Baud Corp NV v Brook

LOWER COURT District Court JURISDICTION : LOWER COURT DC7010/02 FILE NUMBER(S) : LOWER COURT Murrell DCJ JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40872/03 DC 7010/02

HODGSON JA McCOLL JA WINDEYER J

Friday 9 July 2004 BRAMBLES AUSTRALIA LTD. t/a CHEP AUSTRALIA V. TATALE PTY. LTD. & ANOR. Judgment 1 HODGSON JA: On 18 September 2003, Murrell DCJ ordered that proceedings brought by the claimant, Brambles Australia Ltd, against the opponents, Tatale Pty Limited and Benaski Pty Limited, be summarily dismissed pursuant to Part 11A Rule 3 of the District Court rules. 2 The claimant seeks leave to appeal from that order. The application for leave has been argued on the basis that, if leave is granted, the appeal will be dealt with without further argument. 3 I will briefly outline the circumstances giving rise to the proceedings. 4 The claimant is the owner of CHEP wooden pallets, of which there are about 11.4 million circulating in Australia. They are painted a distinctive blue colour. They bear a CHEP logo and have imprinted on them the statement "Always remains the property of CHEP". None of them has any feature by way of a number or any other identification which would identify it from any other pallet. 5 The pallets are hired to customers for the purpose of transporting and storing goods, in accordance with standard terms of hire used by the claimant. The terms relevant to these proceedings are clauses 2 and 4, which are as follows: 2. HIRE OF EQUIPMENT (a) Equipment will be added to and deducted from the Equipment held by the Hirer and the Hirer's Quantity on Hire when: (1) Equipment is hired to the Hirer (issue); (2) hired Equipment is returned to CHEP at a CHEP depot authorised to accept that Equipment (dehire); (3) there is an approved transfer of hired Equipment by the Hirer (Sending Party) to another Hirer (Receiving Party) or by a Receiving Party to the Sending Party; or (4) there is an adjustment under these terms. An item of Equipment will not be recorded as dehired until the whole of the item is returned or compensation is paid under clause 4. (b) A Sending Party must establish that the transfer of any Equipment is accepted by the Receiving Party and obtain CHEP's approval to the transfer. Unless otherwise agreed by CHEP, a transfer will be rejected unless it is notified to CHEP by an approved CHEP transfer document. CHEP may refuse to issue Equipment to a Hirer or refuse to approve a transfer. Variation by CHEP of a Hirer's Quantity on Hire or sending an invoice does not itself constitute approval of a transfer. (c) The Hirer must not part with possession of any Equipment unless: (1) it is dehired to CHEP; (2) it is transferred onto another Hirer's account with CHEP; or (3) the Hirer keeps and makes available to CHEP on demand written or electronic records identifying the name and address of the person in possession of the Equipment, the date of the change of possession, the quantity and type of Equipment, and the terms (if any) on which the Hirer parts with possession. The Hirer must ensure that those terms are at all times subordinate to and will be overridden by these terms.

4. OWNERSHIP, LOSS, CONDITION AND REPOSSESSION OF EQUIPMENT The Hirer acknowledges that each item of Equipment has a special value to CHEP in that, as part of CHEP Australia, CHEP repairs, maintains, handles and otherwise administers the circulation of all Equipment. The Hirer expressly agrees to all the following matters as a condition of CHEP agreeing to lend or hire Equipment to the Hirer: (a) Despite any other clause in these terms, CHEP remains the owner of the Equipment at all times. No person is entitled to use, dispose of or otherwise deal with Equipment in any way that is inconsistent with CHEP's ownership or these terms. Payment of compensation or any other circumstance or event, does not constitute or result in any transfer of property or interest in the Equipment from CHEP. (b) (1) If the Hirer establishes to CHEP's satisfaction that Equipment on Hire is destroyed (Destroyed Equipment), the Hirer must pay CHEP compensation in an amount equal to the then current value, as determined by CHEP, of that quantity of new Equipment. The Hirer remains liable to CHEP for hiring charges in respect of Destroyed Equipment until payment of the compensation required by this clause. (2) If the Hirer establishes to CHEP's satisfaction that Equipment on Hire is lost (Lost Equipment), the Hirer must pay CHEP compensation in an amount agreed between the Hirer and CHEP or, if they do not agree, at CHEP's posted Lost Equipment Compensation Rate from time to time. CHEP's posted Lost Equipment Compensation Rate will not exceed the amount that the Hirer would have paid to CHEP if CHEP had hired out the Lost Equipment for the next 5 years at 50% of CHEP's posted hire rate at the time of the calculation, assuming no change to that hire rate over that period. The Hirer acknowledges that this formula for calculating the upper limit of CHEP's posted Lost Equipment Compensation Rate is a realistic pre-estimate of CHEP's loss, which takes into account, among other things, the lifespan, of Equipment. CHEP's utilisation rate and the time value of money. The Hirer remains liable to CHEP for hiring charges in respect of Lost Equipment until payment of the compensation required by this clause. (3) If the Hirer subsequently recovers possession of Lost Equipment in respect of which compensation has been paid, or if CHEP retakes possession of Equipment for which CHEP considers that the Hirer has paid compensation, CHEP will refund to the Hirer the amount of compensation paid for the Lost Equipment, after deducting any costs of recovery or retaking possession and an amount equal to the amount of hiring charges not paid by the Hirer and which would otherwise be due and owing if CHEP had not agreed to treat the Equipment as Lost Equipment. (c) Where Equipment which in CHEP's opinion is contaminated, rendered unusable or damaged beyond reasonable repair is returned to CHEP, that Equipment will be treated as Destroyed Equipment and: (1) the Hirer must pay compensation for it in accordance with clause 4(b) and any costs of disposal; and (2) CHEP's obligation to repair in clause 5 does not apply. (d) CHEP has the right to immediate possession of all CHEP Equipment whether on hire or not, and may take possession of any Equipment immediately and without notice to any person. The Hirer gives CHEP an irrevocable licence to enter property occupied by the Hirer at any, time and take any steps CHEP considers reasonably necessary or appropriate to obtain possession of Equipment. The Hirer must pay CHEP's actual costs of obtaining possession of Equipment. CHEP may credit the Hirer's account with Equipment so recovered. If CHEP takes possession of any Equipment which the Hirer demonstrates to CHEP's satisfaction was then on hire to the Hirer, CHEP will, at the Hirer's request, make available the same quantity of Equipment to the Hirer, if the Hirer demonstrates to CHEP's satisfaction that the Hirer would then have no more Equipment than its Quantity on Hire. 6 The opponents are respectively a wholesale grocer and a seller of frozen foods, and they operate and have operated from the same or adjacent premises. In the course of their businesses, goods are delivered to their premises, and the delivering party leaves pallets containing goods and generally removes an equivalent number of empty pallets. The opponents receive about 20 deliveries per day five days per week. 7 In early 2000, Mr Downs, the claimant's asset security manager, became aware that the opponents had loaned 220 CHEP pallets to a customer of the claimant named Karras Transport. Mr Downs attended the opponent's premises, which were then at Arncliffe, on 10 April 2000. 8 From outside the premises looking in, he saw CHEP pallets under various goods and about 40 empty pallets; and when he walked in going to the office, he saw, in a number of places, CHEP pallets cut to fit next to pillars of the building. He later counted the pallets, and counted 1,262 apparently in the possession of the first opponent and 224 apparently in the possession of the second opponent. 9 He attended again at these premises on 23 June 2000, and on that occasion, he counted 1,285 apparently in the possession of the first opponent, and 228 apparently in the possession of the second opponent. 10 The claimant made various attempts to identify hirers to whom pallets located on the opponent's premises had been hired, and was unsuccessful in relation to the majority of the pallets. The claimant wrote to each opponent on 16 November 2000 in the following terms: I am writing to you to voice my concerns regarding the, CHEP pallets that your company is using, without you operating an account with CHEP Australia. As you are aware, earlier this year I visited your old premises at Arncliffe and conducted two stocktakes of all the CHEP pallets located there. A total of 1,573 CHEP pallets were identified. Based on your information, written confirmation was obtained from those CHEP customers regarding any outstanding IOU's. This left us with a surplus of 1,509 pallets.

On 21st of July we again met and discussed the results of my investigation and the options available to you. You refused to accept these results, continuing to claim that the pallets belong to your suppliers.

As Downton & Dyer was a major supplier for the Sydney Olympics, you requested that negotiations be suspended until your commitments were completed. I agreed to your request. Since that time I have made numerous attempts to contact you. Unfortunately, I have not received a reply from you.

As CHEP equipment always remains the property of CHEP Australia, as stated in clause 4 (d) of our terms and conditions of hire (copy attached), this matter needs to be resolved immediately. I would hope that we could do this amicable in the first instance.

However, should you choose not to proceed with an agreement, with us, by the close of business on Friday the 24th of November 2000, we will have no alternative but to proceed with further action. You can contact me on my mobile number, 0417 497 152, to arrange a suitable time to conclude this matter. 11 There was no response to that letter. There was later some telephone contact, and on 18 January 2002 Mr Downs went to new premises occupied by the opponents at Alexandria, and on that occasion counted a total of 1,332 pallets. 12 The claimant sent a letter to each opponent on 22 April 2002 in the following terms: As you are aware, over the past 2 years I have conducted 3 stocktakes and 2 reconciliation's (sic) of the CHEP pallets under your control. In November 2000 I wrote to you with the results of the first reconciliation. Based on the information I received from you, we were only able to attribute 64 of the 1,573 pallets to Iegitimate CHEP customers.

In January this year I visited your new premises and identified a total of 1,332 CHEP pallets on site. This time 118 could be attributed to CHEP customers.

Since then, my repeated attempts to reach a commercial agreement with your business have failed to resolve the issue surrounding the surplus pallets.

CHEP does not condone the unauthorized use of its equipment and regardless of how or why your business came to use our property, CHEP has a legal right to recall all of its assets at any time.

With this in mind, I have attached an account application form and request that it be completed, in full, and returned to me by the close of business on Tuesday 30th of April 2002. Alternatively the pallets can be returned to CHEP, by this date, and dehired against our asset account 216051.

I can be contacted on my mobile number 0417 497 152 should you wish to discuss any of these points. 13 There was no response to that letter, and on 17 June 2002 the claimant's solicitors sent a letter to each opponent in the following terms: We act for CHEP.

CHEP is the owner of and has an immediate right to possession of all wooden pallets painted a distinctive blue colour and stencilled with the CHEP logo.

We are instructed that: 1. on a number of occasions, you have stored and used CHEP pallets in various quantities including as follows: Date No. of pallets 10 April 2000 224 23 June 2000 288 2. you do not have a pallet hire contract with CHEP; 3. you have been given a more than reasonable opportunity to identify CHEP hirers from whom the pallets were sent to your premises and you have not done so; 4. you have been given a more than reasonable opportunity to return the pallets to CHEP and you have not done so; 5. you have been given a more than reasonable opportunity to open a hire account for the pallets with CHEP but you have not done so.

In the circumstances, we have advised our client that you are liable to CHEP for damages for conversion and wrongful detention of the CHEP pallets. Such damages include the following damages calculated with reference to the value of the pallets: No. of pallets Value per pallet Total 512 $22.33 $11,432.96

The damages also include the following lost hire charges for the pallets: No. of pallets Hire period lost Lost hire 224 10.04.00 -13.06.02 $16,911.76 288 23.06.00 -13.06.02 $19,945.86 Total $36,857.62

The purpose of this letter is to provide you with one final opportunity to allow CHEP to audit pallets in your possession against your records of suppliers who have CHEP hire accounts then either: l. return all other CHEP pallets in your possession to CHEP at 32 - 34 Burrows Road, St. Peters, NSW; or 2. enter into a satisfactory hiring arrangement with CHEP for pallets not currently on hire:

Failing such steps within 14 days of the date of this letter, we have been instructed to commence proceedings without further notice seeking delivery up of the pallets and damages including the damages in the sum of $48,290.58 set out above. If that becomes necessary, costs and interest will also be sought.

We commend this matter to your immediate attention. 14 There was no response to that, and on 4 September 2002 these proceedings were commenced. 15 The Statement of Claim alleged conversion and detinue in relation to pallets identified at the opponent's premises. The conversion was alleged to arise from possession, use and/or disposal. The detinue was alleged to arise from detaining the pallets after the demand made in the letter of 17 June 2002. The relief claimed was delivery up, and damages which were alleged to be loss of hiring charges. 16 In their original Defence dated 9 October 2002, the opponents inter alia denied the claimant's ownership and immediate right to possession, and also sought to rely on the claimant being estopped from demanding return of the pallets. These aspects of the defence were withdrawn in an Amended Defence, which essentially denied detinue and conversion. 17 The primary judge held that the claimant's case was virtually hopeless and that there was no serious triable issue. 18 In relation to detinue, the primary judge referred to and upheld the opponent's submission that the letter of 17 June 2002 did not constitute an unambiguous demand for return of the pallets and also that, insofar as it required their return to the claimant's premises, was excessive because there was no obligation on a possessor to take goods back to the owner. 19 The primary judge referred to an argument of the claimant that the letter of 17 June 2002 asserted the claimant's ownership rights, and that continued use by the opponents thereafter amounted to detinue because it showed an intention to use in defiance of the claimant's title. 20 The primary judge quoted the following passage from Capital Finance Co Limited v Bray [1964] 1 AllER 603 at 606-607: Suppose a trader leaves some articles on my premises - it may be a photograph or even a grand piano - hoping that I will buy it. If I am unwilling to buy it, he cannot demand that I post the picture back to him or that I load the grand piano on a bandage contractor's van and take it back to him. I can leave it where it is or I can put it out of my way if I like, without being guilty of any wrongdoing at all. If he comes to collect it, I must let him have it; but that is all. There is no obligation on a person who has another person's goods to return them to him except, by contract ... It seems to me, therefore, that this demand of 1 March 1963, was not a good demand such as to found a claim in detinue. It did not merely demand delivery up. It demanded the hirer should take the car back to one of these three addresses. He was under no obligation to do so.

The only way in which a claim in detinue might be made here was the way in which counsel for the owners put it. He said that, if a man uses a car in defiance of the owner's rights, that may give a claim in detinue. I agree. It may. No doubt, after receiving the letter of March 1 1963, the hirer had no right to use the car. The owners had withdrawn their consent to it, and if he did use it after March 1 1963, there might be a claim in detinue.

She continued: 35. The difficulty with the plaintiff relying upon this argument in these proceedings (which I think is an insurmountable difficulty) is that, prior to and following receipt of the letter of 17 June 2002, the plaintiff's attitude was not one of unambiguously asserting a desire that the goods be returned and unambiguously indicating a lack of consent to the defendants' continued use of the pallets. Rather, the situation was analogous to that referred to in the above quote in relation to the grand piano. The plaintiff was hoping that the defendants would enter into hiring agreements and continue to use the pallets, but in an "authorised way". 21 The primary judge then referred to a second argument of the plaintiff that, if it was plain that the opponents would have refused to comply with the proper demand, had one been made, it was not necessary that there be a proper demand, referring to Baud Corp NV v Brook (1973) 40 DLR (3d) 418 at 423. 22 The primary judge then continued: 38. Reference was made to the defendants' conduct observed on 10 April 2000 of storing goods on pallets which had been cut and adapted in some way to fit into the defendants' warehouse premises, but that observation was made well before consideration was given to making any demand for return of goods and, in any event, the nature of the goods and the terms of hire contemplate that goods may be damaged when they are out in the community. 23 In relation to conversion, the primary judge referred to arguments on behalf of the claimant that the persistent use of the pallets and the cutting of the pallets amounted to conversion and then continued: 45. The difficulty with all these arguments is that the uncontested situation in this matter is that the plaintiff was, throughout the relevant period, wanting the defendants to enter into a hiring agreement with it. It was not concerned about the defendants continuing to utilise the pallets, provided they entered into a hiring agreement and, in that sense, was ambivalent about whether it wanted return of the goods. Again, the situation is analogous to the grand piano illustration given in the case of Capital Finance Co Ltd . 24 The claimant seeks to appeal on the following grounds: 1. Her Honour Judge H G Murrell SC erred in ordering that the District Court Proceedings No. 7010 of 2002 between the Appellant as plaintiff and the First and Second Respondents as defendants be dismissed. 2. Her Honour erred by failing to apply the correct legal principles required in an application for summary dismissal pursuant to District Court Rules Part 11A, Rule 3. 3. Her Honour erred in finding or purporting to find that there was not triable issue in the proceedings. 25 Mr Coles QC for the claimant submitted that the letters and in particular the letter of 17 June 2002, were sufficient to convey to the opponents that they did not have the owner's consent to continued possession and use of the pallets. The fact that the opponents did not have to comply with the demand to deliver the pallets at the claimant's premises, and that failure to deliver would not of itself be detinue, did not detract from that effect of the letters. 26 In those circumstances, he submitted, the continued possession and use of the pallets by the opponents could be such as to demonstrate an intention to hold them in defiance of the claimant's right (see Bray at 607 and 609). Mr Coles submitted that whether this was so in this particular case was a matter to be decided on the whole of the evidence, not on a summary disposal application. 27 Mr Coles also submitted that it could be inferred from the circumstances and the original defence that a proper demand would have been futile, and that too was sufficient for detinue (see Baud). 28 In relation to conversion, Mr Coles submitted that the cutting of the pallets could be conversion, even though it took place before there was any withdrawal of consent to possession. 29 He submitted that the continued use of the pallets after the letters were sent could amount to conversion, depending upon the circumstances as they were fully established at a final hearing (see Penfolds Wines Pty Limited v Elliott (1946) 74 CLR 204, Model Dairy Pty Limited v White [1935] Arg LR 432). 30 Mr McKeand SC, for the opponents, submitted that there were two key pieces of evidence in the case that were definitive and could not change at a final hearing, namely the terms of the contracts of hire and the letter of 17 June 2002. 31 In relation to the former, he submitted that the standard terms, and in particular 2(c)(3), permitted pallets to be passed on to non-hirers, in which case there would be no obligation on these non-hirers to keep records or to use or refrain from using the pallets in any particular way, and no obligation not to pass the pallets on to further parties. 32 In those circumstances, there could be no detinue or conversion, at least until the owners plainly withdrew consent to use or properly demanded the return of the pallets. Particularly this was so in circumstances where the original hirer of the pallets was under an obligation to keep records in relation to them, and to keep paying rent for them. 33 Turning to the letter of 17 June 2002, Mr McKeand submitted that it did not express or imply a withdrawal of consent to retain and use the pallets. It indicated a wish that the opponents enter into an agreement to pay rent for them. 34 Dealing with the particular requirements made at the end of the letter, Mr McKeand submitted that any requirement indicating a cesser of consent to use took effect only after an audit had taken place, or at least an audit had been sought and denied. Mr McKeand submitted that if a refusal to return goods is relied on, the refusal must be categorical. 35 In my opinion, it could not be concluded on the material before the primary judge on the summary dismissal application that the letter of 17 June 2002 could not amount to a withdrawal of the claimant's consent to the opponent's continued possession, use and disposal of the pallets. 36 The primary judge's conclusion that the plaintiff's preference was to have the opponents enter into a hiring agreement was a reasonable one, and the letter did not explicitly state in these terms that consent to possession, use and disposal was withdrawn. The matter is further, to some extent, clouded by the reference to audit relied on by Mr McKeand. 37 However, in my opinion, the letter is, in its context, plainly capable of amounting to a communication of a withdrawal of consent, and in my opinion, whether it does so or not must be determined having regard to all the circumstances, which would only be established at a final hearing. It would not be appropriate on an application for summary disposal to conclude that the letter did not, or was not capable of, conveying such a withdrawal of consent. 38 If the letter was effective to communicate a withdrawal of consent, then use or disposal of the pallets thereafter could amount to detinue if such use or disposal demonstrated an intention to hold and use and/or dispose of the pallets in defiance of the owner's rights, and could also amount to conversion. 39 In those circumstances, in my opinion, the case is not one where it was appropriate to make an order for summary dismissal. 40 Although it is not necessary to my decision to deal with the contention that the evidence could show that the making of a proper demand would have been futile, it does seem to me that that inference may be open, particularly having regard to the terms of the defence initially put on by the opponents. 41 It seems to me further that events occurring prior to 17 June 2000 could have amounted to conversion, in particular the cutting of pallets to make them suitable for use, apparently for the purpose of storage in the opponent's premises. The fact that the standard terms of hire have provision for compensation to the claimant for damage occasioned to the pallets could not prevent the deliberate cutting of the pallets for the purpose of some medium or long-term use in the opponents' premises from amounting to conversion, or at least from being capable of being conversion. 42 It is also possible that the continued retention, use and disposal of pallets following the earlier communications could have amounted to conversion. The area is a difficult one, as shown by the decision in Penfolds Wines, and it does seem to me that a conclusion as to whether what happened at that time amounted to conversion would require a finding as to the whole of the circumstances of the case. 43 For those reasons, in my opinion, the opponents had not proved before the primary judge that there was no triable issue or that the claimant had no reasonable cause of action, and the proceedings should not have been summarily dismissed. Although the order for summary dismissal is in form an interlocutory order, it had the effect of putting an end to the proceedings, and in my opinion it is appropriate to grant leave to appeal. 44 I would note finally that, as correctly noted by the primary judge, there may be serious difficulties in the way of the claimant in proving damage, when it may not be able to prove that rent was not being paid by other parties for the relevant pallets, and where the normal conversion remedy of forced sale may be inappropriate. 45 However, in my opinion the primary judge was correct in her conclusion that these difficulties did not justify summary dismissal of the proceedings. 46 For those reasons, I propose the following orders: 1. Leave to appeal granted. 2. Notice of Appeal to be filed within 14 days. 3. Appeal upheld. 4. Orders below set aside. 5. Opponent's Notice of Motion dated 18 July 2003 dismissed with costs. 6. Opponents to pay claimant's costs of the application and appeal and to have a Suitors Fund Act certificate if otherwise entitled. 47 MCCOLL JA: I agree. 48 WINDEYER J: I agree. 49 HODGSON JA: Those are the orders of the Court. **********

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