjornsson’s breaches of fiduciary duties.
[176]Moreover, taking into account the general objectives of equity when framing an appropriate remedy for his breaches of fiduciary duty, I am not persuaded that an award of $55,500 against Mr Bjornsson would be unfair or unjust or ‘over compensation’ in all the circumstances, even taking account in a broad manner the fact that Staples Waste Removals has also received $33,000 from Corporate Express.
The primary judge dealt with s 52 of the TPA case against Mr Bjornsson quite briefly. His Honour’s reasons indicate that he was satisfied that Mr Bjornsson’s conduct was misleading in three principal respects. In the first place, Mr Bjornsson deceived Mr Staples by failing to inform him that Mr Bjornsson would not seek Mr Staples’ authority to transfer the Domain Name. His Honour described this as “an intentionally misleading omission.” In the second place, Mr Bjornsson made what his Honour called a “conscious misrepresentation” to NetRegistry to the effect that he had authority as agent for Staples to transfer the Domain Name to himself under the business name “Staples Photography”. In the third place, Mr Bjornsson made “at least one obviously false warranty” in the assignment agreement between Mr Bjornsson, trading as “Staples Photography”, and Corporate Express.
The primary judge held that Mr Bjornsson’s conduct was within the ambit of s 52 as extended by s 6(3) because such conduct “involved the use of postal telegraphic or telephonic services”.
I now turn to the reasons given by the primary judge for finding Mr Sheather liable.
The primary judge’s analysis of Mr Sheather’s position began with the claim made against Mr Sheather based upon the second limb of Barnes v Addy (1874) LR 9 Ch App 244 at 251 as that authority has been in interpreted by the High Court in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 (Consul) and Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 (Farah Constructions).
The primary judge characterised Mr Bjornsson’s strategy to transfer the Domain Name to Corporate Express as a dishonest and fraudulent design to defeat Staples’ right to the Domain Name. In accordance with what the High Court said in Farah Constructions at [174]-[178] the primary judge recognised that Mr Sheather could only be liable for his participation in this dishonest and fraudulent design if Mr Sheather (i) had actual knowledge; (ii) wilfully shut his eyes to the obvious; (iii) wilfully and recklessly failed to make inquiries as an honest and reasonable man would make; or (iv) knew of circumstances which would indicate the facts to an honest and reasonable man. These possibilities reflect the four categories of knowledge which the High Court held in Farah Constructions would constitute knowledge sufficient to find liability for knowing participation in another’s dishonest and fraudulent breach of fiduciary duty.
The essence of the primary judge’s analysis appears at [187] to [194] of his Honour’s reasons. It is apparent from [187] that his Honour was satisfied that Mr Sheather had participated in Mr Bjornsson’s dishonest and fraudulent design by encouraging Mr Bjornsson to adopt the strategy which underpinned it. The question was then whether Mr Sheather’s knowledge was sufficient to satisfy the High Court’s requirements in Farah Constructions.
The primary judge said at [188]-[194] of his reasons:
[188]The evidence before me shows clearly, and as I understand it Mr Sheather does not deny, that at the relevant dates Mr Sheather:
(i)Knew that Staples Waste Removals was the registered owner of the domain name licence, and that Mr Bjornsson appeared in the register only as agent or ‘registrant contact name’ for that entity. He knew this authoritatively from a ‘Whois domain’ search which he obtained on 21 April 2010, as well as from his instructions from Mr Bjornsson.
(ii)Knew at all times prior to 5 May 2010 that Mr Bjornsson believed that it was necessary to obtain the authority and agreement of Mr Staples on behalf of the licensee, before any sale could be agreed and any transfer made to effect the sale in relation to the legal title. He gave advice to Mr Bjornsson that he would need authority from the Board of Staples Waste Removals “to be an authorised representative of the company”. Manifestly, it was upon instructions recognising this that he contacted Mr Staples on the morning of 5 May to request that he execute the necessary documents.
(iii)Had, on instructions from Mr Bjornsson, and consistently with his knowledge of the preceding negotiations between Mr Bjornsson and Mr Staples and Corporate Express, settled an intended ‘domain name assignment agreement’ between Staples Waste Removals and Corporate Express which contained warranties by the former that it “had unencumbered rights in” and “exclusive ownership of” and “authority to transfer” the Domain Name. Mr Sheather has never claimed that he believed these instructions to be untrue.
(iv)Believed, at best, that Mr Bjornsson had an arguable claim that Staples Waste Removals held its legal title to the domain name subject to some sort of equitable claim by Mr Bjornsson to the whole benefit of the domain name. His awareness of the limited legal nature of Mr Bjornsson’s claims appears, in my opinion, clearly from his admissions at the meeting on 10 May 2010. He was aware that Mr Staples was likely to dispute this, and that Mr Staples regarded Mr Bjornsson as entitled, at best, to a commission which was yet to be negotiated.
(v)Notwithstanding this state of his knowledge and belief, after discovering that Mr Staples’ agreement and authority would not be immediately forthcoming on 5 May, in conversations with Mr Bjornsson in the afternoon of 5 May he encouraged Mr Bjornsson to exercise his ostensible authority as ‘contact person’ to transfer the licence to his own business entity.
(vi)He then acted on instruction to withhold information as to the transaction from Mr Staples and his representatives.
(vii)He re-drafted the assignment agreement with Corporate Express so that the transaction would appear to be a transfer from Mr Bjornsson as true legal owner, with a warranty that Mr Bjornsson “registered the domain name with NETREGISTRY without committing fraud or misrepresentation”.
(viii)He then facilitated the execution, exchange and settlement of the transaction with extreme urgency over two days, on 6 and 7 May 2010.
(ix)He then actively opposed and frustrated efforts by Mr Staples and Corporate Express to investigate the transaction and to freeze the funds which had passed through his trust account.
[189]In my opinion, these elements in the circumstances, point to Mr Sheather having actual knowledge that Mr Bjornsson’s personal assumption of legal title to the domain name on 5 May, and his reliance on that title in the conveyance to Corporate Express facilitated by Mr Sheather, was in breach of a fiduciary duty not to act in the name of Staples Waste Removals without the authority of its director, Mr Staples. At least, they allow me to make confident findings that he had constructive knowledge of the breach of fiduciary duty, and of its intended dishonest and fraudulent purposes, within the categories (ii), (iii) and (iv) recognised in Farah Constructions. He should, in my opinion, therefore be found to be a relevant accessory to Mr Bjornsson’s breaches of fiduciary duty owed to Staples Waste Removals, so as to be liable under the second wing of Barnes v Addy.
[190]Mr Sheather endeavoured in his affidavit and oral evidence to persuade me that he had no reason to question Mr Bjornsson’s sudden announcement that he could assume legal title without Mr Staples’ authority and agreement. He maintained that, in fact, he had no concerns in his own mind about this, when he encouraged and assisted Mr Bjornsson’s new strategy. He claimed: “If the facts, as he had given to me, were accepted and true, which I believed they were, then my belief was that Mr Staples did not have a beneficial interest in the domain name, and that is why I acted the way I did” (transcript p.324).
[191]However, his evidence did not deny knowing that, in fact, Mr Bjornsson did not have authority to act in the name of Staples Waste Removals, and knowing that Mr Bjornsson’s new strategy involved dishonestly claiming such authority so as to ‘cut out’ Mr Staples [sic] involvement in the transaction entirely. I also consider that his assertion of a totally innocent state of mind in relation to Mr Bjornsson’s dishonest and fraudulent purposes is inconsistent with the elements I have listed above, and also reaches a level of disingenuousness which appears unbelievable in a solicitor with Mr Sheather’s experience. Also, it appears inconsistent with his admission at the meeting on 10 May, in effect, that he had been aware that the transaction disregarded the rights of the legal owner to the domain name and the rights of the legal owner to, at least, a share in its value, and that he had, in effect, regarded the end as justifying the dishonest means adopted.
[192]In the course of his cross-examination I thought it appropriate to intervene by putting the following proposition to Mr Sheather:
HIS HONOUR: Did you feel you had to give him any advice on whether he could, as a matter of law, transfer? --- No, your Honour.
--- this to himself?---No, your Honour.
HIS HONOUR: And you didn’t volunteer any opinions on that?---No. No, your Honour.
HIS HONOUR: Now, if somebody told you that they had signed a conveyance to themselves and then were going to tender this to a third purchaser and you knew they didn’t have authority to sign the conveyance themselves, you would have some obligation to advise them about the difficulties that would cause, wouldn’t you? --- Yes, your Honour. If I knew that - if he was doing it wrongfully or without authority, that’s correct.
HIS HONOUR: But you didn’t think that was the situation here?--- No, your Honour. To the contrary.
HIS HONOUR: Thank you.
[193]I had difficulty accepting this response. Endeavouring to understand Mr Sheather’s true state of mind, I think that his professional judgment may have become blinded by his close personal relationship with Mr Bjornsson, by his active encouragement of Mr Bjornsson’s personal objectives, by some uncertainty about the mysteries of the internet, and by the speed with which events were unfolding on 5 May. I would not totally discount the possibility that he failed properly to appreciate and to consider the legal implications of Mr Bjornsson’s position on the register as an agent of Staples Waste Removals, and failed to appreciate the gravity of the dishonesty manifest in Mr Bjornsson’s strategy to exclude Mr Staples from any involvement in the transaction.
[194]However, I am satisfied that his actions did involve at least ‘wilfully shutting one’s eyes to the obvious’ or ‘knowledge of circumstances which would indicate the facts to an honest and reasonable man’ in his circumstances.
Thus, the primary judge held that Mr Sheather possessed knowledge of the type referred to in categories (ii) and (iv) above.
His Honour then turned to consider the claim against Mr Sheather based upon s 75B of the TPA. At [210] the primary judge, citing Yorke v Lucas (1985) 158 CLR 661 at 677, stated that it was necessary for Staples to show that Mr Sheather had knowledge of the facts or circumstances which, objectively speaking, were likely to render Mr Bjornsson’s conduct misleading or deceptive.
His Honour found that Mr Sheather was aware on 5, 6 and 7 May 2010 that Mr Bjornsson was not the legal owner of the Domain Name, and that the legal owner, Staples, had not authorised Mr Bjornsson to transfer the legal title. His Honour found, at [211], that Mr Sheather “was probably aware of, or at least ‘wilfully blind’ to, the fact that Mr Bjornsson’s strategy involved an express or implicit misrepresentation to NetRegistry as to his actual authority” and a false warranty of good title to Corporate Express. His Honour found that Mr Sheather was knowingly involved in Mr Bjornsson’s contravention of s 52 and was therefore liable as an accessory under s 75B but rejected the case put against Mr Sheather based upon what was alleged to have been a direct contravention of s 52 (as extended by s 6(3)(a)).
THE GROUNDS OF APPEAL
In broad terms, the notices of appeal challenge the primary judge’s conclusion that Mr Bjornsson owed a fiduciary duty to Staples and that Mr Sheather knowingly participated in Mr Bjornsson’s dishonest and fraudulent scheme to defeat Staples’ right to the Domain Name. They also challenge the primary judge’s failure to bring the amount received by Staples from Corporate Express to account in assessing the equitable compensation that Mr Bjornsson and Mr Sheather should pay to Staples and the appropriateness of the 25% allowance made in Mr Bjornsson’s favour.
Mr Bjornsson’s appeal
It was argued on behalf of Mr Bjornsson, whose submissions on this point were adopted by Mr Sheather, that the primary judge’s finding that Mr Bjornsson agreed to become Staples’ agent as a result of his discussion with Mr Staples in 2002 should be overturned because it was “glaringly improbable”. The language in which this submission was expressed recognised, as it must, that the primary judge’s findings of fact with respect to the 2002 arrangement were largely demeanour-based and could only be overturned if it were glaringly improbable or contrary to compelling inferences: Fox v Percy (2003) 214 CLR 118 at [29]; Farah Constructions at [99].
One basis upon which Mr Bjornsson sought to challenge the primary judge’s finding was that it was founded upon an acceptance of Mr Staples’ account of his dealings with Mr Bjornsson in 2002. His Honour’s acceptance of Mr Staples’ account ran counter, according to Mr Bjornsson’s submission, to the problems with Mr Staples’ account of the 2002 arrangement including, in particular, the primary judge’s own criticisms of Mr Staples’ evidence that Mr Bjornsson gave Mr Staples a registration form to sign. The latter evidence was said to be glaringly improbable given Mr Bjornsson’s evidence as to his usual practice and the failure of Mr Staples or Melbourne IT to produce any such document in response to a subpoena for production.
Another basis upon which the primary judge’s finding was challenged was that it did not take sufficient account of the instructions given by Mr Bjornsson to Mr Sheather in 2010 which were said by counsel for Mr Bjornsson to corroborate his client’s account of his conversation with Mr Staples in 2002. On a closely related point it was further submitted that there was nothing inconsistent in the chronology first provided by Mr Bjornsson to Mr Sheather and the revised chronology later relied upon by Mr Bjornsson at trial. Counsel argued that the differences between the two documents could not, contrary to the reasoning of the primary judge, reflect unfavourably upon Mr Bjornsson’s reliability as a witness.
I do not think any of these arguments has substance. The primary judge concluded that Mr Staples and Mr Bjornsson agreed that the Domain Name would be registered in Staples’ name, so that Staples might use it in the future if it so desired or, if not, so that it could be sold for a profit if the opportunity arose and on the implicit understanding that Mr Bjornsson would receive a commission for his efforts in an amount that could be subsequently negotiated and agreed.
There is nothing glaringly improbable about this interpretation of events. While it is generally consistent with Mr Staples’ account of what occurred, it is wholly inconsistent with Mr Bjornsson’s evidence that Mr Staples had told him, in effect, that he could register the Domain Name for his own benefit and do with it whatever he pleased. Mr Bjornsson’s submissions to the primary judge, and on appeal, do not explain why Mr Staples would have treated Mr Bjornsson with such munificence.
Counsel for Mr Bjornsson submitted that the onus was on Staples to establish what the terms of the 2002 arrangement were, something which, he submitted, the primary judge overlooked. The fact that it was for Staples to prove that Mr Bjornsson owed it a fiduciary duty which he breached cannot be doubted. However, there is no reason to think that the primary judge overlooked the fact that the onus was on Staples to establish both the existence and breach of fiduciary duty. Further, and contrary to Mr Bjornsson’s submission, I am satisfied that Staples clearly established, on the evidence before his Honour, that Mr Bjornsson owed, and breached, a fiduciary duty which he owed to Staples.
Up until the time he decided to transfer the Domain Name into his own name, Mr Bjornsson had been acting as agent for Staples (with Mr Staple’s authority) in negotiating a sale of the Domain Name on Staples’ behalf. Further, when Mr Bjornsson later arranged to transfer the Domain Name into his own name, he did so in his capacity as agent for Staples as a result of him being nominated as the Domain Name registrant’s contact.
Another submission made by counsel for Mr Bjornsson was that it was never put to Mr Bjornsson in cross-examination that his instructions to Mr Sheather in 2010 as to what was agreed between Mr Bjornsson and Mr Staples in 2002 were inconsistent with the substance of what was recorded in Mr Sheather’s file notes.
This submission must be rejected. Mr Staples’ account of his meeting with Mr Bjornsson was put to Mr Bjornsson in a manner that plainly suggested to Mr Bjornsson that his own account of their conversation was untruthful. It was not necessary for counsel for Staples to go further and put to Mr Bjornsson that the instructions he provided to Mr Sheather were also untruthful. It is clear that Mr Bjornsson was on notice that his account of his conversation with Mr Staples was disputed by Mr Staples. It is also clear Mr Bjornsson was given ample opportunity to give his own account of the relevant conversation and to respond to the account given by Mr Staples.
It was also submitted on behalf of Mr Bjornsson that in concluding that Mr Bjornsson breached his fiduciary duty to Staples including, in particular, in circumstances which involved conscious wrongdoing on Mr Bjornsson’s part, the primary judge failed to have sufficient regard to the fact that Mr Bjornsson transferred the Domain Name without Staples’ authority on Mr Sheather’s advice, or at least, with his knowledge and approval.
I do not accept this submission. Mr Sheather never advised Mr Bjornsson whether or not Mr Bjornsson was entitled to transfer the Domain Name from Staples to himself. Mr Sheather’s evidence was that he never gave any such advice to Mr Bjornsson. In any event, whatever view Mr Bjornsson may have formed as to Mr Sheather’s view of the propriety of Mr Bjornsson’s conduct, it must count for little in circumstances where, as the primary judge found at [225]-[226] of his reasons, Mr Bjornsson never really believed that he was anything other than a negotiating agent for Staples.
The other matters raised on appeal by Mr Bjornsson primarily relate to the relief granted by the primary judge. I will return to consider these matters later in these reasons after I have dealt with other matters raised that are peculiar to Mr Sheather.
Mr Sheather’s appeal
The primary judge assessed Mr Sheather’s state of knowledge by reference to the five categories of knowledge referred to in Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1993] 1 WLR 509 (Baden). In Farah Constructions the High Court stated (at [175]) that these five categories assist in assessing whether or not a person who assists in another person’s breach of fiduciary duty possesses knowledge sufficient to make him or her liable under the second limb of Barnes v Addy. At [177] the Court held that each of the first four of the Baden categories will be sufficient for that purpose.
It is apparent from [194] of the primary judge’s reasons that his Honour found that Mr Sheather’s actions involved “wilfully shutting one’s eyes to the obvious” (ie. Baden category (ii)) and “knowledge of circumstances which would indicate the facts to an honest and reasonable man in the circumstances” (Baden category (iv)). These “knowledge” findings were challenged by Mr Sheather on two principal grounds.
First, it was submitted that the primary judge’s reasons pay little or no regard to Mr Sheather’s position as a solicitor who was acting for a client who was party to a dispute with Staples as to the ownership of the Domain Name. In support of this submission particular reliance was placed upon the decision of the English Court of Appeal in Carl Zeiss Stiftung v Herbert Smith (No 2) [1969] 2 Ch 276 which, as explained by Gibbs J in Consul at 398, “depended on the view that knowledge of the claim made against a client of a solicitor by the other party was not sufficient to amount to notice to the solicitor of a trust or of misapplication of moneys.” It was submitted that Mr Sheather was entitled to accept the correctness of the instructions he received from Mr Bjornsson which were to the effect that Mr Staples had wanted nothing to do with the Domain Name.
Secondly, it was argued that the “knowledge” findings made against Mr Sheather were not open to the primary judge because it was never put to Mr Sheather in cross-examination that he either knew, or was wilfully blind, to the fact that Mr Bjornsson was acting in breach of a fiduciary duty that he owed to Staples or that other facts known to Mr Sheather would have led an honest and reasonable solicitor to conclude that this was what was occurring. Although this second submission was initially couched in terms of Mr Sheather being denied procedural fairness, it was ultimately put on the basis that there was a failure to comply with what is known as the rule in Browne v Dunn (1894) 6 R 67. Counsel for Mr Sheather argued that in circumstances where there had been a failure to comply with that rule, the primary judge erred in making the “knowledge” findings that he made in relation to Mr Sheather.
In The Queen v Crabbe (1985) 156 CLR 464 at 470-471 the High Court approved the following statement by Professor Glanville Williams in Criminal Law: The General Part, 2nd ed. (1961) at 159:
A court can properly find wilful blindness only where it can almost be said that the defendant actually knew. He suspected the fact; he realised its probability; but he refrained from obtaining the final confirmation because he wanted in the event to be able to deny knowledge. This, and this alone, is wilful blindness. It requires in effect a finding that the defendant intended to cheat the administration of justice.
That decision was made in the context of the criminal law, but the concept of “wilful blindness” as it applies in other areas of law is no different. It is easy to appreciate why, given a proper understanding of the concept, “wilful blindness” is sometimes referred to as a species of actual (as opposed to constructive) knowledge: Farah Constructions at [174], cf. Westpac Banking Corporation v Bell Group Limited (in liq) (No 3) (2012) 44 WAR 1 at [2106]-[2110] per Drummond AJA. It is also easy to appreciate why a finding that a solicitor has turned a blind eye to his or her client’s dishonest and fraudulent breach of fiduciary duty is tantamount to a finding that the solicitor has himself engaged in dishonest conduct.
The primary judge’s reasons do not specify precisely what fact or facts Mr Sheather is said to have been wilfully blind to or what fact or facts Mr Sheather might be taken to have known on the basis that they would have been apparent to an honest and reasonable person in Mr Sheather’s position. It seems to me, however, that the primary judge found Mr Sheather liable under the second limb of Barnes v Addy because Mr Sheather should be taken to have known the following facts: firstly, that Staples was the legal owner of the Domain Name; secondly, that Mr Bjornsson proposed to transfer the legal title of the Domain Name from Staples’ name into his own name without Staples’ authority (which is what he then did); thirdly, that in dealing with the registering authority to procure the transfer of legal title to the Domain Name from Staples to himself, Mr Bjornsson did so as agent for Staples; fourthly, it was Mr Bjornsson’s intention to forestall any attempt by Staples to deny Mr Bjornsson the commission to which he believed he was entitled by selling the Domain Name to Corporate Express without the intervention, or continued intervention, of Mr Bjornsson.
The first question is whether the knowledge findings made by the primary judge were open to him given Mr Sheather’s cross-examination. Counsel for Mr Sheather submitted that such findings were not open to the primary judge because it was never suggested to Mr Sheather in his cross-examination that he engaged in any conscious wrongdoing. In particular, counsel submitted that it was never put to Mr Sheather that he did not believe Mr Bjornsson’s account of his dealings with Mr Staples. The second question is whether the primary judge’s knowledge findings should be overturned on the basis that they are not supported by the evidence.
In Browne v Dunn Lord Herschell LC said (at 70-71):
Now, my Lords, I cannot help saying that it seems to me to be absolutely essential to the proper conduct of a cause, where it is intended to suggest that a witness is not speaking the truth on a particular point, to direct his attention to the fact by some questions put in cross-examination showing that that imputation is intended to be made, and not to take his evidence and pass it by as a matter altogether unchallenged, and then, when it is impossible for him to explain, as perhaps he might have been able to do if such questions had been put to him, the circumstances which it is suggested indicate that the story he tells ought not to be believed, to argue that he is a witness unworthy of credit. My Lords, I have always understood that if you intend to impeach a witness you are bound, whilst he is in the box, to give him an opportunity of making any explanation which is open to him; and, as it seems to me, that is not only a rule of professional practice in the conduct of a case, but is essential to fair play and fair dealing with witnesses.
Lord Halsbury said (at 76-77):
My Lords, with regards to the manner in which the evidence was given in this case, I cannot too heartily express my concurrence with the Lord Chancellor as to the mode in which a trial should be conducted. To my mind nothing would be more absolutely unjust than not to cross-examine witnesses upon evidence which they have given, so as to give them notice, and to give them an opportunity of explanation, and an opportunity very often to defend their own character, and, not having given them such an opportunity, to ask the jury afterwards to disbelieve what they have said, although not one question has been directed either to their credit or to the accuracy of the facts they have deposed to.
Their Lordships’ speeches are the source of what has come to be known as the rule in Browne v Dunn.
The rule in Browne v Dunn was considered in detail by Hunt J in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1. His Honour said (at 16):
It has in my experience always been a rule of professional practice that, unless notice has already clearly been given of the cross-examiner’s intention to rely upon such matters, it is necessary to put to an opponent’s witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inference sought to be drawn. That rule of practice follows from what I have always believed to be rules of conduct which are essential to fair play at the trial and which are generally regarded as being established by the decision of the House of Lords in Browne v Dunn (1894) 6 R 67.
The case pleaded against Mr Sheather based upon Barnes v Addy was that Mr Sheather assisted Mr Bjornsson in the breach of fiduciary duties which Mr Bjornsson owed to Staples in his capacity as its agent and that Mr Sheather “did so with knowledge of Mr Bjornsson’s fraudulent intention to deprive Staples of its interest in the Domain Name and to profit from his sale of it”.
The case as opened to the primary judge by counsel for Staples did not suggest that Mr Sheather might be held liable on the basis of “wilful blindness”. Rather, the case advanced by counsel in opening was that:
the impropriety of what Mr Bjornsson was doing (transferring the Domain Name without the knowledge or consent of the registrant) would have been apparent to an honest and reasonable person in Mr Sheather’s position.
But in closing submissions to the primary judge counsel for Staples put the case against Mr Sheather much higher. It was then submitted on behalf of Staples that the evidence:
… put his knowledge of Mr Bjornsson’s dishonest intent beyond doubt, and suggest that the dishonest and fraudulent design was as much Mr Sheather’s as Mr Bjornsson’s.
It was never put to Mr Sheather in cross-examination that he knew that what Mr Bjornsson was doing was wrong. Nor was it suggested to Mr Sheather in cross-examination that he was wilfully blind to the fact that what Mr Bjornsson’s was doing was wrong or that he chose not to inquire further because he feared that this would merely confirm what he already believed or strongly suspected.
In my view, the primary judge’s finding that Mr Sheather was wilfully blind to Mr Bjornsson’s breach of fiduciary duty was not justified. It was, in substance, a finding to the effect that Mr Sheather, while acting as Mr Bjornsson’s solicitor, assisted Mr Bjornsson with actual knowledge of Mr Bjornsson’s breach of fiduciary duty or, at least, in circumstances where Mr Sheather suspected that Mr Bjornsson was breaching his fiduciary duty to which possibility he wilfully turned a blind eye. In my view, it is not a finding that should be made in circumstances where no such case was opened and no such allegation was put to Mr Sheather in cross-examination. Whether or not the primary judge made an error of law in finding that Mr Sheather was guilty of “wilful blindness” is not a question I need address. In the present case I am satisfied that the evidence did not support a finding of wilful blindness. Whether or not such a finding would have been justified had Mr Sheather’s state of mind been further explored in cross-examination (in a manner that gave him the opportunity of responding to the suggestion that he wilfully turned a blind eye) is a matter of conjecture.
In fairness to the way in which the case was conducted by counsel for Staples on appeal, I should say that there was no serious attempt made to defend the lack of cross-examination on the issue of the “wilful blindness” finding on the footing that it was always apparent from the pleadings or the opening that such a case would be put against Mr Sheather. However, counsel for Staples did maintain that the primary judge’s finding based upon what an honest and reasonable person in Mr Sheather’s position would have known was clearly open to his Honour. In particular, she submitted that Mr Sheather was given ample opportunity in cross-examination to answer the suggestion that his conduct was less than would be expected of an honest and reasonable person in his position at the time and that Mr Sheather was in any event on notice that a case based upon constructive knowledge of that type (ie. Baden category (iv)) was being advanced against him.
I accept this submission. I also agree with the primary judge’s finding that Mr Sheather possessed Baden category (iv) knowledge of Mr Bjornsson’s breach of fiduciary duty with the consequence that Mr Sheather was rightly held liable under the second limb of Barnes v Addy.
In addition to questions asked of Mr Sheather by the primary judge (which I previously set out) Mr Sheather was cross-examined by counsel for Staples as follows (T 311 – 312):
MS BEAUMONT: On 6 May, you knew that the reason that Mr Bjornsson transferred the domain name to himself was that he was concerned that Mr Staples wouldn’t pay him his commission, didn’t you?---I think that’s a reasonable statement, yes.
And when he instructed you to change the transferor on the document to Corporate Express Agreement – the sale agreement or the transfer agreement to Corporate Express – when Mr Bjornsson instructed you to change the name of the transferor to his own name, you knew the reason for that was because he was concerned that he would be cut out by Mr Staples?---I think that’s reasonable, yes.
And you knew that the reason for changing the transferor was not tax reasons, didn’t you?---No.
So which is right, Mr Sheater [sic]: the reason you just gave or the tax reasons?---I’m sorry, ma’am. I have no idea what you’re talking about with the tax reasons.
Well, in your affidavit, at the top of paragraph 3, page 383, just above paragraph 40, you have set out a conversation, or Mr Bjornsson’s side of a conversation with you; do you agree with that?---Yes. Well, yes, if – yes.
And you understood from that conversation with Mr Bjornsson that Mr Bjornsson said to Corporate Express that the change in the transferor name was for tax reasons, didn’t you?---No, ma’am, I don’t know what Mr Bjornsson told Corporate Express or anybody else. All I know is that that’s what he told me at that time. Now, what he told somebody else, I do not know.
But he told you that he said to Corporate Express that the change in name on the document was for tax reasons?--- It appears that he did.
And you knew that wasn’t true, didn’t you?---No, I did not, ma’am.
At any time on 6 May, did you think that the change in transferor from Staples waste Removals to Sven Bjornsson was driven by tax reasons?---I have no – no, I don’t know, whether it was partly tax reasons or whatever, but I do know that it was drive, to a more or less extent, by Sven’s concern about being cut out. I have admitted that, and that’s what Sven told me. As far as the tax concerns are concerned, I have really no idea as to what was happening with his tax.
Mr Bjornsson did not say to you, did he, that he had told Corporate Express that the change in transferor was because he was being cut out, did he?---No.
He told you that he had said it was for tax reasons?---It appears he did, yes.
I should mention here that the conversation on 6 May between Mr Bjornsson and Mr Sheather referred to by counsel was the subject of a file note made by Mr Sheather. The file note confirms that Mr Bjornsson told Mr Sheather that the Domain Name had been transferred into Mr Bjornsson’s name trading as Staples Photography and that “[h]e has told dirs [sic] of CEA needed to do this for tax reasons.” The evidence contains no indication as to what the “tax reasons” referred to by Mr Bjornsson were and the evidence given by Mr Bjornsson in cross-examination on this point was, on my reading of it, quite evasive. In my view, the clear inference to be drawn is that this was a false explanation proffered by Mr Bjornsson to Corporate Express to explain why, contrary to what it was first led to believe, it would not be entering into a contract for the sale of the Domain Name with Staples.
The cross-examination of Mr Sheather on this topic also included the following (T 312):
It’s your position, Mr Sheather, that there may be a tax reason for swapping names on an agreement between two parties that are entirely unrelated?---Ma’am, look, I’m sorry. I gave the matter no thought. Sven may have told me – it appears that he told me that. I do not recall giving it any thought whatsoever. It really wasn’t a matter for me at all, and I can’t say to you that I thought about it.
When he told you it was for tax reasons, you did start to wonder, didn’t you ---?---No, I didn’t, ma’am.
--- about Mr Bjornsson? ---No, I didn’t wonder.
It didn’t occur to you, when he told you the transfer was for tax reasons, that maybe he had said something untrue to Corporate Express?---No. No, I’m sorry; it didn’t.
It was also put to Mr Sheather that he had been instructed by Mr Bjornsson not to inform Staples (in particular Mr Robertson with whom Mr Sheather was dealing) about the transfer of the Domain Name. The cross-examination continued as follows (at T 324 – 325):
In fact, he had specifically said, “Do not” – I will get the words of your affidavit. On 5 May 2010 Mr Bjornsson said to you, “Do not send Scott Robertson the agreement or contact anyone about it”?---That’s correct.
But did you understand from Mr Bjornsson’s instruction that he was not going to contact anyone on the Staples Waste side about the transfer or the agreement?---I formed no view on it, ma’am. He just told me what not to do, and so I didn’t do it. I didn’t - I don’t think we discussed anything else.
So you did not turn your mind to the propriety of the action that Mr Bjornsson was taking?---No, ma’am, I didn’t. I didn’t – if I may say it, I didn’t have any reason to doubt the propriety of what Mr Bjornsson was doing. If the facts, as he had given to me, were accepted and true, which I believed they were, then my belief was that Mr Staples did not have a beneficial interest in the domain name, and that is why I acted the way I did.
Now, after Ms Boyd had got in touch with you on 10 May, you sent her an email, which we’ve referred to earlier, in which you said:
Please do not provide Mr Staples with any information before.
Do you remember - I’m sorry, I withdraw that. You said in your email to Ms Boyd on 10 May:
Do not provide Mr Staples with any information at all.
Do you recall that?---Yes, I do.
And you said that because you knew that Mr Staples did not know what had happened to the domain name, apart from the fact that it was now registered in the name of Corporate Express?---No, ma’am, I didn’t know what Mr Staples knew.
Well, you knew that Mr Staples still though [sic] that he owned the domain name as at 5 May; is that correct?---I don’t know, ma’am. I don’t know if he thought that. On 5 May, he may---
When you spoke to him?---Look, I don’t know. I don’t know what was in his mind, quite frankly. I don’t accept that - I don’t accept, as a proposition, that Mr Staples knew that he owned the domain name.
Well, you know on 5 May that he was proceeding on the basis that he owned the domain name?---He was – he was proceeding on a certain basis purporting to own the domain name. Now, the reason that he purported to do that I’m only now beginning to understand. Right? But as far as I was concerned then, and as far as I am concerned now, Sven Bjornsson told me the total truth, and the information that he gave to me was totally, absolutely true and correct.
There are several observations I would make concerning this evidence.
First, Mr Sheather’s evidence that he knew that Mr Bjornsson was transferring the Domain Name to himself because he was concerned that Mr Staples would not pay Mr Bjornsson his commission is important. The fact that Mr Bjornsson was expecting to receive a commission upon a sale of the Domain Name to Corporate Express is consistent with him understanding that the Domain Name was owned by Staples and that his expectation that he would profit from a sale of the Domain Name to Corporate Express arose out of his belief that he was entitled to receive a generous commission from Staples in return for his efforts. Mr Sheather formed the opinion that Mr Staples was going to “screw” Mr Bjornsson only after Mr Staples indicated to Mr Sheather that a 50% commission was “not on”.
Secondly, Mr Sheather must have been aware that Mr Bjornsson has deceived, or at least attempted to deceive, Corporate Express as to the reason why the Domain Name was transferred from Staples to Mr Bjornsson trading as Staples Photography. I say that he must have been aware of this because in my view there is no doubt that Mr Sheather understood that Mr Bjornsson wanted to transfer the Domain Name to himself to enable him to enter into a sale agreement with Corporate Express without Staples’ authority and to strengthen his position in subsequent negotiations with Staples about the extent of Mr Bjornsson’s entitlement to share in the proceeds of the sale. To say that the transfer to Mr Bjornsson was “for tax reasons” was, at best, a dishonest half-truth aimed at concealing from Corporate Express the fact that Mr Bjornsson was not able to execute a sale agreement on Staples’ behalf because he lacked Staples’ authority to do so.
Thirdly, Mr Sheather knew that the legal title to the Domain Name (or, more particularly, the Domain Name licence) was held by Staples, in whose name the licence had been granted, and in whose name it remained up until the time Mr Bjornsson transferred it into his own name. While Mr Sheather claimed in cross-examination not to know what was going on in Mr Staples’ mind, the clear inference to be drawn is that Mr Sheather knew that Mr Staples did not agree to Mr Bjornsson transferring the Domain Name to himself and that this was why, as Mr Sheather must have understood, Mr Bjornsson wished to keep such information from Mr Staples and Mr Robertson.
The question is whether the circumstances, as known to Mr Sheather, including the three particular matters to which I have referred, would have indicated to an honest and reasonable solicitor that by transferring the Domain Name into his own name, Mr Bjornsson was acting in breach of a fiduciary duty which he owed to Staples. In my view, this question should be answered in the affirmative.
In procuring what was, in substance, an assignment of a chose in action (ie. the Domain Name licence) from Staples to himself, Mr Bjornsson was acting as agent for Staples. Even if (contrary to the findings of the primary judge) Mr Bjornsson was the sole beneficial owner of the Domain Name, it does not follow that Mr Bjornsson was entitled to act in the name of Staples in order to procure the transfer of legal title from Staples to himself. Since Staples never agreed to transfer the legal title to the Domain Name to Mr Bjornsson it follows that Mr Bjornsson acted beyond his actual authority and in breach of his fiduciary duty to his principal.
As the primary judge made clear at [28] of his reasons, it was never contended by Mr Bjornsson or Mr Sheather that there was a contract made between Staples and Mr Bjornsson, or an estoppel of some kind, that prevented Staples from denying that Mr Bjornsson had authority to act in Staples’ name.
In my opinion, an honest and reasonable person in Mr Sheather’s position would also have appreciated that Mr Bjornsson had no proper basis upon which to act in Staples’ name. In particular, I think it would have been apparent to such a person that Mr Bjornsson had neither express nor implied authority to transfer the Domain Name from Staples’ name into his own name, something which an honest and reasonable person would understand Mr Bjornsson needed if he was to effect such a transfer without breaching his fiduciary duty.
As to Mr Sheather’s appeal against the primary judge’s finding that he was liable under s 75B of the TPA, I am not persuaded that his Honour’s reasoning on this issue was affected by error. In particular, I am satisfied that there was ample evidence to justify a finding that Mr Sheather knew that by transferring the Domain Name from Staples’ name into Mr Bjornsson’s name, trading as Staples Photography, Mr Bjornsson made a false and misleading representation to NetRegistry to the effect that he was authorised to act on Staples’ behalf. Mr Sheather was aware at the time that Mr Bjornsson procured the transfer that Mr Bjornsson was acting without Staples’ authority.
QUANTUM ISSUES
Recovery from Corporate Express
The award of equitable compensation by the primary judge was compensatory in nature; ie. the object of the award was to restore Staples to the position it would have been in had there been no breach of fiduciary duty. As Lord Browne-Wilkinson explained in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 434:
The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts [eg. A for life with remainder to B], where the only way in which all the beneficiaries' rights can be protected is to restore to the trust fund what ought to be there. In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate … . If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed …
(citations omitted)
As his Lordship further explained at 437:
The quantum [of equitable compensation] is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach.
Prior to settling with Corporate Express and discontinuing its proceeding against it, Staples was seeking to recover from Corporate Express under both limbs of Barnes v Addy. Among other things Staples sought a declaration that Corporate Express held the Domain Name on constructive trust for Staples. The breach of fiduciary duty which was said to provide the foundation for this claim was the same breach of fiduciary duty in respect of which Mr Bjornsson was found liable. Prima facie, if Staples was to recover an amount of money from Corporate Express as a result of having settled its proceeding against Corporate Express before trial, that amount would need to be taken into account in assessing the amount of equitable compensation payable by Mr Bjornsson and Mr Sheather. Not to make such an allowance might otherwise result in a situation where Staples was financially better off than it would have been if there had been no breach of fiduciary duty by Mr Bjornsson.
Counsel for Staples submitted that the primary judge did not err in failing to make any deduction from the amount of equitable compensation he awarded to Staples in respect of the settlement it received from Corporate Express. In particular, counsel submitted that the amount received was in consideration of covenants not to sue and in settlement of all claims against Corporate Express including a claim for return of the Domain Name and costs. So far as costs are concerned, she submitted, and I accept, that the separate award of costs against Mr Bjornsson did not compensate Staples for the costs of pursuing Corporate Express.
Staples called no evidence as to the costs it incurred in its proceeding against Corporate Express. The primary judge observed (at [175]) that the payment by Corporate Express to Staples compensated Staples for “possibly substantial and unquantified expenses in pursuing Corporate Express in litigation”. The fact that such costs were unquantified was a deficiency in the evidence for which Staples was responsible. For it to submit that a large proportion of the amount it received from Corporate Express was recompense for substantial costs it incurred in pursuing that company required evidence, which it did not adduce.
The primary judge also observed (at [175]) that the payment received from Corporate Express compensated Staples for “foregoing present and future claims and rights which were additional and separate from the loss of the proceeds received by Mr Bjornsson” which included “a speculative but real contingency that Staples … might have squeezed a higher price from Corporate Express than was accepted by Mr Bjornsson.”
There are, with respect, two difficulties with this reasoning. First, there was, as I have mentioned, a claim by Staples for return of the Domain Name. And it is true that by settling with Corporate Express on the terms it did, Staples gave up any right it may have had to the Domain Name. But the question still remains: what was the value of the Domain Name to Staples? There is no suggestion in the evidence that the Domain Name was of any significant value to Staples except as a function of Corporate Express’ willingness to pay for it. Further, the primary judge stopped short of making any finding to the effect that Staples would have extracted a higher price from Corporate Express than that paid to Mr Bjornsson.
In my view the primary judge should have made a substantial allowance in Mr Bjornsson’s favour when assessing equitable compensation for the amount received by Staples from Corporate Express. It may be inferred that some additional costs were incurred by Staples in pursuing Corporate Express, but in the absence of any evidence permitting a more precise assessment to be made, I would allow just $7,000 on the basis that such costs were likely to have been modest given that Corporate Express was merely one of four different respondents the applicant sued and that the case against Corporate Express was settled some weeks before trial. I think it would be unjust to allow any more than this in circumstances where there is no evidence to support a higher figure.
It follows that the amount of any equitable compensation payable by Mr Bjornsson and Mr Sheather to Staples should be reduced by the amount of $26,000.
The 25% allowance
The primary judge calculated the net proceeds of sale at $74,000. His Honour considered that a fair and just allowance in favour of Mr Bjornsson in recognition of his work and effort was 25% of this amount, ie. $18,500. There are some difficulties with his Honour’s approach to this aspect of the matter which I will return to when considering the cross-appeal.
For Mr Bjornsson it was submitted that the primary judge should have proceeded on the basis that, at worst from Mr Bjornsson’s stand point, the proceeds of sale represented the fruits of what the primary judge characterised as “a commercial joint venture of a speculative nature” to which, counsel submitted, both parties should be taken to have contributed equally. This expression was used by the primary judge at [139] where his Honour said:
It then becomes necessary to consider how principles of equity might, in the light of subsequent events, step in to remedy unconscionable conduct by one or other of the parties in relation to a commercial joint venture of a speculative nature of the present type, where the parties never reached agreement as to how the benefits of an asset acquired by Staples Waste Removals should be shared.
In light of this passage in the primary judge’s reasons, counsel for Mr Bjornsson submitted that the principle recognised in Muschinski v Dodds (1985) 160 CLR 583 was engaged. In his written submissions counsel submitted that in a case such as this equity favours equality unless there were circumstances:
… in which equity and good conscience would require that the party who has made the major contribution to a failed joint endeavour should obtain a correspondingly greater share of any surplus remaining after repayment of the respective contributions. [per Deane J at 623]
Counsel submitted that, if anything, the primary judge should have awarded equitable compensation on the basis that Mr Bjornsson was entitled to receive in excess of a half share of the net proceeds.
I do not accept these submissions.
What counsel referred to as the principle in Muschinski v Dodds is most clearly reflected in the judgment of Deane J (with whom Mason J agreed). His Honour said at 618-620:
Both common law and equity recognize that, where money or other property is paid or applied on the basis of some consensual joint relationship or endeavour which fails without attributable blame, it will often be inappropriate simply to draw a line leaving assets and liabilities to be owned and borne according to where they may prima facie lie, as a matter of law, at the time of the failure. Where there are express or implied contractual provisions specially dealing with the consequences of failure of the joint relationship or endeavour, they will ordinarily apply in law and equity to regulate the rights and duties of the parties between themselves and the prima facie legal position will accordingly prevail. Where, however, there are no applicable contractual provisions or the only applicable provisions were not framed to meet the contingency of premature failure of the enterprise or relationship, other rules or principles will commonly be called into play …
The prima facie rules respectively entitling a fixed term partner to a proportionate refund of his or her premium and a contractual joint venturer to a proportionate repayment of his or her capital contribution on the premature dissolution of the partnership or collapse of the joint venture are properly to be seen as instances of a more general principle of equity. That more general principle of equity can also be readily related to the general equitable notions which find expression in the common law count for money had and received … and to the rationale of the particular rule of contract law to which reference has been made ... Like most of the traditional doctrines of equity, it operates upon legal entitlement to prevent a person from asserting or exercising a legal right in circumstances where the particular assertion or exercise of it would constitute unconscionable conduct …
The circumstances giving rise to the operation of the principle were broadly identified by Lord Cairns L.C., speaking for the Court of Appeal in Chancery, in Atwood v. Maude … where “the case is one in which, using the words of Lord Cottenham in Hirst v. Tolson … , a payment has been made by anticipation of something afterwards to be enjoyed [and] where ... circumstances arise so that future enjoyment is denied”. Those circumstances can be more precisely defined by saying that the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do …
(citations omitted, emphasis added)
When the primary judge’s reasons are read as a whole, it is apparent that his Honour did not consider the relationship between Mr Bjornsson and Staples to be in the nature of a partnership or joint venture the profits of which were intended to be shared equally. As his Honour found, the relationship between Staples and Mr Bjornsson was one of principal and agent albeit that the precise nature and extent of the agent’s entitlement to remuneration was never agreed. Nor is this a case where “the substratum of a joint relationship or endeavour [was] removed without attributable blame.” Here, as the primary judge recognised, the possibility of a sale of the Domain Name by Staples to Corporate Express vanished as soon as Mr Bjornsson embarked upon his dishonest scheme to transfer the Domain Name to himself without Staples’ knowledge or consent. It was Mr Bjornsson, not Staples, who engaged in unconscionable conduct. Hence, the principle discussed by Deane J in the passages to which I have referred does not apply in the circumstances of this case.
Whether the primary judge otherwise erred in making an allowance of 25% of the net sale proceeds in respect of Mr Bjornsson’s skill and effort is a question that I will now consider in the context of Staples’ cross-appeal.
THE CROSS-APPEAL
Mr Bjornsson
Each of grounds 3-5 of Staples’ cross-appeal deal with the same 25% allowance to which I have just referred. These grounds are as follows:
3.His Honour erred in his findings at [137], [138], [146], [165] and [167] to the effect that in 2002, there was an “implicit agreement or common understanding” between Mr Bjornsson and the first respondent whereby if the licence to the domain name acquired any commercial value in the future, the parties would agree on remuneration or a reward or a profit share for Mr Bjornsson. Such findings were not open on the evidence or the pleadings.
4.His Honour erred in holding (at [167]-[169]) that 25% of the sale price for the domain name should be deducted, for the benefit of Mr Bjornsson, from the amount of compensation payable to the first respondent.
5.His Honour ought to have held that Mr Bjornsson was not entitled to any allowance for fair work and skill in circumstances where:
(a)there was no agreement between the parties for Mr Bjornsson’s remuneration and no agreement was pleaded or alleged by Mr Bjornsson;
(b)the work Mr Bjornsson did in selling the domain name was in fraudulent breach of his fiduciary duty to the first respondent and involved “conscious dishonesty” (as his Honour found at [154], [186] and [227]); and
(c)there was no “evidence of a general practice in relation to a usual quantification of an agent’s commission in these circumstances” (as his Honour found at [167]).
I do not think there is any substance to ground 3. It is clear that Mr Staples was always of the belief that Mr Bjornsson was entitled to receive something in return for having brought the idea of registering the Domain Name to Mr Staples. During his cross-examination Mr Staples gave the following evidence concerning the proceeds of any sale of the Domain Name (T 112-113):
When a purchaser came Sven indicated that he was expecting a portion of the sale price?---That is correct.
You were prepared to give him a portion?---Most definitely.
You were prepared to give him a portion because you understood, based on the arrangement you had with Sven, that you would split it up between the two of you?---We never---
The only question was proportions?---We never had an arrangement. I just felt obliged that he was entitled to a percentage of it.
You felt obliged [sic] he was entitled to a percentage?---Correct. Well he was the one that talked me into it, so there was never any – there was never any doubt in my mind that Sven was entitled to something.
Thank you. The only real question was, “How much”?---Well the main question at the time was, “How much?”
Yes?---Yes.
And Sven had suggested half?---He did.
You spoke to your brother about this?---He did – I did, yes.
A suggestion came from your brother, a third?---Correct.
And the suggestion was it would be a third three ways. Three equal shares; correct?---That was – that was the suggestion, but I never had a chance to discuss that with Sven.
(emphasis added)
In my view, Mr Staples’ acknowledgements in conversations with Mr Bjornsson in 2010 and concessions in cross-examination, that he was willing to pay Mr Bjornsson a substantial commission, are quite telling. They tend to support the primary judge’s analysis of what occurred in 2002, namely, that an understanding was reached between the two men whereby Mr Bjornsson would register the Domain Name for Staples and pay him a share of any resulting profit in the event the Domain Name was later sold. Further, it is tolerably clear from the primary judge’s findings that his Honour was satisfied that if a sale by Staples to Corporate Express had proceeded as planned, that Staples would have paid Mr Bjornsson a commission of at least 25% and possibly more. In fact, the evidence shows that Mr Staples was willing to pay Mr Bjornsson a commission of 33% and that he was at one point open to the possibility of paying a commission of up to 50%.
Staples does not contest the primary judge’s findings that Mr Bjornsson registered the Domain Name as agent for Staples and that he likewise maintained the registration of the Domain Name as Staples’ agent. In particular, Staples accepts that the Domain Name was registered and maintained by Mr Bjornsson in his capacity as Staples’ agent and with its actual authority. It concedes that a deduction should be made from any award of compensation in its favour in respect of the out-of-pocket expenses incurred by Mr Bjornsson, but says that no deduction should be made in respect of remuneration for Mr Bjornsson’s skill and effort in identifying what proved to be a valuable business opportunity.
The primary judge referred to Warman International Limited v Dwyer (1995) 182 CLR 544 in support of his conclusion that it would be appropriate to make a “substantial allowance” for Mr Bjornsson’s efforts. However, with great respect to the primary judge, that case was concerned with the entitlement of an errant fiduciary to an allowance for his own skill and effort in circumstances where he was required to account for profits he has made as a result of his breach of fiduciary duty. Here, Staples elected not for an account of profits, but for equitable compensation in respect of the loss it claimed to have suffered by reason of Mr Bjornsson’s breach of fiduciary duty.
In assessing the amount of equitable compensation that Staples was entitled to recover from Mr Bjornsson it is necessary to make an allowance for any remuneration that Staples would have been required to pay to Mr Bjornsson in the event that the Domain Name had been sold by Staples to Corporate Express. It does not follow that Mr Bjornsson was not entitled to receive such remuneration merely because he and Mr Sheather never agreed on the amount of his remuneration during the course of the discussions that gave rise to the agency.
The circumstances in which Mr Bjornsson came to be appointed, and his subsequent discussions with Mr Staples, clearly indicate that neither Mr Bjornsson nor Mr Staples ever agreed or expected that Mr Bjornsson would undertake his work in relation to the Domain Name on a gratuitous basis. In the circumstances it should be accepted that Mr Bjornsson was entitled to reasonable remuneration for his efforts and which Staples would have been obligated to pay him had Staples sold the Domain Name to Corporate Express in the absence of any breach of fiduciary duty on Mr Bjornsson’s part.
In Way v Latilla [1937] 3 All ER 759 (HL) the appellant (Mr Way) claimed that he was entitled to a 3% share of profits from various gold mines and mining concessions in South Africa to which the respondent (Mr Latilla) was introduced as a result of information and assistance which Mr Way provided Mr Latilla while Mr Way was working in South Africa. The trial judge awarded damages (£30,000) on the basis that there was an express agreement to that effect. This award was overturned by the Court of Appeal which instead awarded a much smaller sum (500 guineas) calculated as a fixed fee. The House of Lords rejected the latter approach. Lord Atkin (Lords Thankerton, Macmillan, Wright and Maugham concurring) said (at 763-764):
The question now is, what are Mr Way’s rights to remuneration? He originally claimed that there was a completed agreement to give him an interest in the concession, which, by custom, or on a reasonable basis, the court was asked to define as one-third. The trial judge accepted this view, holding that he was entitled to assess a reasonable share, and he accordingly awarded him £30,000, as being roughly 3 per cent on the sum of about £1,000,000, which he took to represent Mr Latilla’s profits in the transaction. The Court of Appeal rejected this view, and, in my opinion, rightly. There certainly was no concluded contract between the parties as to the amount of the share or interest that Mr Way was to receive, and it appears to me impossible for the court to complete the contract for them … There is no material in the present case upon which any court would decide what was the share which the parties must be taken to have agreed. But, while there is, therefore, no concluded contract as to the remuneration, it is plain that there existed between the parties a contract of employment under which Mr Way was engaged to do work for Mr Latilla in circumstances which clearly indicated that the work was not to be gratuitous. Mr Way, therefore, is entitled to a reasonable remuneration on the implied contract to pay him quantum meruit. It is on the assessment of this amount that I believe all your Lordships differ from the Court of Appeal. The members of the court appear to have acted on the view that Mr Way had given no evidence as to the value of his services, that the only evidence before the court was the evidence of one or two consulting mining engineers, in particular that of Colonel Lake, on whom the Court of Appeal relied, and that, following this evidence, the proper reward was a fee of 500 guineas. My Lords, this decision appears to me to ignore the real business position. Services of this kind are no doubt usually the subject of an express contract as to remuneration, which may take the form of a fee, but may also take the form of a commission share of profits, or share of proceeds calculated at a percentage, or on some other basis. In the present case, there was no question of fee between the parties from beginning to end. On the contrary, the parties had discussed remuneration on the footing of what may loosely be called a “participation,” and nothing else. The reference is analogous to the well known distinction between salary and commission. There are many employments the remuneration of which is, by trade usage, invariably fixed on a commission basis. In such cases, if the amount of the commission has not been finally agreed, the quantum meruit would be fixed after taking into account what would be a reasonable commission, in the circumstances, and fixing a sum accordingly. This has been an everyday practice in the courts for years. But, if no trade usage assists the court as to the amount of the commission, it appears to me clear that the court may take into account the bargainings between the parties, not with a view to completing the bargain for them, but as evidence of the value which each of them puts upon the services. If the discussion had ranged between 3 per cent on the one side and 5 per cent on the other, all else being agreed, the court would not be likely to depart from somewhere about those figures, and would be wrong in ignoring them altogether and fixing remuneration on an entirely different basis, upon which, possibly, the services would never have been rendered at all. That, in fixing a salary basis, the court may pay regard to the previous conversation of the parties was decided by the Court of Exchequer in 1869, in Scarisbrick v Parkinson, where the terms of an agreement, invalid under the Statute of Frauds, were held to be admissible as evidence in a quantum meruit. This seems to me to be good law, and to give effect to a principle which has been adopted regularly by the courts not only in fixing remuneration for services but also in fixing prices, sums due for use and occupation, and, indeed, in all cases where the court has to determine what is a reasonable reward for the consideration given by the claimant. As I have said, the rule applied in fixing the amount of the remuneration necessarily applies to the basis on which the amount is to be fixed. I have therefore no hesitation in saying that the basis of remuneration by fee should, in this case, on the evidence of the parties themselves, be rejected, and that Mr Way is entitled to a sum to be calculated on the basis of some reasonable participation.
There are four main points to make concerning the House of Lords’ decision in Way v Latilla. First, that case concerned a contract of employment rather than agency but the position in my opinion is the same in each case. Secondly, it does not follow merely because the principal and agent have not agreed upon either the basis for, or the rate of, the agent’s remuneration that the agent cannot recover reasonable remuneration unless it is apparent that the agent was acting gratuitously. Thirdly, where the parties have not agreed upon either the basis for, or the rate of, the agent’s remuneration, the Court is entitled to have regard to the discussions that took place between the parties as to the appropriate range of remuneration. In this regard, I do not understand Lord Atkin to be referring only to discussions that took place before the relevant legal relationship came into existence. In Way v Latilla many of the relevant communications took place after Mr Way agreed to act for Mr Latilla. Fourthly, it would be wrong to ignore such discussions altogether and to fix remuneration on a completely different basis.
In my view reasonable remuneration for Mr Bjornsson’s skill and effort in bringing the relevant “business opportunity” to Mr Staples, convincing him to take it up, registering the Domain Name, and then patiently maintaining it at his own expense for around eight years should be calculated as a percentage of the net sale price at the rate of 33%. This is the one-third figure referred to by Mr Staples in cross-examination and also the figure that Mr Staples told Mr Robertson he would be willing to pay to Mr Bjornsson when they discussed the matter on 3 May 2010. Calculated as a percentage of the net sale proceeds ($74,000) Staples would have been obliged to pay Mr Bjornsson commission in the amount of $24,420. In calculating equitable compensation, an adjustment needs to be made to reflect the fact that Staples would have been obliged to pay this amount to Mr Bjornsson if Staples had sold to Corporate Express in the absence of any breach of fiduciary duty on Mr Bjornsson’s part.
For the above reasons I am satisfied that grounds 4, 5(a) and 5(c) of the cross-appeal fail. As to ground 5(b), the fact that Mr Bjornsson breached his fiduciary duty does not provide a basis for putting Staples in a better position than it would have been in if Mr Bjornsson had not breached his fiduciary duty.
As to the pleading points raised in grounds 3 and 4 of the cross-appeal, I do not think there is any substance to them. It is clear that the proceedings before the primary judge were conducted on the basis that the amount of equitable compensation payable to Staples should be adjusted to allow for Mr Bjornsson’s skill and effort. While I have taken a somewhat different approach to that of the primary judge, it is one that I think is fairly open having regard to the pleadings and the way in which the proceedings were conducted.
Loss of opportunity to obtain a higher price
The evidence clearly demonstrated that, as at 13 April 2013, Corporate Express was willing to pay up to $100,000 to acquire the Domain Name. Even so, the primary judge was not satisfied that Staples should be awarded any compensation in respect of what Staples contended was a loss of opportunity to obtain a higher price from Corporate as a result of Mr Bjornsson’s breach of fiduciary duty.
In addition to the evidence which showed that Corporate Express was willing to pay up to $100,000 for the Domain Name, Staples argued that its loss of opportunity claim was supported by other evidence, accepted by the primary judge, which showed:
·Mr Staples was a highly experienced and competent businessman (see his Honour’s finding at [40]);
·Mr Bjornsson had inferior business experience, acumen and resources and his lack of negotiating experience (see his Honour’s findings at [46]);
·Mr Bjornsson was in a hurry to sell the Domain Name whereas Mr Staples was not;
·Corporate Express was “desperate” to acquire the Domain Name, and to do so quickly.
The primary judge was not persuaded that he should award any additional amount to Staples for loss of opportunity because to do so would have required him to engage in speculation without a sufficient evidentiary foundation. I think the primary judge was right to reject this component of Staples’ claim.
The fact that Corporate Express was willing to pay up to $100,000 was something that was not known to Staples or Mr Bjornsson until after Staples commenced legal proceedings. It was not a fact which either Mr Staples or Mr Bjornsson could have made use of in negotiations with Corporate Express because it was not known to them at the relevant time.
The fact that Mr Staples was an experienced businessman does not seem to me to be of any significance in circumstances where he had little appreciation of the potential value of the Domain Name to Corporate Express and where he appears to have shown no inclination to handle the negotiations with Corporate Express himself.
More significant, to my mind, is the fact that there was no evidence from either Mr Staples or Mr Robertson to suggest that they believed that Corporate Express was willing, or even might be willing, to pay more than it ultimately agreed to pay Mr Bjornsson or that either of them would have pressed Corporate Express to offer more than it ultimately agreed to pay Mr Bjornsson.
TRADE PRACTICES ACT 1974
Another issue raised by Staples by way of cross-appeal concerns the case put against Mr Sheather (but rejected by the primary judge) based upon direct contravention of s 52. Counsel for Staples accepted, correctly in my view, that even if this claim had been decided by the primary judge in Staples’ favour, it would not have resulted in any greater monetary award in Staples’ favour. In the circumstances, it is not necessary to consider this aspect of the cross-appeal further.
DISPOSITION
Mr Bjornsson’s and Mr Sheather’s appeals will be allowed in part. Orders 3 and 4 of the orders made by the primary judge will be set aside. In lieu of order 3, Mr Bjornsson and Mr Sheather will be required to pay to Staples the amount of $23,580 by way of equitable compensation calculated as follows:
The parties will need to re-calculate the amount of interest payable to Staples pursuant to order 4. I will also give the parties an opportunity to file written submissions in relation to the costs of both the trial and the appeals. Any dispute as to the costs of either the trial or the appeals will be dealt with on the papers. I will defer making any substantive orders in either matter until the parties have provided me with their agreed interest calculations and their written submissions in relation to costs.
I certify that the preceding one hundred and forty-one (141) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas. Associate:
Dated: 19 February 2014
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