CHEP Australia Limited v Hepner

Publication restriction: Nil

JUDGMENT

1. CHEP Australia Limited (‘Chep’) is in the business of hiring equipment, including pallets for the commercial transport of goods to commercial customers.

2. My Crazy Auntie’s Food Pty Ltd (‘MCAF’) was, from its incorporation on 21 March 2014 until entering into liquidation on 2 March 2023, in the business of producing food for sale through commercial outlets.

3. MCAF submitted a ‘Commercial Credit Application’ to CHEP, signed by Mr Juy Hepner as a director of MCAF on behalf of MCAF on 1 August 2017. The ‘Commercial Credit Application’, together with the Terms of Hire, constituted an agreement by MCAF to hire equipment from CHEP (‘the CHEP Agreement’). Mr Hepner provided a personal Guarantee and Indemnity signed on 1 August 2017 with respect to MCAF’s financial obligations to CHEP.

4. In these proceedings, CHEP alleges that MCAF has failed to return or meet its financial obligations under the CHEP agreement with respect to equipment hired from CHEP under that agreement.

5. CHEP seeks to recover from Mr Hepner, under the Guarantee and Indemnity, the payment it says is due to it under the CHEP Agreement from MCAF.

6. At the trial of the matter, Mr Enayat Rahmani, a bad debt specialist employed in the Bad Debt Recovery team for CHEP provided two affidavits and gave oral evidence. Mr Hepner provided an affidavit and gave evidence in his own case.

The Facts

7. Mr Rahmani has worked in CHEP’s Debt Recovery team since 4 July 2022. Prior to that, he had approximately 20 years experience in debt recovery at various organisations. Mr Rahmani uses CHEP’s systems, book and records on a daily basis and is very familiar with them.

8. Mr Rahmani said that CHEP received an executed CHEP Agreement from MCAF on 1 August 2017. The CHEP Agreement and the CHEP 2016 Terms of Hire (‘the Terms of Hire’), which were standard for all CHEP customers during their currency, both form part of Exhibit ER 1 to Mr Rahmani’s affidavit of 1 July 2024. The Terms of Hire were attached to the CHEP Agreement when the CHEP Agreement was signed by MCAF.

9. The Terms of Hire are available to customers of CHEP online through the CHEP Portal. The Terms of Hire are also available to the public online, and have been since 1 August 2016.

10. The CHEP agreement executed by MCAF on 1 August 2017 provides, among other things:

ALL TRANSACTIONS WILL BE SUBJECT TO THE CHEP TERMS OF HIRE AND/OR TERMS OF SALE ATTACHED (WHICH CONTAIN RELEASES, INDEMNITIES AND GUARANTEES IN FAVOUR OF CHEP) WHICH THE APPLICANT HAS READ AND AGREES WITH.

11. The Terms of Hire were effectively incorporated as terms of the CHEP Agreement (see Michael Hill Jeweller (Australia) Pty Ltd v Gispac Pty Ltd [2024] NSWCA 211).

12. The Guarantee provided by Mr Hepner on 1 August 2017 is also part of Exhibit ER 1 (pp 5 – 10). Mr Hepner signed a previous Guarantee and Indemnity on 13 February 2017 (Exhibit P5).

13. An ASIC current and historical extract for MCAF shows that MCAF was incorporated on 21 March 2014. Mr Hepner was a director of MCAF from 16 January 2017. Peter Andrew Goodin was appointed liquidator of MCAF on 2 March 2023.

14. Mr Rahmani described the CHEP hiring system. When a customer has entered into an agreement with CHEP, CHEP creates an account and provides the customer with a unique customer number. All transactions, equipment movements, payments and other information is subsequently recorded in the CHEP system against that account number. Mr Rahmani referred to the CHEP system as “the Portal”. Customers, including MCAF, have access to the Portal.

15. MCAF has operated under a CHEP account number 4000331346 (the CHEP account) since 1 August 2017.

16. CHEP issued invoices to MCAF on a weekly basis. Each invoice records all equipment movement processed on the CHEP account for the billing period. A customer, including MCAF, may hire equipment directly from a CHEP service centre, return equipment to a CHEP service centre, receive equipment from another CHEP customer or send equipment to another CHEP customer. Mr Rahmani referred to this as a “pooling system”.

17. In the current dispute, the equipment in question is pallets of various types, upon which food products were transported both to MCAF and by MCAF.

18. The Terms of Hire include a procedure to deal with an objection by a customer in relation to anything contained in an invoice issued to it. The Terms of Hire provide, in clause 7(f):

7 Invoicing

…

(f) If the Hirer objects to anything contained in an invoice:

(1) the Hirer must give written notice to CHEP detailing the Hirer’s objection within 60 days of the date of that invoice. The Hirer must include appropriate evidence supporting its objection. If the Hirer fails to give the notice within the time prescribed, it is taken to have accepted the contents of the invoice;

(2) CHEP may take the Hirer’s objection into account in subsequent invoices to the Hirer; and

(3) upon receipt of a subsequent invoice from CHEP incorporating any adjustments by CHEP resulting from an objections, the Hirer may either:

(A) pay the invoice without further objection, in which case payment constitutes a final determination of the objection as between CHEP and the Hirer; or

(B) pay the invoice and at the same time give written notice to CHEP of a further objection, in which case payment of that invoice (and any further invoice) will be deemed to have been made subject to final determination of the Hirer’s objection.

19. Mr Rahmani said that, in the hypothetical event of a dispute being notified by MCAF, with supporting documentation, CHEP’s customer service team would review the account and the dispute and supporting documentation and take steps, which might include reversing transfers of equipment in the account or processing a rejection of the complaint through the Portal, which could be seen by CHEP. Alternatively, MCAF could process a “rejection” through the Portal, which would be reviewed and, if the information gathered supported MCAF’s “rejection”, recognise the “rejection” by, for example, reversing the rejected transfer of equipment.

20. Equipment could be recorded against MCAF’s CHEP account because MCAF requested that CHEP issue further equipment to it, because a trading partner transferred equipment to MCAF (eg when sending goods ordered from it by MCAF on CHEP pallets) or when a trading partner rejects a transfer (eg disputing the number of pallets sent with a delivery).

21. The Terms of Hire provide as follows:

4. Transfers of Equipment

(a) The Hirer may only Transfer an item of Equipment to another Hirer if:

(1) CHEP has been notified of the intended Transfer in a manner reasonably acceptable to CHEP;

(2) it has been established that the Transfer of that Equipment is accepted by the other Hirer;

(3) the other Hirer has an active account with CHEP (that is, and account that has not been suspended or revoked); and

(4) CHEP approves the transfer.

CHEP may refuse to approve a Transfer in its reasonable discretion and in any event will refuse to approve any Transfer that occurred more than 180 days prior to the date that CHEP is notified of the Transfer, unless otherwise agreed by CHEP. Variation by CHEP of a Hirer’s Quantity on Hire or sending an invoice does not itself constitute approval of a Transfer.

(b) The Hirer must not part with possession of any Equipment unless:

(1) it is Returned to CHEP or collected by CHEP;

(2) it is Transferred to another Hirer; or

(3) the Hirer keeps and makes available to CHEP on demand documentation, electronic records or other control records reasonably acceptable to CHEP 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 consistent with these terms and subject to these terms to the extent of any inconsistency.

(c) For the avoidance of doubt, the Hirer is responsible for all Equipment in the Hirer’s Quantity on Hire or hired out or lent to it by CHEP whether that Equipment is in the Hirer’s possession or not, and all Equipment in the Hirer’s possession or control.

(d) The Hirer acknowledges and agrees that, although CHEP may offer assistance for the management of disputes between Hirers through the CHEP Customer Portal, this assistance is limited to the making of recommendations only and is subject to receipt of the required information through, and the terms and conditions set out on, the CHEP Customer Portal from time to time.

22. Mr Rahmani said that, in order for the CHEP system to function effectively for its customers, each customer needed to track the movement of equipment on their account and undertake regular stocktakes of equipment in their possession.

23. The Terms of Hire further provide:

6. Charges

(a) The Hirer must pay:

(1) the agreed charges in respect of each item of Equipment;

(2) the agreed charges for each Service;

(3) all other charges agreed by the Hirer and CHEP from time to time;

(4) any applicable taxes, imposts, levies, stamp and other duties; and

(5) any other amounts owing under these terms.

(b) If the Hirer has not agreed specific charges with CHEP, the Hirer is taken to have agreed to the standard charges (including the Standard Hire Rate and Standard Issue Rate) for each item of Equipment, each Service and any other standard charges, which will be published on the CHEP customer Portal from time to time.

(c) The full agreed charges are payable by the Hirer for Equipment even if that Equipment is only in the Hirer’s possession or control or on the Hirer’s Quantity on Hire for part of a day.

…

24. The Terms of Hire provide as follows regarding the payment of invoices:

8. Payment

(a) The Hirer must pay the full amount of an invoice, without deduction or set-off, to CHEP within 7 days of the date of CHEP’s invoice to the Hirer, unless otherwise agreed by CHEP. The Hirer must pay the full amount of an invoice even if the Hirer objects to any item or calculation in an invoice. The Hirer may object to any item or calculation in an invoice in accordance with clause 7(f).

(b) If the Hirer fails to pay the full amount of an invoice in accordance with clause 8(a), CHEP may require the Hirer to pay interest to CHEP on the overdue amount at the Commonwealth Bank of Australia Corporate Overdraft Reference Rate from the date of the invoice until payment is made in full.

(c) If any amount becomes overdue, all amounts recorded on the Hirer’s account are deemed to be immediately due and payable.

(d) The Hirer must pay all costs and expenses (including legal costs on a solicitor and own client basis) that are incurred by CHEP in the recovery or attempted recovery of the overdue amounts.

25. Mr Rahmani provided CHEP’s Standard Price List and Standard Compensation Rates effective from 1 October 2022, which set out the Standard Hire Rate applicable from 1 October 2022 and relevant to the outstanding invoices in this matter, which were issued between 8 October 2022 and 7 January 2023 (see ER 1 pp 95 – 96). The Standard Price List and Standard Compensation Rates are available on the Portal.

26. Mr Rahmani said that his review of MCAF’s CHEP account showed that MCAF was charged the Standard Hire Rate applicable from 1 October 2022 by way of the invoices the subject of these proceedings.

27. In the Statement of Claim, CHEP alleges that, as at 20 June 2023, MCAF was indebted to it in the sum of $100,611.22, and that Mr Hepner was therefore obliged to pay that amount to CHEP pursuant to the Guarantee. CHEP also claimed ongoing hire charges from Mr Hepner until such time as the equipment is either returned to CHEP or compensation is paid for it. The hire charge per timber pallet per day is $0.21 including GST for timber pallets and $1.07 per day for Vicfam plastic pallets under the applicable Standard Hire Rate. Based on the outstanding 850 timber pallets and 7 plastic pallets, the combined hire charge claimed is $182.31 per day. Interest is claimed on the ongoing hire charges.

28. Mr Rahmani said, in his affidavit, that a stocktake of MCAF was undertaken when the Administrators were appointed to MCAF on about 6 January 2023. The stocktake found 152 timber pallets, 19 Vicfam Plastic Pallets, 2 FB2 Bins and 1 FB4 Bin at MCAF’s principal place of business in Dandenong South. On 3 February 2023, CHEP’s asset protection team attended MCAF’s premises and collected 145 timber pallets, 20 Vicfam Plastic Pallets and 2 FB2 Bins. These were then transferred off the MCAF account and that is reflected in the calculation of the claim the subject of these proceedings. I assume that the discrepancy between the stocktake and the equipment collected occurred because there was some movement of equipment between 6 January 2023 and 3 February 2023 by MCAF.

29. In his affidavit, Mr Rahmani updated the claim to 1 July 2024, based on the applicable Standard Hire Rates (see paragraph 70, Mr Rahmani’s first affidavit).

| Outstanding I****nvoices from 8 October 2022 and 7 January 2023 | $26,821.82 | | Compensation for 850 timber pallets at $41.50 per pallet | $35,275.00 | | Compensation for 7 Vicfam plastic pallets at $121.50 per pallet | $851.00 | | Ongoing hire charges for 995 timber pallets at $0.1870 per pallet per day between 8 January 2023 and 3 February 2023 | $5,526.13 | | Ongoing hire charges for 850 timber pallets at $0.1870 per pallet per day between 4 February 2023 and 1 July 2024 | $89,870.33 | | Ongoing hire charges for 27 Vicfam plastic pallets at $0.9689 per pallet per day between 8 January 2023 and 3 February 2023 | $776.96 | | Ongoing hire charges for 7 Vicfam plastic pallets at $0.9689 per pallet per day between 4 February 2023 and 1 July 2024 | $3,834.71 | | Ongoing hire charges for 1 FB2 bin at $2.0613 per bin per day Between 8 January 2023 and 3 February 2023 | $61.22 | | TOTAL | $163,017.17 |

30. The Terms of Hire provide as follows with respect to destroyed and lost equipment:

10. Destroyed Equipment and Lost Equipment

(c) If the Hirer establishes to CHEP’s satisfaction that Equipment on hire or loan is lost (Lost Equipment), the Hirer must pay CHEP compensation equal to CHEP’s Lost Equipment Compensation Amount from time to time or other amount as agreed between the Hirer and CHEP. The Hirer remains liable to CHEP for all charges in respect of Lost Equipment until payment of the compensation. Upon payment of the compensation CHEP will treat the Equipment as Returned and adjust the Hirer’s Quantity on Hire accordingly.

(d) CHEP’s Lost Equipment Compensation Amount 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 the sum of:

(1) CHEP’s Standard Hire Rate for the relevant type of Equipment; and

(2) five times CHEPS’s Standard Issue Rate for the relevant type of Equipment,

(such product being the Lost Equipment Compensation Limit) at the time of the calculation assuming no change to those rates over that period. The Hirer acknowledges that the Lost Equipment Compensation Limit is a realistic pre-estimate of CHEP’s loss suffered when Equipment becomes Lost Equipment (but not Destroyed Equipment), which takes into account, among other things, the lifespan of Equipment, CHEP’s utilisation rate and the time value of money.

31. Mr Rahmani accessed the CHEP billing system, which he referred to as “System Applications and Products” (‘SAP’), to review MCAF’s account. He found that MCAF had been sent weekly invoices by CHEP until 7 January 2023. MCAF’s CHEP account was restricted from 13 January 2023. This was referred to by Mr Rahmani as the account being “revoked”, but the holder of a revoked account continues to have access to its account through the CHEP portal. However, the account is restricted to only permitting equipment to be transferred from the revoked account to trading partners or returned to a CHEP service centre. Equipment cannot be transferred onto the revoked account. The customer can reduce its liability, but may not increase its liability.

32. MCAF paid the invoices sent to it by CHEP until 8 October 2022.

33. Invoices were sent by CHEP to MCAF from 8 October 2022 to 7 January 2023 every week (14 invoices), in the same way as they had been sent prior to 8 October 2023. The invoices from 8 October 2022 to 7 January 2023 form part of the exhibit to Mr Rahmani’s first affidavit (CB 78 to 168). They have not been paid. They total $26,821.82. The compensation component of the claim assumes that no further equipment will be returned to CHEP or transferred to another account holder. This is a valid assumption, given that MCAF has ceased trading and the stocktake did not locate the equipment.

34. Each invoice sent by CHEP to MCAF said the following:

agreed terms require payment of this invoice by the payment due date

35. Each invoice sent by CHEP to MCAF also said (CB 349-2304):

All equipment on this invoice is subject to CHEP’s following terms as applicable: Terms of Hire…

36. As at 4 December 2024, CHEP’s claim had increased to $195,540.00.

37. The interest component of the claim is calculated in accordance with s 100 of the Civil Procedure Act 2005 (NSW) rather than the interest charge provided for under clause 8(b) of the Terms of Hire.

38. Mr Rahmani’s evidence was detailed and consistent. I accept his evidence in its entirety.

The Guarantee

39. The text of the Guarantee and Indemnity signed by Mr Hepner as the guarantor on 1 August 2017 begins with a request by the guarantor that CHEP:

… provide credit or other financial accommodation to MCAF in relation to the supply of goods or services or both goods and services by way of sale or hire on credit to the Applicant or to any person at the request of the Applicant pursuant to an agreement or various agreements (“the Agreements”) between CHEP and the Applicant.

IN CONSIDERATION OF CHEP agreeing to such requests the Guarantor HEREBY UNCONDITIONALLY GUARANTEES to CHEP on demand the due and punctual performance of all obligations and liabilities owed by the Applicant pursuant to the Agreements and also the payment of any existing indebtedness between the Applicant and CHEP arising from any earlier agreements between them …

40. Mr Hepner was the sole guarantor under the Guarantee and Indemnity of 1 August 2017.

41. The earlier Guarantee and Indemnity, signed on 13 February 2017, had three guarantors; Mr Hepner, Mr Shannon and Ms Selvarajah. Mr Hepner argued that Mr Shannon and Ms Selvarajah continue to be liable to CHEP. This argument does not assist him. The Guarantors are each jointly and severally liable under the earlier Guarantee and Indemnity, and under the later Guarantee and Indemnity, Mr Hepner is the sole guarantor. Whether the later Guarantee and Indemnity supersedes the earlier document or not, Mr Hepner is liable to CHEP for the entire debt.

42. Mr Hepner said, in his affidavit of 8 November 2024, that he was not aware of the hiring fees for lost pallets or the cost of purchasing the pallets. This information was set out in the Terms of Hire, with which he had been provided several times (Mr Rahmani’s first affidavit). The Terms of Hire were also referred to in the CHEP application, which Mr Hepner signed, and were at all relevant times available for public viewing on the CHEP website. It was Mr Rahmani’s evidence, which I accept, that a price list was also available to be viewed on the CHEP website. If Mr Hepner was not aware of the hiring fees for lost pallets or the cost of purchasing the pallets it was because he neglected to read documents that he signed which clearly bound MCAF, in the case of the CHEP Agreement or himself in the case of the guarantees.

43. The High Court said, in Toll (FGT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2024) 219 CLR 165 at [57]:

… The general rule, which applies in the present case, is that where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document. L'Estrange v Graucob explicitly rejected an attempt to import the principles relating to ticket cases into the area of signed contracts. It was not argued, either in this Court or in the Court of Appeal, that L'Estrange v Graucob should not be followed.

44. Mr Hepner said, in his affidavit, that MCAF’s factory did not have cold storage facilities, so the frozen food was stored at Kerry Logistics or Iceland Cold Storage Pty Ltd. Mr Hepner argued that this made it “impossible” to keep track of the pallets. This overlooks the obligation imposed on MCAF under clause 4(b) and (c) of the Terms of Hire:

4. Transfers of Equipment

(b) The Hirer must not part with possession of any Equipment unless:

(1) it is Returned to CHEP or collected by CHEP;

(2) it is Transferred to another Hirer; or

(3) the Hirer keeps and makes available to CHEP on demand documentation, electronic records or other control records reasonably acceptable to CHEP 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 consistent with these terms and subject to these terms to the extent of any inconsistency.

(c) For the avoidance of doubt, the Hirer is responsible for all Equipment in the Hirer’s Quantity on Hire or hired out or lent to it by CHEP whether that Equipment is in the Hirer’s possession or not, and all Equipment in the Hirer’s possession or control.

45. Mr Hepner said, in his affidavit, that the CHEP web page “does not contain details of the charges for damaged or lost pallets”. As I have set out above, the method of calculation of these charges is set out in the Terms of Hire, with which Mr Hepner had been provided and it was the evidence of Mr Rahmani, which I accept, that a list of the charges are available on the CHEP website.

46. Mr Hepner is aware of the stocktake undertaken by CHEP together with the Administrator of MCAF. Mr Hepner raised the question of whether the equipment located in that stocktake had been taken into account in the invoices the subject of the claim. It was the evidence of Mr Rahmani, in his first affidavit, that the equipment identified in the stocktake was transferred off MCAF’s CHEP account. As I have said, I accept Mr Rahmani’s evidence. There is no evidence to the contrary. I am satisfied that the equipment identified in the stocktake is properly accounted for in accordance with the Terms of Hire.

47. Mr Hepner complains that the pallets did not have tracking devices or “electronic identity numbers” and that it was therefore “impossible” to identify them. I reject this submission. Under the CHEP agreement, it is the Hirer’s responsibility to enter the movement of pallets so that the Hirer’s account remains accurate. The consequences of not doing so are plain from a reading of the Terms of Hire.

48. Mr Hepner disputes the hire charge, saying that it is for a new pallet and not a used pallet. No basis is provided for this assertion, and I reject it.

49. Mr Hepner argued that CHEP should have undertaken a search for the pallets the subject of the compensation aspect of the claim. CHEP did seek to mitigate its loss by undertaking the stocktake with the Administrator and did mitigate its loss by that stocktake to some extent. There is no obligation under the CHEP Agreement, the Guarantee and Indemnity or the general law for CHEP to undertake a forensic investigation into the fate of the equipment hired by MCAF. The CHEP agreement, including the Terms of Hire make the Hirer responsible for the equipment hired.

50. I note that the Defence filed by Mr Hepner does not plead a failure to mitigate.

Conclusion and Summary

51. Mr Hepner is liable to CHEP under the Guarantee and Indemnity executed by him on 1 August 2017 for the indebtedness incurred by MCAF for the equipment the subject of the invoices which are set out in Mr Rahmani’s first affidavit and for the charges set out in the table reproduced above at [29], which should be updated to the date of this judgment.

52. I will hear the parties as to the form of the final orders, and as to the question of costs.

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