15 Apr 2012

IT services company liable for $65K after selling client's domain name

Submitted by Troy Rollo

In the recent decision in Staples Waste Removals Pty Ltd v Arev Computer Centre Pty Ltd & Ors (No.2) [2012] FMCA 214, the owner of an IT services company was found liable for about $65,000 after selling a domain name registered for a client of the company.

The facts

Arev had registered the domain name "staples.com.au"; on behalf of (and in the name of) Staples in 2002, but with the owner of Arev, Mr Bjornsson as the contact. Bjornsson paid the fees for registration and renewal of that domain name without seeking reimbursement, and Staples never in fact used the domain.

In 2010, Arev was approached by an agent for Corporate Express, which had been acquired by the US stationary giant "Staples". Corporate Express sought to purchase the domain name. Arev obtained Staples' permission to negotiate a deal, but did not negotiate any commission. Bjornsson registered a business name "Staples Photography", transferred the domain name to himself, then sold the domain name for $82,500, and retained the proceeds for itself. He then offered to negotiate with Staples whether it would receive a share.

Unsurprisingly, the owners of Staples were not pleased by this course of action.

The argument

Bjornsson argued that he was the true sole beneficial owner of the domain name and was entitled to do what he did, notwithstanding that when the domain name was registered in 2002 he would not have been entitled to register that name under the rules for com.au domains. His claim that Staples had verbally authorised him to register the domain name in its name but said he could do as he liked with it was rejected by the Court for many reasons, including this unsurprising one:

‭.. ‬the implication of these submissions is that in‭ ‬2002‭ ‬Mr Bjornsson knowingly withheld the true intended ownership of the licence from the licencing authority,‭ ‬so as to procure a licence which would otherwise have been denied to him under the domain name eligibility rules.‭ ‬If this‭ ‬was‭ ‬Mr Bjornsson’s true intention in his discussion with Mr Staples in‭ ‬2002,‭ ‬and the true effect of their discussion,‭ ‬then‭ ‬Mr Bjornsson now admits to a significant fraud on the licencing authority.‭ ‬I would be slow to make such findings.

This was my impression when reading the facts too. Bjornnson was trying to say "I didn't commit a fraud in 2010 because I committed a fraud in 2002." That is not an argument that ever goes down well with a court, and will almost invariably result in the court finding that the fraud that was committed was the one that makes you lose the case. After all, if you are prepared to commit a fraud for money, why would you not be prepared to commit perjury for money?

The Court goes on to find that other conduct of Bjornnson in 2010 would have to have been fraudulent, to prevent the 2010 transfer to be fraudulent.

This, coupled with the complete lack or any written agreement for this claimed beneficial ownership of the domain name, was fatal to Bjornnson's defence.

The outcome

After deducting GST and the costs of registering and maintaining the domain name, approximately $74,000 was left of the payment by Corporate Express. The Court allowed 25% of that to Bjornnson as commission, awarding $55,000 plus interest to Staples (which would bring the total to around $65,000).

Comments

This is a case that should never have gone all the way to trial. Another defendant settled before trial, and Bjornsson, properly advised, should have been aware that not only would he lose, he would be up for costs and a published decision recording his conduct. Also involved in the conduct was a solicitor who was advising Bjornsson, and found liable together with him (but with an entitlement to recover from Bjornsson).

Part of the problem may be that, as best I can see, none of the lawyers for the defendants who contested the proceedings were specialists in IT law, and it seems all of them failed to recognise the significance that, on the defence taken, Bjornsson was arguing that he committed a fraud in 1992. The defendant that settled before trial was represented by a large firm with an established reputation in IT law.

The failure to have a written agreement was also problematic. If the parties truly intended that there be an arrangement that is quite different to the one that is recorded on the registry, something should have been recorded by them in writing. Without that, the contents of the registry are likely to prevail unless all parties give the same version of events when it comes to a later dispute. Of course in this case, if there truly was a fraudulent design in 2002, then that may have been a disincentive to record that in writing.