FEDERAL COURT OF AUSTRALIA Nowra Radiology Pty Ltd v Macintosh [2020] FCA 731 File number: NSD 2178 of 2018 Judge: STEWART J Date of judgment: 26 May 2020 Catchwords: PRACTICE AND PROCEDURE – competing applications regarding adoption or rejection of referee report – whether adoption of referee report consistent with the overarching purpose pursuant to ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) – relevant principles – whether findings made in the referee report relevant to the issues in dispute – whether expert has the relevant expertise – whether referee identified rational basis for findings made – order for the adoption of referee report with variations made Legislation: Federal Court of Australia Act 1976 (Cth) ss 37M, 37N Cases cited: Chocolate Factory Apartments Limited v Westpoint Finance Pty Limited [2005] NSWSC 784 Sheehan v Lloyds Names Munich Re: Syndicate Ltd [2017] FCA 1340 Stone v Ebeid [2020] FCA 343 Weston v Rajan [2019] FCA 1455 Date of hearing: 26 May 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 40 Counsel for the Applicants: C Conde Solicitor for the Applicants: Access Law Group Counsel for the Respondent: J Mee Solicitor for the Respondent: Cullen Macleod ORDERS NSD 2178 of 2018 BETWEEN: NOWRA RADIOLOGY PTY LTD (ACN 166 387 980) First Applicant NOWRA RADIOLOGY OPERATIONS PTY LTD (ACN 603 000 675) Second Applicant JANET ELIZABETH MACINTOSH Third Applicant AND: PETER DOUGLAS MACINTOSH Respondent JUDGE: STEWART J DATE OF ORDER: 26 MAY 2020 THE COURT ORDERS THAT: 1. The report of Dr Allan Watt as referee dated 10 December 2019 is adopted pursuant to rule 28.67(1) of the Federal Court Rules 2011 (Cth) subject to the following variations: 1.1. Paragraphs [4.5.2] on page 8, [4.5.3] on page 8, [4.5.4] on page 9 and [14.16] on page 11 are deleted; 1.2. Paragraphs [4.2.1] on page 7 and [4.12] on page 10 are to reflect that Peter Macintosh is the registrant for the domain name nowraradiology.com and the Fidelity Trust is the registrant for the domain name nowraradiology.com.au. 2. The parties' competing interlocutory applications filed on 20 and 21 February 2020 are otherwise dismissed. 3. The parties are to bear their own costs on the interlocutory applications. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from transcript) STEWART J: On the competing interlocutory applications 1 By consent orders on 2 October 2019, I appointed Dr Allan Watt, a digital forensic expert, as referee to answer a series of questions that had been identified by the parties as being useful to pose to Dr Watt. There were about 10 questions on behalf of each side of the case. I shall come to the questions shortly. 2 Dr Watt reported by way of an expert report that was filed on 28 January 2020. The applicants move on an application to adopt Dr Watt's report and the respondent moves on an application to reject the report. The respondent submits, in the alternative, that if the report is to be adopted, that should be done with some qualifications, or variations. 3 In order to appreciate and adjudicate on the competing contentions of the parties, it is necessary to identify the principal contours of the parties' dispute. 4 The applicants are Nowra Radiology Pty Ltd (NR), Nowra Radiology Operations Pty Ltd (NRO) and Dr Janet Macintosh. The respondent is Peter Macintosh, the brother of Dr Macintosh. The applicants' originating application seeks relief that may be summarised as follows: (1) A declaration that the respondent breached his duties as a director, presumably of NR and/or NRO. (2) A declaration that the respondent holds certain domain names, being nowraradiology.com.au (".com.au") and nowradiology.com (".com"), on behalf of NR. (3) A mandatory injunction that the respondent deliver up the domain names to NR. (4) Damages in respect of the respondent's conduct with respect to the domain names and unauthorised payments allegedly made by the respondent to himself from the Nowra Radiology Trust. (5) Damages for breach of contract. (6) A declaration that a general indemnity entered into between Dr Macintosh, for herself and as director of Quantum Mottle Pty Ltd, and the respondent, for himself and as trustee of the Fidelity Trust, does not apply to the above relief. 5 The relief sought by the applicants arises from the souring of the business relationship between the two Macintosh siblings. The following summary of the dispute is taken from the pleadings. 6 In about 2014, the siblings worked together to establish a radiology practice business, based in Nowra and styled "Nowra Radiology". The assets of the business were owned, or to be owned, by the Nowra Radiology Trust. For some time, NR was the trustee of that trust, and it may be that at some stage, NRO became the trustee. The respondent was a director and shareholder of NR and NRO until sometime in the first half of 2017. 7 The units in the Nowra Radiology Trust were owned in equal shares by Quantum Mottle Pty Ltd as trustee for the Macintosh Business Trust, and the respondent as trustee for the Fidelity Trust. I infer that the Macintosh Business Trust represents Dr Macintosh's interests. Both siblings were to contribute to the business in different ways. 8 On or about 17 October 2013, the respondent caused the domain names to be registered. The applicants contend, and the respondent disputes, that the respondent then held the domain names on constructive trust for NR as trustee of the Nowra Radiology Trust. 9 On or about 16 February 2017, Dr Macintosh, for herself and as director of Quantum Mottle Pty Ltd, and the respondent, for himself and as trustee of the Fidelity Trust, executed a settlement and release agreement and a deed of general indemnity in relation to the affairs of NR and NRO. The settlement agreement provided for the siblings to go their separate ways in relation to the business, in such a way that Dr Macintosh would keep the business and she would pay her brother a certain sum of money. 10 From the pleadings, it would appear that the settlement agreement did not deal expressly with what was to occur with the domain names. The applicants allege that, subsequent to the settlement, the respondent retained the registration of the domain names for himself or the Fidelity Trust when he should have made them available to, or transferred them to, the business. 11 Paragraph 25 of the statement of claim states as follows: On or about 18 October 2017, Peter Macintosh took steps to modify the servers for the domain names, causing access issues for customers of Nowra Radiology. 12 The statement of claim goes on to allege, and the respondent admits, that the applicants thereafter demanded of the respondent that he deliver up, or transfer, the domain names to them, but that he refused. 13 The applicants also particularise various payments that they say the respondent procured for himself from the Nowra Radiology Trust without authority. There are also allegations that the respondent breached his duties as director of NR and/or NRO and the settlement agreement in various respects. 14 In relation to the domain names, which are at the heart of the dispute, the respondent pleaded in his amended defence as follows: (1) He registered the domain names in his capacity as trustee of the Fidelity Trust. (2) Nowra Radiology never used the .com domain name, only the .com.au domain name. (3) He denies that, on the terms of the establishment of the Nowra Radiology business, he was to contribute the domain names to the business. (4) He denies that he or the Fidelity Trust held the domain names on constructive trust for the business. 15 In answer to paragraph 25 of the statement of claim, which is quoted above, the respondent pleaded as follows: 23. In answer to paragraph 25: (a) Says that the Respondent as trustee of the Fidelity trust has owned and managed approximately 12 domain names relating to Radiology. (b) Admits that on or about mid October 2017, the respondent's IT administrator took steps to move the location of the DNS servers for operational reasons; (c) Denies that any incoming traffic was stopped; (d) Denies that the change caused access issues, save for a delay in incoming emails for a period of a few hours; (e) Says further that, if any access issues were incurred, it was as a result of third party error; and (f) Otherwise denies that paragraph. 16 In response to the allegations that he was in breach of trust and other obligations in not transferring the domain names to NR, the respondent pleaded as follows: 30. In answer to paragraph 32: (a) Denies the paragraph in its entirety; (b) Says that the Domain Names were purchased and registered by Peter Macintosh as trustee for the Fidelity Trust prior to becoming a director of either NR or NRO; (c) Says further that a gratuitous licence at will was granted from the Fidelity Trust to NR and/or NRO to use www.nowraradiology.com.au; (d) Says further that the respondent has continued to provide this licence as at the date of this pleading; (e) Says further that no licence was granted for www.nowraradiology.com as neither NR nor NRO has at any point in time used, or sought to use, the www.nowraradiology.com domain name; (f) Repeats paragraph 12 of this defence. 17 From the above, it is apparent that at the close of pleadings what was in dispute between the parties with regard to the domain names was essentially the following: (1) In the period prior to the settlement in February 2017, did the respondent and/or the Fidelity Trust hold the domain names on trust or otherwise for the benefit of the business? (2) After the settlement in February 2017, did the respondent and/or the Fidelity Trust hold the domain names on trust or otherwise for the benefit of the business and were they obliged by the settlement agreement or otherwise to transfer the domain names or otherwise make them available to the business? (3) When, in mid-October 2017, the respondent caused the change to be made to the domain name servers for the domain names: (a) did that cause a disruption in access to the websites and, if so, to what extent; and (b) what loss, if any, was suffered by the applicants? (4) Is the respondent liable for such loss, whether on the basis of fault or otherwise? 18 Against that background, the parties formulated their questions to the referee. At that time, and at the time that I made orders appointing the referee, the respondent had not yet served his evidence in the case. 19 The process adopted by the referee was to receive short statements of facts and contentions from the parties and to undertake limited inquiries of third parties. He did not, apparently, forensically examine any computer. The parties' short statements to the referee are essentially consistent with the pleadings although they do offer further details. 20 The applicants in their short statement provided additional detail of the disruption in service in mid-October 2017 as follows: (g) The interference included that the remote doctors could no longer access the private network server of the Nowra Radiology business through the previously used Domain Names. 21 The respondent gave further detail in his short statement as follows (nothing that DNS is an abbreviation for domain name servers): (f) On or around 18 or 19 October 2017 the Respondent instructed his IT administrator to relocate the DNS servers. This was for operational reasons, and to return the DNS to its original provider, Go Daddy. (g) The IT administrator made an error and incorrectly appended a ",bak" to the subdomain "reports.nowraradiology.com.au", or another similar subdomain. (h) The error affected only the imaging server used occasionally by referring doctors to view the images associated by reports. (i) It is unknown whether any doctors were attempting to access the imaging server at that time. (j) The delay, if any, was minimal as the Respondent contends it was discovered and corrected within approximately 1 hour. (k) All other services such as web access, telephones, electronic fax, sms services, backup services and remote access to internal computers would not have been affected. (l) The Respondent ensured his IT providers had rectified the issue, and this was carried out prior to the Applicants bringing this error to the Respondent's attention. 22 Unfortunately, the answers given by the referee are only marginally relevant to the issues between the parties. The questions and answers can be summarised as follows: (1) Who was the registrant (also described as the person having control) of the domain names? The answer given is that from 17 October 2013 it was Peter Macintosh, save that the documents show that in the case of the .com.au domain name it was the Fidelity Trust with Peter Macintosh as the contact person. (2) Was a change made to the domain name servers for each of the domain names during 2017 and, if so, what? The answer given is that from 17 October 2017 the domain names were directed away from IT Basecamp named servers and directed to Go Daddy named servers at the direction of Peter Macintosh. (3) What was the effect of the change? The answer given is in paragraph 4.5.2 of the report on page 8, which is as follows: The website would not work whilst the domain names were not directed to where the website's pages were being hosted. Whenever domain names are changed from one name server to another, there is always a delay whilst the change is updated in the various Internet servers and this can be anything from an hour up to 24 hours. (4) A further answer was given at paragraph 14.16 on page 11 as follows: As iterated in this report, if domain names are changed from one name server to another, there is a delay in that change occurring, as the various Internet name servers and registries need to be updated accordingly. This timeframe can be at least an hour and up to 24 hours. In addition, if the web pages are not located at the new name servers, additional actions need to be conducted to direct the domain names to where the website is located. 23 There are various other details reflected in the report, such as of the name servers and IP addresses for each of the domain names before and after the change in mid-October 2017, but these are not presently relevant. 24 The applicants seek adoption of the report in reliance on the principles identified by McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7]. Those principles have been repeatedly adopted in cases before this Court, e.g. Weston v Rajan [2019] FCA 1455 at [8]-[9] and Stone v Ebeid [2020] FCA 343 at [6]. 25 In particular, the following principles from Chocolate Factory (at [7]) are presently relevant: (2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised. … (5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report. (6) If the referee's report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than "unsafe and unsatisfactory". (7) Generally, the referee's findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence. … (15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified. 26 The applicants place particular emphasis on principle (6) above, also with reference to Sheehan v Lloyds Names Munich Re: Syndicate Ltd [2017] FCA 1340 at [10]. They submit that no such error as those described in principle (6) is apparent and that the referee's report, even if of limited assistance, should be adopted. 27 The respondent relies first on the affidavit of Laura Kathleen Thurston-Moon sworn on 19 May 2020 which establishes the following: (1) On 5 May 2020, Ms Thurston-Moon, as solicitor for the respondent, made an open offer on a "without any admission of liability" basis to transfer the domain names to the applicants. (2) On 13 May 2020, that offer was accepted by the applicants' solicitor, on their behalf. (3) The settlement was then executed as a deed on or about 19 May 2020. 28 Thus, submits the respondent, much of what was in dispute about the domain names is no longer in dispute. That was confirmed by counsel for the applicants, who advised me that the applicants will no longer press, and will seek to discontinue the matter with regard to, prayers 2 and 3 of the originating application, i.e. the declaration of trust with regard to the domain names and the injunction to deliver them up or transfer them. 29 The respondent contends for rejection of the report essentially on the following grounds: (1) As indicated, it is not relevant to, and does not assist the Court to resolve, any of the issues in dispute in the proceeding. (2) The report introduces unexplained terminology such as "control" and "modification" of domain name servers, which confuse and detract from the real issues in dispute and which could potentially mislead the Court. (3) The report contains unsupported speculation, such as an assumption as to the respondent's reasons for changing service providers in October 2017, which ought to be rejected by the Court. (4) The report contains apparently inconsistent conclusions, such as to whether there has been any change in control over time. (5) The referee's expertise appears to be in a different field, being digital forensics, and there is no indication that he has, in fact, brought any of that expertise to bear in answering the questions in the report. 30 I am in two minds about whether or not to adopt the referee's report. On the one hand, it is of such marginal relevance to the issues in dispute that it adds very little to the case; it makes only a limited contribution to the resolution of the disputes between the parties. On the other hand, its findings are so uncontroversial and, for the most part, were common ground even before the referee commenced his work, that there seems to be little point in rejecting something that might offer some assistance. 31 I have ultimately resolved to adopt the report, subject to some variations. That is the best approach to the applications before me, having regard to the overarching purpose in sections 37M and 37N of the Federal Court of Australia Act 1976 (Cth). I envisage that, from the report, a simple statement of findings can be prepared which will be helpful to the ultimate resolution of the dispute. To the extent that the parties cannot agree such a statement, the Court, at final hearing, will be assisted by the report in preparing such a statement. For that reason I am loath to reject the report. 32 Moreover, I am not satisfied that the respondent's criticisms of the report are sufficient to justify its rejection. As I have explained, its findings have some, albeit limited, relevance insofar as it uses unexplained or undefined terminology that can be dealt with by properly construing the relevant parts of the report in context. The same is true of any apparently inconsistent statements or conclusions. Those can be resolved either by properly interpreting the report or referencing the relevant source documentation that is annexed to the report. 33 Insofar as the expert's expertise is concerned, I am satisfied that he has the relevant expertise. As pointed out by the respondent, his report did not require any high level skill or forensic investigative ability. He was well qualified for what little he was required to do. 34 The principal criticism by the respondent that I am persuaded by is in relation to some answers given by the expert where he has not identified any basis to his conclusion other than speculation or assumption or where he has not explained the reasons for an opinion. 35 I propose to adopt the report, subject to variation by striking out those answers. They are at paragraphs [4.5.2] on page 8; [4.5.3] on page 8; [4.5.4] on page 9; and [4.16] on page 11. Also, the answers given at paragraphs [4.2.1] and [4.2.12], on pages 7 and 10 respectively, are to be varied so as to reflect that Peter Macintosh is the registrant for the .com domain name and the Fidelity Trust is the registrant for the .com.au domain name. After hearing the parties on costs 36 On costs, these are my reasons. Had the referee done a forensic investigation of what exactly occurred with regard to the .com.au domain name in mid-October 2017, including whether the service was interrupted, for how long, and why, that would have been very helpful. Unfortunately, for reasons that are not apparent to me, the questions that were directed to him on those topics did not elicit valuable answers. The result is the report is of limited use with regard to matters that are not seriously in contention. 37 It is thus not clear to me why the applicants moved for the adoption of the report and, once they had done so, why the respondent resisted such adoption. More time, trouble, effort and costs are likely to have been spent on the contested question of the adoption of the report, than on its preparation. In any event, adjudication by the Court of the matters dealt with in the report is likely to have cost less and taken less time than the contest about the adoption of the report – there is hardly any, if any, disagreement between the parties on the referee's conclusions. 38 In those circumstances, neither party has really been successful in the applications, or both have, depending on how one looks at it. In short, a better approach would have been not to trouble the Court with today's applications. Acting in keeping with the overarching purpose, the parties should have simply agreed a short statement of facts extracted from the report. 39 It would thus not be right that either party is awarded the costs of the applications, and it would also not be right that costs are costs in the cause in the case. Parties should not be encouraged to take a position on applications such as this according to their view on their ultimate prospects in the case. 40 The fair and proper order is that the parties should bear their own costs on the applications. I will make orders accordingly. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart. Associate: Dated: 29 May 2020