Coastal Recycled Cooking Oils Pty Ltd v Innovative Business Action and Strategies Pty Ltd

Coastal Recycled Cooking Oils Pty Ltd (Plaintiff) Innovative Business Action and Strategies Pty Ltd (First Defendant) PARTIES : Stephen Johnson (Second Defendant) Mark Mulligan (Third Defendant) Stephen Humphries (Fourth Defendant)

COUNSEL : Mr J Van Aalst (Plaintiff) No appearance for Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5479/04 - Coastal Recycled Cooking Oils Pty Ltd v Innovative Business Action and Strategies Pty Ltd & 3 Ors JUDGMENT 1 HIS HONOUR: The plaintiff ("Coastal") carries on the business of recycling used cooking oil. It provides drums and tanks to restaurants and other establishments where oil is used to cook foods, and arranges collection of the oil from those establishments. No fee is charged by Coastal for the service and no money is paid by Coastal to the establishments for the used oil. There is a clear benefit to both Coastal and the establishments since Coastal obtains oil which it then filters, cleans and sells for use in diesel fuel both locally and abroad, and the "customers" as I shall refer to them, are able to dispose of oleaginous material without infringing any environmental legislation. 2 Coastal operates widely in New South Wales and collects oil from between 3500-4000 customers: T23.23-24. It did not in the period 2000-2003 collect all of the oil itself. It used the first defendant ("IBAS") to collect oil in approximately 80 per cent of the Sydney metropolitan area and other contractors in other areas. The arrangement under which IBAS carried out that collection were terminated by letter of 15 January 2003. 3 Three of the four shares in IBAS are owned by the fourth defendant ("Humphries"). Humphries is listed as the sole director of IBAS: see Exhibit "A". 4 Coastal claims that IBAS by two of its employees, the second and third defendants "Johnson" and "Mulligan" respectively, took oil from drums and tanks of Coastal and converted it to IBAS's use, and that Humphries is vicariously liable for the tort of IBAS employees as he was knowingly involved in and/or procured the tort. 5 Coastal has reached a settlement of its proceedings against Mulligan and Johnson. I was informed that by that settlement no monies have been or are to be paid to Coastal. When the matter was called on 13 July 2007 neither IBAS nor Humphries appeared. Both IBAS and Humphries were, until 24 May 2006, represented by solicitors and had a defence filed on their behalf but the solicitors filed a Notice of Intention to Cease Acting and then a Notice of Ceasing to Act. 6 Neither IBAS nor Humphries have appeared in the proceedings since 24 March 2006 but Coastal through its solicitors has complied with orders notifying them of the hearing and copies of all the affidavits relied on by Coastal have been served (see affidavits of Terence Charles Morgan of 12 July 2007 and the statutory declaration of Robert Salt of 9 July 2007). 7 In support of its substantive case Coastal relies on the affidavits of Patrick Auburn Twiss sworn 3 August 2007 and 6 March 2006, Peter Stanislaus Peck sworn 1 December 2005 and 3 March 2006, Peter Frederick Warburton sworn 30 November 2005, 23 January 2006 and 11 July 2006, Edward John Elliott sworn 17 September 2004 and Stephen S Pritchard sworn 16 March 2006. Short oral evidence was called from Mr Peck, and from Mr Pritchard. 8 Coastal claims damages for conversion (no other part of the summons was pressed). Mr J Van Aalst of counsel who appears for Coastal outlined the issues which arise:

(1) Did IBAS by its employees take oil from the tanks and drums owned by Coastal?

(2) Did Coastal have property in the oil sufficient to found its claim in conversion?

(3) If the answers to (1) and (2) are yes, what damages and other relief is Coastal entitled to?

(4) If the answers to (1), (2) and (3) are yes, is Humphries liable for the damage and appropriate subject of relief sought? Jones v Dunkel 9 Before dealing with the evidence I need to consider two matters upon which Coastal relies. Whether a Jones v Dunkel inference ought be drawn and the nature of a circumstantial case. 10 The law relating to Jones v Dunkel (1959) 101 CLR 298 was reviewed in the Court of Appeal per Campbell J, with whom Beazley JA and Pearlman AJA agreed, in Manly Council v Byrne [2004] NSWCA 123. There are two inferences that can (but not must) be drawn when a witness is not called by a party and the conditions for application of the principle exist:

(1) the Court may infer that the evidence of the absent witness, if called, would not have assisted the party who failed to call that witness;

(2) the Court may draw with greater confidence any inference unfavourable to the party who failed to call the witness if that witness seems to be in a position to cast light on whether that inference should properly be drawn. 11 The conditions for the operation of the principle are those laid down in Payne v Parker [1976] 1 NSWLR 191 at 201 per Glass JA (and approved in Manly Council v Byrne): "(a) the missing witness would be expected to be called by one party rather than the other, (b) his evidence would elucidate a particular matter, (c) his absence is unexplained."

12 A question arose as to whether the failure of Humphries (and IBAS) to give evidence in this case could be relied on here to enable the Court to more readily draw any inference to be fairly drawn from the other evidence. 13 I accept Mr Van Aalst's submission that it is open to the Court to do so. I cannot see any reason why a party who does not appear should be in any better position with regard to the principle in Jones v Dunkel than one who does appear but does not call a relevant and important witness, including the party himself in the case of an individual: see Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd; Australian Securities and Investments Commission (ASIC) v Adler (2002) 168 FLR 253; 41 ACSR 72; [2002] NSWSC 171 at [447]-[448]. 14 Mr Van Aalst concedes, quite properly, that the case against IBAS and Humphries is a circumstantial one. So far as inferences are concerned Mr Van Aalst submits that in order to form a view as to whether Mulligan and Johnson were acting on behalf of IBAS and whether Humphries was directing or procuring the conversion the Court should consider the totality of the evidence. The decision of Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 at 128-129 per Winneke P provides a most helpful instruction in relation to a circumstantial case in the field of civil law: "In cases of circumstantial evidence each proven fact may gain support from the others, although each, considered in isolation, might not provide a sound basis from which to draw that inference .... The onus of proof is only to be applied at the final stage of the reasoning process. It is erroneous to divide the process into stages ..."

and Tadgell JA at 141: "The overall effect of the detailed picture can sometimes be best appreciated by standing back and viewing it from a distance, making an informed, considered, qualitative appreciation of the whole. The overall effect of the detail is not necessarily the same as the sum total of the individual details ..."

See also Mahoney JA in Seymour v Australian Broadcasting Commission (1990) 19 NSWLR 219 at 232-234. The taking of oil 15 The oil which is collected from customers comes in two broad forms "hard" and "soft". Hard oil is oil that hardens at a lower temperature than "soft" oil - if hard oil is placed in a drum or tank then it cannot be pumped out at the premises of the customer and must be brought back to the Coastal premises, heated and then pumped. 16 The tanks, 200 litre drum and parts for same including stands were all purchased by Coastal and were all painted green and labelled with a stencil with the words: "Container & Contents are the Property of Coastal Recycled Cooking Oils Pty Ltd Phone 24 hours 1800 687 374." 17 Twenty litre tins were also used for smaller quantities: p 3 Twiss's affidavit of 6 March 2006. 18 When a truck of IBAS brought oil into the Coastal depot the oil was weighed and a record kept. IBAS was paid a rate per tonne which was at one stage $145 per tonne: paragraph 40 Twiss's affidavit of 6 March 2006. Coastal was at that time selling refined oil for $235 per tonne. 19 Through the affidavits of Mr Peck, Mr Twiss and the private investigators engaged by Coastal (Mr Elliott, Mr Warburton and Mr Williamson) and Annexures it can be seen that:

(1) IBAS trades under the name "Oli Oil": see Annexures M and G to Mr Peck's affidavit of 1 December 2005.

(2) Oli Oil drums have on occasions been used to collect oil from Coastal drums.

(3) IBAS admits taking some oil from Coastal drums and tanks but asserted a right to do so - asserting in correspondence and through Mulligan/Johnson that it had the permission of Coastal customers. No proof of that assertion has been provided by IBAS or Humphries in these proceedings.

(4) Mulligan and Johnson have been taking oil from Coastal drums and tanks at the premises of Coastal customers and siphoning it into tanks on trucks operated by them. 20 IBAS was established in 2002 but prior to that Humphries had detailed knowledge of Coastal's customers and operations through his previous connections with Coastal. 21 I am satisfied that oil contained in Coastal drums and tanks located at the Sydney and Central Coast premises of customers of Coastal has been removed by Mulligan and Johnson over an extended period of time. 22 I think it can be inferred that Mulligan and Johnson removed oil in that fashion on behalf of IBAS because:

(1) IBAS did not in its correspondence or its solicitors' correspondence assert that Mulligan and Johnson were not its employees or agents and indeed asserted that the acts of which Coastal complained had been carried out with the approval of IBAS customers.

(2) Johnson (paragraphs 1, 2 and 3 of his affidavit of 22 November 2006 were read by Mr Van Aalst) received instructions from Humphries to collect steel bands from drums which Humphries asserted belonged to IBAS and siphon oil onto his truck.

(3) Johnson asserted that his "boss" had told him which car was Mr Warburton's (paragraph 316 Warburton's affidavit of 30 November 2005) although he would not say who his boss was.

(4) Oli Oil drums were used (see paragraphs 13 and 14 of Mr Elliott's affidavit), and Exhibit "E". 23 I am satisfied that Mulligan and Johnson were carrying out the removal of oil either as employees or subcontractors of IBAS. I infer that the oil was taken away to be refined and sold by IBAS. Ownership of the oil 24 In my view it is implicit in the arrangements in place between Coastal and its customers that the customer by placing oil in the drum, tank or tin, is ceding ownership of the oil to Coastal thereby giving up any claim to the oil, subject only to possibly an implied term that should Coastal fail to collect the oil within a reasonable time, then the customers may be entitled to re-take possession and utilise other measures. There is no evidence that in fact Coastal did not collect oil within a reasonable period or that customers did in fact seek to take steps to have the oil in Coastal receptacles removed by others (although I have noted that assertions to that effect were made by Mulligan or Johnson). 25 In technical terms the customer has offered to deposit oil in the drums without payment in return for the drums being made available for that purpose and the removal of the oil from the premises. Consideration to be sufficient at law need not be monetary - in Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 chocolate wrappers were regarded by a majority of their Lordships as part of the consideration offered for low grade recordings of popular tunes, and as Professor Jim Davis points out in "Contract: General Principles - The Laws of Australia", LawBook Co, 2006 at p 7.1.1250 bailments have been treated as contracts even where the bailee is not paid money to look after the goods: Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 and Bainbridge v Firmstone (1838) 8 Ad & El 743; 112 ER 1019. Title to sue in conversion 26 "The essence of conversion is a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel": per Dixon J in Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 229. It follows that to be able to sue in conversion a party must have an immediate right of possession. 27 In Penfolds Wines, Penfolds had sold wine in bottles which were marked with an indication that the bottles remained the property of Penfolds. Penfolds failed in its claim against a hotelier who had been handed empty Penfolds bottles by customers for filling with the hotelier's own wine, in Dixon J's view because the hotelier had done nothing which involved any deprival or impairment of property in the bottles but he said "if any conversion had been committed by the [hotelier], clearly [Penfolds] as the persons entitled immediately on demand to the possession of the bottles would be the proper parties to complain of it": at 229. 28 In my view Coastal was in an even stronger position than Penfolds because it had provided the receptacles so that the customers could fill them with oil and what was taken was the oil rather than the receptacles. On the placement of the oil in the container the oil became the chattel of Coastal which it was free to remove at any time notwithstanding that it was located on the premises of the customer. 29 It follows that Coastal had title to sue and that IBAS by its servants or agents converted the oil both by placing it on trucks owned by IBAS or its agents and then by receiving it at its premises, refining and selling it. Damages 30 According to Fleming, "The Law of Torts", LawBook Co, 7th ed, p 63, a plaintiff who has been deprived of his chattel is ordinarily entitled to its full value together with any special loss. Exemplary damages are potentially available: Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR 584; Egan v State Transport Authority (1982) 31 SASR 481. According to Fleming, in case of doubt the highest possible value of the goods is assumed: Armory v Delamirie (1722) 1 Stra 505; 93 ER 664. No claim for exemplary damages was made in this case. In Butler v Egg & Egg Pulp Marketing Board (1966) 114 CLR 185 at 191 Taylor and Owen JJ said that the principle "that the injured party should receive compensation in a sum which, so far as money can do so, will put him in the same position as he would have been in if the contract had been performed or the tort had not been committed … is as much applicable to actions of conversion as it is to the case of other actionable wrongs". 31 The value of the oil was the price per tonne for which it could have been sold less the cost of cartage less the cost of refining. The difficulty is not in determining what that price per tonne should be, but rather in determining what quantity was taken. In this regard Coastal again mounts a circumstantial case which can be described thus:

(1) In the period when Coastal was operating as a collector of oil from the customers previously serviced by IBAS, Coastal's average tonnage from those customers in the period 2002-2005 was 198.3 tonnes for January 2002 and for example 222.06 for May 2002: see Table 1 of Mr Pritchard's report.

(2) When IBAS ceased to be a contractor the rate of collection from those customers dropped markedly - for example for January 2003 to 101.738 tonnes and for May 2003 to 110.28 tonnes.

(3) Given that only 60 customers went from Coastal to IBAS (and they were mainly smaller customers) and that otherwise the customer base remained the same and conditions in the market remained the same according to Mr Twiss it can be inferred that the drop in collection for the relevant area resulted from IBAS's activities, apart from a period of adjustment in January 2003.

(4) To this end, Mr Pritchard, Coastal's accountant, has prepared a report (annexed to his affidavit of 16 March 2006) and he gave short oral evidence explaining how he had gone about the task of determining the shortfall and translating it into a dollar figure of loss. The documents to which he had regard (additional to a broad knowledge of the business of Coastal acquired over a number of years) are Exhibit "F". His approach allows for loss of tonnage through refining and cleaning (which Mr Peck said averaged 13 per cent loss). It deducts savings that would have been achieved on tonnages not processed.

32 Although there was no cross examination Mr Peck seemed to me to be truthful and to avoid any exaggeration in giving his answers. Nor did I have any reason to doubt the veracity of Mr Pritchard's evidence or the correctness of his calculations and tables. 33 Given that it is IBAS which would have clearer knowledge of how much oil it took from Coastal receptacles and it has not by its absence from the proceedings provided such information, I think that the approach which Coastal has adopted in quantifying its loss is a reasonable one save for two matters. 34 The first is that some allowance must be made for disruption to Coastal's business due to the termination of its arrangements with IBAS particularly in January-February 2003 (see Mr Twiss's affidavit of 6 March 2006 paragraphs 51-53). That disruption is not linked to the loss due to conversion. 35 The second matter is far more significant. There is evidence in the surveillance that IBAS was on occasions using and depositing Oli Oil drums and collecting oil in those drums from establishments that Coastal regards as its customers; see also paragraph 46 of Mr Twiss's affidavit of 6 March 2006. It is important to recognise that this case is not concerned with rival collections of oil - oil that is placed in an Oli Oil drum is not oil belonging to Coastal and cannot be the subject of conversion. This leads to a difficulty in that competing oil drums are clearly a part of the reason for loss of oil collection, not simply removal of oil from Coastal drums. 36 Mr Peck indicated that there were customers who went over to IBAS. He estimated the number to be 50-60 (see T23.16) and the tonnage lost to be 2-3 tonnes a week (T24.8) (annually approximately 100-150 tonnes). One hundred and fifty tonnes per annum equates to 15 per cent of the total loss in 2003 and 7.5 per cent in 2005. Given that some customers appear to have been using both Coastal and Oli Oil drums and that there may have been periods of overlap, I propose to adopt a more conservative approach (less favourable to Coastal) and assume a 50 per cent loss of gross tonnage due to collection of oil by IBAS that did not constitute a conversion, and inclusive of an allowance for the problems in January-February 2003. The determination of that figure is, it must be recognised, to a considerable degree a matter of broad impression, but it is a response to the considerable difficulty with which the Court is confronted in determining what quantity of oil was removed from Coastal receptacles and the evidence of quantity being derivable by process only of inference from lost sales. 37 Using Mr Pritchard's calculations of $571,939, I would therefore reduce in a broad fashion the loss attributable to IBAS to $285,969.50. No claim was made for interest. Liability of Humphries 38 In Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171; [2003] VSC 291, an employee of Johnson Matthey stole quantities of gold from it. The employee provided the stolen gold to a Mr Knight who sold the gold to AGE. AGE was found to have converted Johnson Matthey's gold to its own use and one of the questions was whether the two directors of AGE were liable for that conversion. The directors were the persons who bought the gold on behalf of AGE from Knight. Redlich J considered in detail the authorities and different tests for directors' personal liability which had found favour in the cases. He preferred what has come to be known as the "direct or procure test", a phrasing used by Lord Salmon in Wah Tat Bank Ltd v Chan Cheng Kum [1975] AC 507 at 514-515, approving what had been said by Lord Atkin in Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1 at 14 that: "Prima facie a managing director is not liable for tortious acts done by servants of the company unless he himself is privy to the acts, that is to say unless he ordered or procured the acts to be done."

See also Rainham Chemical Works Ltd (in liq) v Belvedere Fish Guano Co Ltd [1921] 2 AC 465 at 476 and C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317 at 329. Redlich J noted that a distinction has been drawn between cases in which the tort involves a mental element and those in which it does not, breach of copyright and conversion being examples of the latter. Redlich J said at [201]: "For a tort such as conversion that does not require a particular intention, a director is liable for the tortious acts of the corporation which he or she directed or procured regardless of the director's state of mind. The level of involvement and the degree of control which a director exercises will determine whether it can be said that the acts have been directed or procured by the director." 39 In Johnson Matthey the directors had actually purchased the gold on behalf of AGE so the case was a strong one. Generally a director who procures or directs the tort will not be the person directly involved in the commission of the tort. That is the position here. There is no evidence that Humphries himself pumped any oil out of the Coastal receptacles into the Oli receptacles or trucks. Nevertheless there are the following matters available to be taken into account:

(1) significantly, the fact that Humphries was the sole director and majority shareholder in IBAS (see Exhibits "A" and "B") and hence had total control over the Company;

(2) the evidence of Johnson to which I have referred;

(3) the evidence of IBAS's assertions (in a letter sent by Humphries) about its right to take oil contained;

(4) the evidence of Mr Warburton as to Johnson's comment concerning his contact with his "boss" about what was going on;

(5) the evidence of Oli Oil containers being used and transferred onto Oli Oil trucks;

(6) the extensive removal of oil over a long period from Coastal;

(7) the fact that Humphries had knowledge of many of Coastal's customers. 40 From these matters I draw the inference that Humphries directed Mulligan and Johnson to take oil from Coastal receptacles, and I do so with greater confidence given the failure of Humphries to adduce any evidence to the contrary. Conclusion 41 It follows that in my view each of IBAS and Humphries are liable for the tort of conversion and judgment should be entered in favour of Coastal against each of IBAS and Humphries in the amount of $285,969.50. Further IBAS and Humphries should pay Coastal's costs. **********

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