(3) the defendant actually used the goods for its own purposes during the period of wrongful detention.
237 His Lordship referred to the compensatory rule and, like Denning LJ, posed the question as being identification of the loss suffered by the wrongful act of detention. His Lordship rejected, as the appropriate measure of quantification, the profit or benefit that the defendant gained by its wrongful act.
238 At 257, Romer LJ rejected the proposition that the assessment of the plaintiff's loss, on the basis of the value of hire foregone, should take into account the chance that the plaintiffs may not have been able to hire the goods out for the full period of the detention. His Lordship said:
In my judgment, however, a defendant who had wrongfully detained and profited from the property of someone else cannot avail himself of a hypothesis such as this. It does not lie in the mouth of such a defendant to suggest that the owner might not have found a hirer; for in using the property he showed that he wanted it and he cannot complain if it is assumed against him that he himself would have preferred to become the hirer rather than not have had the use of it at all.
239 In this regard, his Lordship appears to have taken the approach advocated by Lord Blackburn, of taking into account, against a wilful wrongdoer, things that might not be allowed against an innocent wrongdoer: preventing the wilful wrongdoer from qualifying his own wrong. In other words, as I understand the approach of Romer LJ, it reflected in substance, if not in terms, the approach in Armory v Delamirie and foreshadowed the approach taken by Handley JA in Houghton.
240 In my view, the approach to be gathered from the decision in Strand Electric is that the assessment for damages for the wrongful detention of a chattel that is normally hired out for reward may be effected by reference to the foregone hire, and the wrongdoer should not be permitted to raise the argument that the chattel might not have been hired out for the whole period of the detention. All three of their Lordships agreed in the first point. The second is explicitly supported by the judgment of Romer LJ and is, I think, implicit in the judgment of Somerville LJ.
Gaba Formwork
241 The decision in Strand Electric was reviewed by Giles J in Gaba Formwork. His Honour's analysis commences, relevantly for present purposes, at 177, where his Honour identified the principles relating to actions in conversion and actions in detinue. The former, his Honour said, was a claim for damages for the wrong done to the plaintiff by the interference with its goods. The latter, by contrast, was a continuing wrong, and various remedies were open. Those remedies included judgment for the value of the goods and damages for their detention; or judgment for the return of the goods or their value and damages for detention; or judgment for return of the goods and damages for detention.
242 His Honour pointed out at 177 - 178 that the normal measure of damages for conversion is the value of the goods converted at the date of conversion, together with consequential, but not too remote, losses flowing from the conversion.
243 By contrast, his Honour pointed out at 178, the normal measure of damages in detinue is the value of goods at the date of judgment. Where the goods detained were used by the plaintiff in its business, damages could be assessed by reference to the cost of hiring substitute goods. Where the plaintiffs' business comprised the hiring out of the goods, damages might be assessed by reference to the foregone profits from hiring them out.
244 In addition, his Honour said, a plaintiff in detention was entitled to damages for the detention of the goods. At 179, his Honour said that there was no arbitrary rule, either in conversion or in detinue, that the assessment of damages should not take into account any period after judgment. In conversion and in detinue, damages could take account of a period after the date of judgment if that were necessary, for example, "to compensate for hiring fees to be lost after judgment and before acquisition of replacement materials". Equally, if by reason of actions in mitigation taken by the plaintiff, its ongoing loss stopped before judgment, that should be reflected in the quantification of damages.
245 Giles J dealt with the decision in Strand Electric at 180 to 183. His Honour then considered the decision of the High Court in Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 (I refer to this case at [250] and following below) and concluded, at 184, that the decision could be distinguished on its facts. His Honour then reviewed the authorities in which the decision in Strand Electric had been considered, noting at 185 that it had been referred to by the Full Court of this Court in McKenna and Armisterd Pty Ltd v Excavations Pty Ltd [1957] SR (NSW) 515, and that the Court was "at pains not to endorse the result in Strand Electric…".
246 Giles J concluded at 188 that the decision in Strand Electric should be followed so far as it applied to the facts before him. His Honour said of that decision:
It has stood for nearly 40 years and, while confined to where the defendant has used for his own purposes goods which the plaintiff would or might otherwise have hired out for reward, has been generally accepted in that situation. It produces a just result… .
247 His Honour appeared to suggest, both in a passage following what I have just quoted and at 184, that the decision in Strand Electric marked some departure from the compensatory rule. If I may say so with respect, I am not sure if this is the case. As I have noted already, both Denning LJ and Romer LJ referred to the compensatory rule, and asked the question, what was the proper measure of damages to compensate the plaintiff in that case for its loss? In the language of Lord Steyn, it seems that Denning LJ and Romer LJ regarded their task as being to identify the appropriate second order rule that, in the circumstances of that case, would best ensure that the compensatory rule achieved its purpose.
Flowfill
248 Young J dealt with the question in Flowfill at 62,523 - 62,524. He said, at the latter page, that the decision of Giles J in Gaba Formwork "was strongly reasoned after a review of all the applicable authorities in Australia and England and it seems to me that I should follow it".
249 There was no later case cited to me to suggest that Gaba Formwork was wrongly decided (or, for that matter, that the principle established by Strand Electric is inappropriate in cases of the detention of profit-earning chattels).
Butler
250 I return to the decision in Butler. In that case, a statutory scheme of regulation vested in the respondent board property in all eggs when they came into existence. Producers were paid by participating in a pool into which the proceeds of sale of eggs by the board were paid and from which expenses were deducted. The appellants failed to deliver eggs to the board and instead sold them to a third party. The board sought damages for conversion of the eggs. The High Court held that the measure of damages was not the value of the eggs but the difference between the price for which the board would have sold the eggs, had they been delivered to it for sale, and the amount which in that event it would have been bound to pay to the appellants.
251 Taylor and Owen JJ pointed out at 190 that if the board received the full value of the eggs, it "would be in a better position financially than would have been the case had the appellants complied with the Act". Their Honours said at 191 that "such a result would not accord with the general principle upon which compensatory damages are assessed, whether in actions of contract or of tort". Thus, their Honours said, the general rule - that damages in conversion are the value of the goods converted - should give way where necessary to ensure that the plaintiff receives no more than its entitlement under the compensatory principle. To adapt the words of Lord Steyn, the second order rule gave way to ensure a result in conformity with the compensatory rule.
252 In a separate judgment, Menzies J reasoned to similar effect at 192, stating that "[t]he true rule is … that the plaintiff is entitled to recover no more than the real damage he has sustained". If application of the general rule - value of the goods at the date of conversion - would mean that the plaintiff was over-compensated, then the general rule should give way.
Decision
253 In my view, in principle, it is appropriate to apply in this case what I have called the Strand Electric / Gaba Formwork reasoning. That is because (to adapt the words of Romer LJ at 256) the salient features of this case are that the pallets were profit-earning property of Chep; that Chep normally hired pallets out in the course of its business; and that (contrary to Mr Garratt's submission) Bunnings, during the period of detention, did use the detained pallets for its own purposes.
254 Those salient facts attract the operation of the principle. As Young J said in Flowfill at 62,524 it is appropriate to follow the reasoning of Giles J in Gaba Formwork, having regard to his Honour's extensive review of the authorities (and, I add, the absence of any authority, at least cited to the Court, to the contrary). Thus, in principle, I propose to adopt the approach sanctioned by those cases.
255 However, the approach cannot be applied in a mechanical or unthinking manner. It must take account of the particular facts.
256 Although it is correct to say that Chep hires out its pallets for reward, it is necessary to bear in mind that it does so on a pooled basis, and that part of its business strategy seems to be that it will always have pallets on hand sufficient in number to satisfy the requirements of all its customers. There is nothing in the facts of Strand Electric to suggest that the plaintiff had an oversupply of portable switchboards; nor anything in Gaba Formwork to suggest that the plaintiff had an oversupply of formwork. In each case, I suspect, the plaintiff was happy to let out what it had, and more than happy if all its stock in trade was let out on hire. By contrast, Chep, as a matter of choice (or business model) operates on the basis that not all its stock of pallets will be on hire at any given time.
257 In my view, it would be unjust to Bunnings, and would overcompensate Chep, not to recognise the feature of Chep's business model that I have just identified. Accordingly, I think, the assessment of damages needs to take account of the fact that even if the pallets in question had all been in Chep's possession at all relevant times, not all of them would have been out on hire at any given time.
258 I have adverted briefly to Mr Austin's evidence on this topic. What he said, at para 46 of his affidavit sworn 29 October 2008, was that over a period from "at least 1996" until January 2008, between 86% and 92% of Chep's pallets were on hire at any one time during "non-peak times". By contrast, at peak times, in excess of 95% of pallets were on hire. Mr Austin did not give detailed identification of peak and non-peak times, but gave, as examples of peak times, "the lead up to Christmas and Easter".
259 Mr Austin was questioned on this evidence at T52. It was put to him at line 26 that this evidence provided "a fair working basis … for regarding the pallet usage within … the Chep business for each of these years from about 2001 to 2008". He agreed with that proposition. However, as he made plain in his answer to the following question, that ratio was the percentage of the total pool that was on hire from time to time. The total pool included pallets under repair or awaiting repair, as well as pallets that had been repaired and were ready to be hired out.
260 In my view, substantial justice would be done between Chep and Bunnings if one assessed damages on the basis that, over the years in question and averaging out peak and non-peak times in a rough and ready way, 90% of Chep's pallets would have been on hire at any given time. On that basis, I think, the assessment of foregone hire for the Non-Commercial Chep Pallets that are the subject of the claim in detinue and conversion should be assessed on the basis that what Chep has lost is the hire of 90% of those pallets at any given time. To ignore the reality of the business model, and to give Chep the benefit of the hire of 100% of the pallets all the time, would amount to over-compensation.
261 In this way, I think, the secondary rule established by Strand Electric and Gaba Formwork must be adapted to ensure that the method of assessment of damages ensures that the aim of the compensatory rule is met.
262 However, I do not think that either the compensatory principle or the secondary rule as to assessment established by Strand Electric and Gaba Formwork, requires the Court to take, as the hire rate applicable, the rate paid by Wesfarmers from time to time. There are at least two reasons why this is so. The first is that the measure of damages is the loss of a market rate of hire (see Somerville LJ in Strand Electric at 252). The market was wider than Wesfarmers. The second is that, to adapt the words of Romer LJ in Strand Electric at 257, it does not lie in the mouth of Bunnings to suggest that the damages that it should pay should be reduced by reason of some benefit that it might have obtained had it bargained for the use of the chattels instead of converting or detaining them.
263 To the extent that it may be said that Chep cannot prove what particular hirers would have paid, then, I think, one should assess damages robustly and against Bunnings, whose wrongful detention and conversion of the pallets has rendered precise quantification impossible.
264 Essentially for the reasons that I have indicated already, I do not think that it is correct to say that Chep has been compensated in full by receiving (if it has done so) compensation from hirers for the loss of the pallets in question. As the figures set out at [204] and [205] above show, that compensation does not cover the capital cost of replacement. It does not compensate at all for the annual cost of repair. Chep claims neither the cost of replacement nor the cost of repair in these proceedings. It has limited its case to loss of use.
265 For effectively similar reasons, I do not think that the decision in Butler has anything to do with the facts of this case. Whilst it might be true, as a matter of theory, to say that Chep has already received compensation in respect of the loss of the pallets, that compensation has been, as it were, soaked up by other losses that are not the subject of the present claim. There is no need for it to be brought to account, against the damages presently claimed, so as to ensure that Chep receives no more than full compensation for its losses.
266 Accordingly, I conclude that the proper measure of damages for conversion and detention (it was not submitted that there was any significant distinction between the alternative claims, in this case) is the daily hire fee foregone, for the Relevant Period as I have found it to be, in respect of 90% of the Non-Commercial Chep Pallets found, by calculation, to have been in the possession of Bunnings for each period.
Issue 15: amount of damages
267 Chep calculated its damages as follows, on the basis that the appropriate way of pro-rating back the number of Non-Commercial Chep Pallets in Bunnings' possession in periods prior to 1 April 2007 was by reference to the number of warehouse stores:
Period No. of Non Commercial Pallets Daily Hire Fee Number of Days Hire Fee for Period
1 April 2007 - 1 October 2007 64,690 $0.1090 183 $1,290,371
1 April 2006 - 31 March 2007 59,264 $0.1015 365 $2,195,583
1 April 2005 - 31 March 2006 54,673 $0.1010 365 $2,015,520
1 April 2004 - 31 March 2005 52,169 $0.0980 365 $1866,085
1 April 2003 - 31 March 2004 48,413 $0.0950 365 $1,678,720
1 April 2002 - 31 March 2003 46,326 $0.0925 365 $1,564,081
1 Jan 2002 - 31 March 2002 46,326 $0.0890 90 $371,071
$10,981,431