Telecom Vanuatu Ltd v Optus Networks Pty Ltd

[2005] NSWSC 951

CITATION:	Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951
HEARING DATE(S):	09/09/05
JUDGMENT DATE :	23 September 2005
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	White J
DECISION:	1. Dismiss the defendant's notice of motion of 9 August 2005; 2. defendant pay the plaintiff's costs of the notice of motion.

CATCHWORDS:	PRACTICE AND PROCEDURE - Application to have part of the pleadings struck out - Plaintiff pleads tort of conversion in respect of intangible property - Applicant argues that the claim is untenable - No material advantage in preparation or conduct of the case if impugned allegations struck out - Issue is whether claim is reasonably arguable at an appellate level - Application dismissed.
LEGISLATION CITED:	Telecommunications Act 1977 (Cth) Torts (Interference with Goods) Act 1977 (UK)
CASES CITED:	In re Fontainebleau Hotel Corporation; South Central Bell Telephone Company v Simons 1975, 508 F2d 1056 Baltic Shipping Co. v Dillon (1993) 176 CLR 344 Ferguson v Eakin (27 August 1997, unreported, Cole JA) Penfold Wines Pty Ltd v Elliott (1946) 74 CLR 204 Balkin & Davis, Law of Torts, 3 ed McLachlan v Canadian Imperial Bank of Commerce (1987) 13 BCLR (2D) 300; (1989) 57 DLR (4th) 687 Royal Bank of Canada v W Got & Associates Electric Ltd (1994) 150 AR 93; 196 AR 241; [1999] 3 SCR 408 Kavcar Investments Ltd v Aetna Financial Services Ltd (unreported, 11 April 1986, Ontario Supreme Court, Hollingworth J) OBG Ltd v Allan [2005] 2 WLR 1174 Kremen v Online Classifieds inc. (2003) 337 F 3rd 1024 Payne v Elliot 54 Cal 339 (1880) Re-statement (2nd) of Torts s 242 (1965) Wickstead v Browne (1992) 30 NSWLR 1 Williams & Humbert v W & H Trade Marks (Jersey) Ltd [1986] AC 368 Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 Gibson v Parkes District Hospital (1991) 26 NSWLR 9
PARTIES:	Telecom Vanuatu Limited v Optus Networks Pty Limited
FILE NUMBER(S):	SC 50107/05
COUNSEL:	Plaintiff: F Kunc, S Aspinall Defendant: I M Jackman SC & Dr A Bell
SOLICITORS:	Plaintiff: Gadens Lawyers Defendants: Clayton Utz

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

WHITE J

Friday, 23 September 2005

50107/05 Telecom Vanuatu Ltd v Optus Networks Pty Ltd

JUDGMENT

1 HIS HONOUR: This is an application by Optus Networks Pty Ltd to strike out paragraphs 17 to 24 of the Summons.

2 The proceedings arise out of tripartite agreements made between Telecom Vanuatu Limited, Optus, and originating carriers of telecommunications. Telecom Vanuatu claims to have exclusive rights under Vanuatu law to control international Vanuatu telephone numbers. An international Vanuatu telephone number dialled from another region has the prefix 678.

3 By paragraphs 1 to 16 of the Summons, which are not challenged, Telecom Vanuatu alleges that Optus failed to pay call termination charges for international telecommunications traffic terminating on Vanuatu Number Ranges in respect of which Optus was the transit carrier. Telecom Vanuatu alleges that these moneys were owing under the tripartite agreements.

4 Paragraph 17 pleads a further case in respect of audio text and dial up services directed to Vanuatu numbers for which Telecom Vanuatu claims it did not authorise Optus to carry the traffic. These were numbers carrying the prefix 678. As I understand paragraphs 14 to 17 and 24(a) of the Summons, and as explained by counsel, Telecom Vanuatu claims that it is entitled under the tripartite agreements to be paid termination charges in respect of such traffic. This claim is curiously pleaded as a claim for damages for breach of the tripartite agreements: the breach being the non-payment of moneys allegedly due under the agreements.

5 As I understood the submissions, it is alleged that the Vanuatu telephone numbers, both in respect of authorised and unauthorised traffic, are under Telecom Vanuatu’s exclusive control, even though the telephone numbers do not relate to telephone lines which physically terminate in Vanuatu. That is to say, the calls made using the Vanuatu telephone numbers did not terminate in Vanuatu.

6 Paragraphs 17 to 24 of the Summons also plead a restitutionary claim in respect of the alleged unauthorised use of Vanuatu telephone numbers. Paragraph 18 alleges that Optus converted the unauthorised Vanuatu Number Ranges to it for its own benefit. Paragraph 19 pleads that Optus received payments from originating carriers in respect of the audio text and dial up services to the Unauthorised Vanuatu Number Ranges, including termination charges that would otherwise have been payable to Telecom Vanuatu. Paragraph 20 alleges that Optus did not pay Telecom Vanuatu its termination charges for the traffic so generated. Paragraph 21 alleges that the unpaid termination charges are moneys payable to Telecom Vanuatu as money had and received by Optus to its use. Paragraph 22 alleges that Optus made a profit from the use by entities not authorised by Telecom Vanuatu of the Unauthorised Vanuatu Number Ranges. Paragraph 23 alleges that Optus has been unjustly enriched at the expense of Telecom Vanuatu.

7 It is these claims which Optus seeks to have struck out. It is common ground that the claim is a novel one under Australian law. It is common ground that the claim proceeds on the basis of allegations that the Vanuatu Number Ranges are intangible property controlled by Telecom Vanuatu, that Optus converted that property, and that Telecom Vanuatu is entitled to “waive the tort” and sue for money had and received.

8 Counsel for Telecom Vanuatu went to considerable pains to establish that it is reasonably arguable that the Vanuatu Number Ranges are property which it exclusively controls. Counsel referred to In re Fontainebleau Hotel Corporation; South Central Bell Telephone Company v Simons 1975, 508 F2d 1056, the Telecommunications Act 1977 (Cth) ss 455 and 468, and to Division 7A of Telecommunications Numbering Plan, made under s 455 of the Telecommunications Act, to support the contention that its right to control the Vanuatu Number Ranges was proprietary. I did not understand Optus to dispute that this contention was reasonably arguable. Indeed, in its correspondence, the solicitors for Optus characterised the Vanuatu Number Ranges as intangible assets. Rather, Optus’s position was that being intangible assets, the Vanuatu Number Ranges could not be the subject matter of an action in conversion.

9 It was also submitted for Optus that the claim for moneys had and received was not available where the claim was governed by contract. (Baltic Shipping Co. v Dillon (1993) 176 CLR 344 at 355-356, 367, 377-8, 383, 385, 390). However, the restitutionary claim is pleaded as an alternative to the contractual claim.

10 Hence, the application to strike out the restitutionary claim turned on whether it is reasonably arguable that the tort of conversion extends to the conversion of intangible property. Optus relied upon the decision of the Court of Appeal in Ferguson v Eakin (27 August 1997, unreported) where Cole JA, with whom Meagher JA agreed, said (at BC9703869 at 9):

“ … there can be no conversion of a chose in action: the subject matter of an action in conversion must be goods or property capable of possession or being subject to a right to possession. ”

Powell JA said:

“… the debt which is represented by a credit in a bank account, not being a chattel, but being a chose in action, cannot, in law, be the subject of a claim for conversation (sic).”

11 In Penfold Wines Pty Ltd v Elliott (1946) 74 CLR 204 Dixon J said (at 229):

“ The essence of conversion is a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel. ”

12 Telecom Vanuatu accepts that the current Anglo-Australian formulations of the tort of conversion require that the thing converted be a chattel. However, it points to the fiction by which claims for conversion of cheques and other negotiable instruments, and perhaps insurance policies and shares, are allowed, by treating the thing converted to be not the valuable chose in action, but the piece of paper which represents it, and attributing to the piece of paper, the value of the chose. It submits that the fiction was developed to meet the needs of commerce, and that a principled development of the law of conversion would recognise that intangible property, as well as tangible property, can be the subject matter of the tort. Counsel submitted that the fiction of attributing the value of a chose to a piece of paper should be abandoned. He referred to Balkin & Davis, Law of Torts, 3 ed, page 76 where the learned authors said:

“ Tangible property, of course, can be the subject matter of conversion, and intangible property such as cheques, shares, insurance policies and the like is not necessarily excluded. Thus, although cheques are of value only as choses in action, the courts have satisfied the demands of commercial convenience by allowing the full value represented by them to be recovered in actions for conversion. So, where a banker has not handled actual cash or notes but has merely made the appropriate entries by way of credit or debit balances, the courts will treat the conversion as being of the goods, that is, of the piece of paper, the cheque, under which the money was transferred, and the value of the goods converted as being the sum represented by the cheque.
This doctrine, which is certainly applicable to all negotiable instruments, makes substantial inroads on any possible rule, traceable to the former fiction of losing and finding, that conversion does not lie in respect of rights in intangible property. ”

13 Counsel also referred to three Canadian cases where claims for damages for trespass and conversion were upheld where receivers, who had been wrongly appointed by secured creditors, seized control of the debtors’ businesses including debts owed to the debtors, or other contractual rights which they had. (McLachlan v Canadian Imperial Bank of Commerce (1987) 13 BCLR (2D) 300; (1989) 57 DLR (4th) 687; Royal Bank of Canada v W Got & Associates Electric Ltd (1994) 150 AR 93; 196 AR 241; [1999] 3 SCR 408; Kavcar Investments Ltd v Aetna Financial Services Ltd (unreported, 11 April 1986, Ontario Supreme Court, Hollingworth J).

14 These cases were considered by the English Court of Appeal in OBG Ltd v Allan [2005] 2 WLR 1174. Peter Gibson LJ held (at [56]) that there could be no conversion of a chose in action. His Lordship said that none of the Canadian cases contained any analysis of the relevant torts in relation to intangible assets, and that he derived no assistance from them. It was submitted for Telecom Vanuatu that the only analysis offered by his Lordship as to whether the tort could apply to intangible assets was, (at [56]), that as a matter of history the tort of conversion, being derived from trover, required averments that goods had been lost by their possessor and found by the defendant. It was submitted that it was reasonably arguable that this was not a sufficient reason for confining the tort to its historical origins involving dealing with physical chattels, given the advances in technology and the greater importance of information and intangible rights in modern society.

15 Manse LJ (at [76]) held that the strict liability of the torts of trespass and conversion were generally limited to real property in the case of trespass or chattels in the case of trespass and conversion, and that it was only by a fiction that conversion was extended to a very limited category of intangibles, being the conversion of a negotiable instrument, where the face value of the instrument was taken to be the face value of the piece of paper. His Lordship found no significant support in the Canadian authorities for a wider application of the tort to purely contractual rights. Counsel for Telecom Vanuatu submitted that it was reasonably arguable that in this country the Canadian authorities would be found to provide significant support for the application of the tort of conversion to choses in action. Counsel also referred to the fact that, as Carnwath LJ observed (at [116]), in England, the tort of conversion had been largely codified in the Torts (Interference with Goods) Act 1977, so that it was difficult to justify any major development of the law by judicial decision. It was submitted that there was no such impediment in Australia.

16 Counsel also pointed to American authority that the tort of conversion applies to both tangible and intangible property. In Kremen v Network Solutions, Inc. (2003) 337 F 3rd 1024, the United States Court of Appeals for the 9th Circuit upheld an appeal from the grant of summary judgment in favour of Network Solutions. Mr Kremen was the registrant of a domain name, sex.com. Network Solutions was the exclusive domain name registrar. It had no contract with Mr Kremen. It transferred the domain name on the basis of a forged letter from a Mr Cohen. The district court granted summary judgment in favour of Network Solutions. In respect of the claim for conversion it concluded that although the domain name sex.com was Kremen’s property, because it was intangible property, it was not property to which the tort of conversion applied, (at 10161). The US Court of Appeals disagreed. It agreed that Mr Kremen had an intangible property right in the domain name. There was a triable issue that Network Solutions had committed the tort of conversion if the tort applied to such intangible property. The US Court of Appeals, following an 1880 decision of the Californian Supreme Court (Payne v Elliot 54 Cal 339 (1880), held that the tort applied to every species of personal property, tangible or intangible (at 10167, 10170-10171). It noted that conversion was originally a remedy for the wrongful taking of another’s lost goods and so applied only to tangible property, but said that virtually every jurisdiction in the United States had discarded this limitation to some degree and some had rejected it altogether (at 10166).

17 The Re-statement (2nd) of Torts s 242 (1965) recommended the test:

“ (1) Where there is conversion of a document in which intangible rights are merged, the damages include the value of such rights.
(2) One who effectively prevents the exercise of intangible rights of the kind customarily merged in a document is subject to a liability similar to that for conversion, even though the document is not itself converted. ”

18 The US Court of Appeals held that California did not follow the Re-statement’s requirement that a document must represent the owner’s intangible property right, but the tort applied to intangibles without inquiring whether they were merged in a document, (at [9], 10167, 10170-10171).

19 The riposte of Optus is that whatever might be the law in America or in Canada, the law in this State is settled by binding authority that the tort of conversion does not extend to intangible property.

20 I accept that for a first instance judge this is so. However, the claim in question, which has as its foundation the claim for conversion of intangible property, is not the only basis upon which relief is sought in respect of the alleged wrongful opening up of Optus’s international switch to permit unauthorised persons to generate audio text and dial up services to Vanuatu number ranges. As I understand the Summons, and counsel’s submission, Telecom Vanuatu claims payment from Optus of the termination charges in respect of such traffic under the contracts on which it sues, or alleges that such conduct was a breach of those contracts. The same facts will have to be investigated whether the novel claim is struck out or not. There are also other claims for alleged non-payment of termination charges. It is probable that the question of the nature and extent of Telecom Vanuatu’s rights under Vanuatu law to control the Vanuatu number ranges will need to be investigated in determining the claims which are not the subject of the application to strike out. In those circumstances, there is little, if any, practical advantage in striking out the restitutionary claim.

21 In Wickstead v Browne (1992) 30 NSWLR 1, Kirby P, when considering whether a cause of action in negligence by a beneficiary of a trust against the trustee should be allowed to go to trial said (at 5):

“ But as the trial must now proceed, there is merit (as it seems to me) in permitting the appellant to present his case in various ways. The marginal utility to the respondent of preventing the appellant from proceeding upon the alternative cause of action in negligence is minimal. But the marginal cost of doing so would be very great if, subsequently, the trial was concluded, limited by the orders proposed, and it was then held, either by this Court or by the High Court of Australia , that the appellant’s cause of action in negligence was viable;
2. Common experience teaches that it is usually more efficient and just to consider the viability of a cause of action when the facts said to support it are adduced and the suggested action can be judged with a full understanding of all relevant evidence. Testimony gives colour and content to the application and development of legal principle. ” (Emphasis added).

22 His Honour’s was a dissenting judgment, but was upheld in the High Court: ((1993) 10 Leg Rep SL2).

23 Two things follow from the passage from Wickstead v Browne quoted in para [21]. First, there is a threshold question as to whether there is a practical advantage which outweighs the potential disadvantage in deciding whether the question is reasonably arguable. Thus, in Williams & Humbert v W & H Trade Marks (Jersey) Ltd [1986] AC 368, Lord Templeman said (at 435-436), that if an application to strike out involves a prolonged and serious argument, the judge should, as a general rule, decline to proceed with the argument unless the judge not only harbours doubts about the soundness of the pleading, but is satisfied that the striking out will obviate the necessity for a trial, or will substantially reduce the burden of preparing for trial, or the burden of the trial itself.

24 Secondly, in assessing whether there is sufficient utility in deciding whether the cause of action is reasonably arguable, the question is not whether the trial judge, but whether the Court of Appeal or the High Court, might consider that the cause of action is viable.

25 In this case, the question comes down to what is the advantage in the preparation for trial, or the conduct of the trial, in striking out the relevant parts of the Summons, weighed against the disadvantage of a new trial if the Court of Appeal or the High Court were to reconsider the essential elements of the tort of conversion and ordered a new trial on that issue. A court at first instance should be wary of summarily disposing of a claim, where there is a reasonable possibility that the law might be developed at an appellate level to uphold the claim. (Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 at 373-374; and see also Gibson v Parkes District Hospital (1991) 26 NSWLR 9 at 35).

26 In this case, Telecom Vanuatu raises plausible arguments as to why, at an appellate level, it might be found that the tort of conversion should not be limited to dealings in chattels. I will not attempt to analyse the merits of the argument as it might be presented at an appellate level. That would involve a wider and deeper analysis than was advanced before me. It would necessarily include a consideration of how such a wider tort of conversion would sit with the existing “economic torts” of interference with business relations. I cannot say that at an appellate level, even if it be the level of the High Court, it is not reasonably possible that Telecom Vanuatu’s argument might succeed. The marginal utility in striking out the claim is substantially outweighed by the additional costs the parties would incur if Telecom Vanuatu’s argument succeeded and a new trial was necessary. It has not been demonstrated that the parties will be put to any substantially greater expense in preparing for the issues raised by the restitutionary cause of action than they would incur in any event in preparing the remaining issues for trial.

27 For these reasons, I dismiss the defendant’s notice of motion of 9 August 2005. I order that the defendant pay the plaintiff’s costs of the notice of motion.

******