Rapid Metal Developments (Aust) Pty Ltd v Rildean Pty Ltd

LEGISLATION CITED : Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005

Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 Bradshaw v McEwans Pty Ltd (1951) 217 ALR Coleman v Harvey [1989] 1 NZLR 723 Gurnett v Macquarie Stevedoring Co Pty Ltd (1955) 55 SR (NSW) 243 Hill & Anor v Reglon Pty Limited [2007] NSWCA 295 Indian Oil Corp Ltd v Greenstone Shipping SA [1988] 1 QB 345 CASES CITED : Luxton v Vines (1952) 85 CLR 352 Nardell Coal Corporation (In Liq) v Hunter Valley Coal Processing [2003] NSWSC 642; (2003) 46 ACSR 467; (2003) 21 ACLC 1505 Reglon Pty Limited v Hill and Ors [2006] NSWSC 1360 Rildean Pty Ltd v TJF Scaffolding Maintenance & Hire Pty Ltd; TJF Scaffolding Maintenance & Hire Pty Ltd v Rildean Pty Ltd [2002] NSWSC 605 Sandeman & Sons v Tyzack & Branfoot Steamship Co Ltd [1913] AC 680 The Insurance Commissioner v Joyce (1948) 77 CLR 39 The Public Trustee v Jones (1925) 25 SR (NSW) 526 Whelan Kartaway Pty Ltd v G & C Weatherburn Pty Ltd [2002] NSWSC 677

TEXTS CITED : The Law of Torts, J G Fleming, 9th ed, LBC Information Services 1998

PARTIES : Rapid Metal Developments (Australia) Pty Limited (Plaintiff) Anthony De Vries and Riad Tayeh as joint administrators of Rildean Pty Limited (Defendants)

COUNSEL : Mr G Inatey QC with Mr V R Gray (Plaintiff) Mr M Ashhurst SC with Mr C N Bova (Defendants)

SOLICITORS : JGP Lawyers (Plaintiff) PMF Legal (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

13806/05 Rapid Metal Developments (Aust) Pty Limited v Anthony De Vries and Riad Tayeh as joint administrators of Rildean Pty Limited

1 HIS HONOUR: Windeyer J aptly observed in Reglon Pty Limited v Hill and Ors [2006] NSWSC 1360 that "dealing in scaffolding is as risky as playing with fire". That observation is pertinent to the present case which is the culmination of a protracted dispute about the ownership of scaffolding between a company that hired and sold scaffolding and two insolvency practitioners who were appointed as controllers of a failed company that supplied scaffolding to building and construction companies.

2 The plaintiff, Rapid Metal Developments (Australia) Pty Limited ("RMD"), carried on business throughout Australia hiring and selling formwork and scaffolding products.

3 Rildean Pty Limited trading as Action Skyline Scaffolding ("Rildean") carried on business supplying and erecting scaffolding for use on building sites. It acquired its stocks of scaffolding either by hire or purchase.

4 On 23 November 1998, Rildean factored its debts to Navmost Pty Limited ("Navmost") trading as Business Capital Financial Group ("BCFC") and granted a fixed and floating charge over its assets to Navmost.

5 The defendants, Antony de Vries and Riad Tayeh, were principals of a chartered accountancy practice with a speciality in insolvency.

6 On 19 September 2001, Rildean entered into an agreement with RMD. That agreement set out various terms and conditions for trade with RMD. Brian John Baker and Brett Andrew Baker signed the agreement on behalf of Rildean.

7 RMD hired scaffolding to Rildean on various occasions between 21 September 2001 and 16 March 2002.

8 On 12 July 2002 the board of Rildean appointed the defendants as joint voluntary administrators pursuant to s.436A of the Corporations Act 2001 (Cth).

9 On 17 July 2002 the Court terminated the voluntary administration and on 18 July 2002 ("the date of appointment") Navmost appointed the defendants as agent for the mortgagee in possession of the assets of Rildean whereupon the defendants entered into possession and took control of the property of Rildean for the purpose of enforcing the charge given by Rildean to Navmost.

10 The Court wound up Rildean on 25 July 2002 and an official liquidator was appointed.

11 A significant quantity of scaffolding hired by RMD to Rildean was outstanding as at the date of appointment and so RMD immediately pursued a process of endeavouring to secure its return. In large part it was not successful.

12 RMD commenced proceedings in the Equity Division on 6 November 2004 seeking an order for delivery up of its scaffolding, damages, and payment of unpaid hire charges, interest and costs. The proceedings were transferred to the Common Law Division on 15 August 2005. An amended statement of claim was filed on 18 July 2008 and a defence to that statement of claim was filed on 27 August 2008.

13 As at the date of appointment, Rildean had a large quantity of scaffolding that it either owned or had hired from a variety of companies including RMD. Much of the scaffolding was in turn hired out and deployed on building sites while the balance was stored in Rildean's yard at Camellia. A critical issue in these proceedings is whether it was possible to identify RMD's scaffolding in order for it to be returned. The plaintiff's claim includes the assertion that it remains the owner of scaffolding hired to Rildean in the period of 9 months or so before the date of appointment and that, upon their appointment, the defendants, in entering into possession and taking control of the property of Rildean, incidentally entered into possession and thereafter continued to use the plaintiff's property. It asserts, inter alia, that the defendants are liable for payment of hire charges and interest from 7 days following the date of appointment pursuant to s 419A(2) of the Corporations Act 2001.

14 The defendants' response to this is, first that the plaintiff cannot establish that Rildean was in physical possession of the plaintiff's scaffolding on the day of appointment. Secondly, and alternatively, it was pleaded that to the extent that the plaintiff was the owner of the property its interest was as an owner in common of mixed property. Essentially this arises from a contention that Rildean had a large quantity of scaffolding on hire from various companies and it was unable to say with any precision which items belonged to which companies. The defendants deny that from the date of their appointment they took possession of and thereafter continued to use the property of the plaintiff. Alternatively, the defendants have submitted that if they are found to be liable under s 419A of the Corporations Act such liability should be excused pursuant to s 419A(7).

15 A further and alternative cause of action pleaded is that the defendants converted the plaintiff's property to their own use and for the use of Navmost and Action Construction Services Pty Limited ("ACS"). Reference is made to a licence agreement of 8 August 2002, whereby the defendants licensed the use of scaffolding equipment to ACS, and to an agreement for the sale of the scaffolding to ACS that was entered on or about 18 November 2004. The plaintiff asserts that as a consequence the defendants are liable for the loss of hire rent that the plaintiff could have earned from the property after the date of appointment and damages to the value of the property.

16 The defendants' deny having taken possession custody and control of the plaintiff's property and so they deny the allegation of conversion. Alternatively, even if possession were established, it was submitted that there was no physical interference with the items and so conversion cannot be established for that reason.

17 A further cause of action that was pressed at the hearing was one of negligence. In view of my conclusion as to the first two causes of action it is unnecessary to make a determination of that claim. A fourth cause of action pleaded was not pressed.

Were the defendants in possession of the plaintiff's scaffolding?

18 A primary issue to be determined before anything else can be considered is whether the plaintiff has established that Rildean was in possession of the plaintiff's scaffolding on 18 July 2002. If so, then the defendants' assumed such possession on and from their appointment.

19 Rildean purchased and/or hired scaffolding in the years preceding the date of appointment from a variety of sources apart from RMD. Those mentioned in the evidence were Girraween Scaffolding and Plant Hire Pty Limited (Girraween), TJF Scaffolding Hire and Maintenance Pty Limited (TJF), Hillsley Hire Pty Limited, Ace Access Pty Limited, Landlush Pty Limited, Kensea Pty Limited, BAK Investments Pty Limited, BJ & KAB Family Trust, Ochar Pty Limited, Greg McKenna and BJ Metro Pty Limited. The arrangement with Girraween dated back to 1995 and in 2000 Rildean purchased the scaffolding then on hire from Girraween. The scaffolding Rildean acquired from these twelve entities was on-hired to builders at various building sites around the metropolitan area of Sydney.

20 On 8 July 2002, Bryson J delivered judgment in Rildean Pty Ltd v TJF Scaffolding Maintenance & Hire Pty Ltd; TJF Scaffolding Maintenance & Hire Pty Ltd v Rildean Pty Ltd [2002] NSWSC 605. In that judgment he held that TJF had a contractual entitlement to the return of 658,970 items of scaffolding that were held by Rildean. The proceedings culminating in Rildean being wound up and the defendants appointed as agents for the mortgagee in possession followed soon after this judgment. It should be noted that no items were physically returned to TJF in that period.

21 RMD's records indicated that 29,191 items had been hired to Rildean in the period since the 19 September 2001 agreement was entered into and 26,731 items were outstanding at the date of appointment.

22 Mr David Petrina was the manager employed by the defendants who was assigned to work on the external administration of Rildean. On the day of appointment he was provided with a computer printout showing the scaffolding that had been hired out by Rildean and the building sites at which it was in use. It did not, however, indicate anything as to the source or ownership of the scaffolding. Mr Petrina's inquiries, with Mr Baker and otherwise, led him to conclude that the records of Rildean were "fairly deficient" and did not provide any information as to the ownership of scaffolding, both on building sites and stored in the yard. Mr Baker told him that "all the equipment is mixed together when we received it" and that therefore it was not possible to identify the owners of any particular equipment. A visit to ten building sites in the Sydney area by Mr Petrina between 18 and 22 July 2002 was unproductive in determining ownership of the scaffolding he viewed.

23 On 19 July 2002 Mr Petrina spoke with Mr Hugh MacDonald, the managing director of RMD. Mr MacDonald demanded the return of all of RMD's equipment. He said, "Brian Baker knows and so do his yard guys that they must separate, hold and send back all of RMD's equipment". There was a conversation also on that day with Mr Ben Wassens, a regional manager for RMD. Mr Wassens advised that he would be sending to Mr Petrina documentation setting out the scaffolding that belonged to RMD and he reiterated the demand for the return of RMD's equipment as soon as possible. He also told Mr Petrina that Brian Baker knew which equipment was RMD's.

24 Mr Wassens did send the documentation he foreshadowed. It included Action Skyline (i.e. Rildean) purchase orders and RMD delivery notes. Annexed was a list of weekly unit hire rates applicable to the outstanding items and a copy of RMD's terms and conditions of trading. The total number of items on a schedule titled "outstanding material on hire as at 19/07/02" was 26,731.

25 Around this time Mr Petrina was contacted by many creditors asserting that scaffolding owned by them was in the possession of Rildean. This included a conversation with Mr Anthony Dutton of RMD in which it is claimed that Mr Petrina said, "As long as you can prove the scaffolding is your equipment, we will return it".

26 Mr Petrina said that when he received the documentation from Mr Wassens he examined the records of Rildean to see whether what RMD was saying was, or was not, correct. He said that he satisfied himself that RMD might have hired some equipment to Rildean. He did not determine, however, anything as to the quantities that RMD was claiming. No real attempt was otherwise made to check RMD's claim. Like all the claims that were made by various creditors, it was simply "noted".

27 There was a meeting on 23 July 2002 at the yard at Camellia attended by Mr Dutton on behalf of RMD, representatives of TJF and Girraween, and various others including Mr Petrina. The group moved from rack to rack where scaffolding items were stored. Mr Petrina recalled that there was argument amongst the representatives of RMD, TJF and Girraween over ownership of most of the items seen. There was a single exception in the case of one section of scaffolding that was painted in RMD's unique colour scheme. The parties in attendance all agreed that those items could be returned to RMD. A document recording that return lists 1,058 individual items.

28 After the meeting in the yard, Mr Petrina formed the view that it would be very difficult to determine the ownership of the scaffolding. One of the problems was that the scaffolding was stored in such a way that there was no differentiation as to colour and the representatives of different companies were claiming items regardless of its colour. I will shortly mention the potential significance of the colour that items of scaffolding were painted. Although Mr Petrina had received the list of delivery notes and related documents from RMD, he did not know whether the scaffolding listed therein was still in the possession of Rildean. He said that he had no knowledge whether it had in fact ever been delivered to Rildean and, if so, where the scaffolding listed by RMD in those documents could be found. As a consequence Mr Petrina believed that the best approach was to pursue a process of arbitration. It was also determined that there should be a stocktake and valuation carried out.

29 One of the problems in determining the ownership of items of scaffolding is that it was difficult, and sometimes impossible, to identify the owner of an item by its appearance alone. There was evidence that RMD had a practice of identifying its scaffolding by having it painted green with orange tips. Some other companies adopted a similar practice. Indeed, Mr Baker ventured that Girraween painted its scaffolding in the same colours used by RMD. However there was also evidence that scaffolding was sometimes repainted to suit requirements at particular building sites - for example, if all of the scaffolding at a particular building site was required to be blue, then items that were not that colour would be repainted so as to comply. As a result, even if the owner/hirer used a unique colour scheme there could be no guarantee that the items would remain the desired colour when on-hired by Rildean for use on a building site. Rildean itself, according to Mr Donald Campbell who was an employee at the relevant time, adopted a system of using a unique colour scheme for scaffolding it owned at one point but prior to that he said that it was known as "Jacob" in the scaffolding industry because its equipment came in many colours.

30 Determining the ownership of scaffolding presented a similar problem to Bryson J in his judgment in favour of TJF of July 2002. He noted that identification of the items belonging to TJF was "very improbable" and for that reason he declined to make an order for specific delivery.

31 A further problem in determining the ownership of scaffolding items was the practices adopted by Rildean. Mr Baker had been associated with Rildean and other scaffolding businesses for many years. He gave evidence that when Rildean hired scaffolding from RMD it was collected from RMD's premises by Rildean contractors and delivered direct to the relevant building site. When it was no longer required at the building site it was returned to Rildean's yard at Camellia. Scaffolding was stockpiled in the yard by reference to size and type but not by reference to the owner of the items. For example, there might be a stockpile of 200 x 3 metre planks but they could all have been owned by the one company or have been owned by a number of different companies. This was so even if the item was distinguishable as to its owner by way of paint colour or otherwise. When further items were required at a building site, or items were required at a new building site, the order was filled by collecting the quantity required from the yard, again without reference to ownership of individual items. Mr Baker said that when items were on hand that were surplus to projected needs they would be returned to the company from which they had been hired. It was his evidence that items were returned regardless of ownership but only on the basis of quality, quantity and type. Mr Baker claimed that this was the situation that prevailed not only in respect of RMD but also with all the companies with which Rildean dealt.

32 Mr McDonald, on the other hand, said that in 2001 and 2002 it was not, and never had been, the practice of RMD to accept the return of any items which were not positively identified as belonging to RMD, that is, items which did not carry RMD's markings of green paint with orange tips. Mr Dutton gave similar evidence. Whilst he had no recollection of any specific instance of non-RMD goods being returned to RMD by Rildean, he claimed that the practice of not accepting the return of items that were not RMD's goods was "invariably followed" at RMD's Sydney yard whilst he was working there. He also claimed that non-RMD stock was readily identifiable as such and was never accepted.

33 Mr Alan Stoker was the yard foreman/manager for RMD during the relevant period. He provided evidence as to the procedures at RMD for the despatch of scaffolding from the RMD yard. There is nothing in the material from him as to the return of items and whether or not items that were not identified as having originated from RMD were ever accepted. Mr Stoker was not required for cross-examination.

34 Resolution of this conflict in the evidence is not essential for the determination of the primary issue but I must say that I prefer the evidence of Mr Baker on the topic. The evidence generally is to the effect that Rildean did not keep items of scaffolding from different sources separate. It would seem unlikely that Rildean would intermingle scaffolding from different sources when despatching it to building sites or when storing it in its yard but then carefully sort it out and separate that which was sourced from different hire companies when the time came to return it. Mr Baker's evidence was supported by evidence from Mr Campbell. It was also supported by the accounts given of the manner in which scaffolding was seen to be stored in the Camellia yard when various claimants attended there in July and again in October 2002.

35 Mr Baker said that the usual length of hire of scaffolding on a job was between twelve and twenty weeks. Accordingly, he said, the scaffolding would have been dismantled from the site that it was on, taken back to the yard, stacked with other scaffolding, and then later sent out to another job perhaps four times, more or less, during the time that RMD scaffolding was in the possession of Rildean.

36 Mr Baker also gave evidence of companies involved in the manufacture, sale or hire of scaffolding adopting the practice of painting their scaffolding a different and distinguishing colour. Scaffolding that was purchased second-hand and which was already painted one colour might be repainted in another colour. This was one of the causes of argument between competing claimants for Rildean's scaffolding in that one company might claim that an item was painted in its colours only to have another company claim that its colours had been painted over.

37 Mr Baker also claimed that RMD not only hired but also sold scaffolding. He claimed that the scaffolding that it hired and sold were all painted in the same colours. This would give rise to a possibility that one of the other companies that Rildean had hired scaffolding from had purchased scaffolding from RMD and thus Rildean was in possession of scaffolding in RMD colours which was not owned by RMD. Mr Petrina gave evidence to the same effect.

38 Mr Baker gave evidence that in his experience a "large proportion" of scaffolding equipment sent to building sites was lost, stolen or returned with no return docket. He claimed that Rildean did not maintain a hire register from which it could be ascertained how much of the stock it had hired to building sites had been lost in this manner. As a consequence, he said, it would be impossible for him, or anyone else, to determine what percentage of the equipment claimed to have been hired by RMD to Rildean had been lost in this fashion.

39 Mr Campbell's evidence supported that of others concerning the inadequacy of the records of Rildean in determining ownership of scaffolding on hire; the practices of Rildean in mixing scaffolding that had come from different sources; the practice of companies painting their scaffolding with a unique colour scheme but the unreliability of this being a definitive means of determining ownership; and the practice of Rildean in returning items to third parties based on quantity and type but not on appearance or colour. It was Mr Campbell's view that by 18 July 2002 it would have been impossible to determine which items of equipment then at the Rildean yard, or at building sites, were originally supplied by RMD.

40 Returning to the chronology of events, on 8 August 2002, Rildean, the defendants and others entered into the Licence Deed with ACS. On the same day, ACS entered into a factoring agreement with Navmost. Recital H of the Licence Deed set out the purpose of the agreement. It was said to be: "For the purposes of maximising the prospects of the [Navmost] debts being paid, recovering the debts owed to Rildean ... in respect of contracts that were not assigned to [Navmost] and recovering work-in-progress performed by Rildean ... it is essential for the Business [i.e. Rildean's business] to be continued both by having contracts already entered into by Rildean ... performed as well as by having new contracts entered into by Action for the purposes of, inter alia, providing additional and ongoing support to those parties utilizing the services that had been provided by the Business".

Licence for Action to Perform Contracts and Enter New Contracts a. Action has agreed to perform the obligations which are outstanding and to be performed under the Contracts at cost to Action excluding any profit margin for Action but including an allowance for overheads to be reasonably calculated by Action having regard to industry standards and failing agreement such allowance for overheads to be determined by an expert in the building industry appointed by the Insolvency Practitioners [the defendants].

41 ACS agreed that all monies paid to it would be paid to the defendants for the purposes of discharging the Navmost debt.

42 O'Maras Valuers and Auctioneers were engaged by Mr Petrina on behalf of the defendants to carry out a stocktake in the weeks following the date of appointment. He provided them with a list of building sites based upon the printout he had been given on 18 July 2002. The O'Mara report of 9 August 2002 lists a quantity in the order of 154,000 individual items of scaffolding on hand at Camellia and at various building sites. The report notes that access was not had to all the building sites to which the valuers were directed. The total quantity of scaffolding items that RMD claims were on hire to Rildean as at the date of appointment is 26,731. 1058 were returned following the 23 July 2002 yard meeting, leaving 25,673 outstanding items. Of the 30 types of items RMD claimed were outstanding, there are 98,005 of such items listed in the O'Mara report.

43 Mr MacDonald wrote to the defendants on the 13 August 2002, in part following up on an earlier request for "an up to date list of site locations to which hired scaffolding had been delivered by Action Skyline NSW". The following day the defendants replied to the effect that it was their objective to return all equipment once it had been clearly identified. It was also indicated that they were unable to provide an up to date list of site locations at which equipment "allegedly hired" from RMD was currently being utilised.

44 Mr McDonald gave evidence of meeting with Mr Baker on 26 September 2002. Mr McDonald claims that the purpose was to collect a list of sites on which RMD's equipment was located. He claims that Mr Baker handed him a list of all of the sites to which Rildean had sent scaffolding. Mr McDonald further claims that upon his request Mr Baker then marked the list by placing ticks against 16 of the sites to indicate those where RMD equipment was located. This was disputed. Mr Baker claims that he did not provide a list or place marks on any such list. He did, however, concede that such lists were kept at the yard and always updated. He conceded that the list that Mr MacDonald received, however he received it, looked authentic. It was conceded in the course of submissions on behalf of the defendants that the list likely had its source in the company records but the extent to which it was an up to date reflection of those records was said to be another question.

45 On the 4th October 2002, Mr Dutton visited six of the sites that had been ticked on the list. At each of those sites he saw that a portion, ranging from 10% to 25%, of the scaffolding present was, to his mind at least, identifiable as belonging to RMD. He also visited two other sites on the list that had not been ticked and at each of those sites he could not see any RMD scaffolding. Mr Dutton's evidence was subject to some challenge. He did not gain access to the building sites but made his observations from outside. He conceded that at the majority of the sites the scaffolding was covered with shade cloth. Nevertheless, I am prepared to accept that he did see scaffolding equipment in RMD's colours at the sites he referred to. Whether it was in fact RMD's equipment is difficult to determine having regard to the evidence I have earlier mentioned about the colour of scaffolding. The fact that Mr Dutton saw what he thought was RMD equipment at the ticked sites and did not see any such equipment at the non-ticked sites tends to support the proposition that the list did in fact come from somebody at Rildean and that the ticking of the list was an indication of the whereabouts of RMD equipment. How it was possible for the list to have been ticked is difficult to understand if what Mr Baker said in evidence is correct about Rildean not maintaining records that would identify the location of the scaffolding belonging to a particular owner. One possibility is that somebody did the ticking of the sites from personal knowledge rather than from accessing records. Of the 62 sites listed, 16 were ticked. Whether there was equipment in RMD colours at all 16 sites is unknown as Mr Dutton visited only 6 of them. Having regard to all of these circumstances I do not regard the evidence as providing a reliable indication that Rildean did maintain accurate documentary or electronic records as to the sites to which RMD equipment had been despatched.

46 Mr Lloyd Austin was a building consultant and former builder with about 40 years of experience in the industry. The defendants engaged him in early August 2002, initially to act as an arbitrator in respect of the competing claims to scaffolding in the possession of Rildean. Not all of the competing claimants agreed to arbitration and so his engagement was changed to one in which he provided an expert appraisal. He presided at a meeting on the 25 October 2002 in the Camellia yard that was attended by representatives of the plaintiff, the defendants and the owners of scaffolding equipment said to be on hire to Rildean. Agreement was reached at this meeting that a relatively small quantity of items (33) belonged to RMD and also that some relatively small quantities of items belonged to Ochar Pty Limited and Kensea Pty Limited. There was substantial disagreement as to the ownership of the vast bulk of the material in the yard that was similar to the disagreement at the meeting on 23 July 2002. Mr Tayeh recalled that the representative of TJF repeatedly claimed, "all of this scaffolding belongs to TJF". Mr Petrina said that whilst RMD limited its claim to those items of scaffolding that were painted in RMD colours, representatives of other companies such as TJF and Girraween were claiming those items as well.

47 Mr Austin came to the view that the determination of ownership was difficult, if not impossible. No attempt seems to have been made by anybody to attend the various building sites in order to attempt to make an identification of the items there. Mr Austin was given information that there were 55 such building sites and a list of them was annexed to his report.

48 Ms Rebecca Johnstone was a solicitor who was in attendance at the meeting. She took notes of some of the conversation that occurred. They accord with the general description of disagreement and argument between the competing claimants. She also took a brief note of the description of some of the items in various areas of the yard. Those descriptions tend to confirm that often there was a mixture of colours of items in these areas. Photographs taken within the yard on the occasion of this meeting became Exhibit 7 in the hearing before me. They confirm that there was no system of storing scaffolding by colour or any other feature apart from size and type.

49 The evidence is unclear as to whether the items that were agreed belonged to RMD were returned. It was Mr McDonald's evidence that these items were not returned and he based that on the absence of any record at RMD that would normally have been generated upon return of equipment and also upon the absence of any record of the defendants or Rildean as to the return of the equipment. Mr Petrina could not recall checking to see whether RMD had collected its equipment but he did recall that no one from RMD ever contacted him to demand its release. Given the comparatively small quantity of items involved, it seems to me to be unnecessary to resolve this issue. Whether it was returned or not, it was clearly available to the plaintiff to recover and there is no evidence that they were prevented from collecting it. There was no suggestion that the defendants had an obligation to gather it up and return it to the plaintiff. It would be appropriate to decide the matter on the basis that these items were returned.

50 Following the meeting Mr Austin sent a letter to each of the claimants inviting them to submit their claims in writing with appropriate verification. He had already received a written claim from Ace and subsequently received written claims from ACS, Landlush, BAK Investments, Girraween and the plaintiffs. No further information was provided by any of these claimants that would enable the whereabouts of their items to be established. Somewhat curiously, there was no evidence of anything being communicated by the plaintiff to Mr Austin as to any of its equipment having been seen by Mr Dutton on particular building sites.

51 Mr Austin then prepared a written report of the meeting. He noted the relatively small number of items for which there was agreement as to ownership. He recommended that the balance of the items be auctioned with the proceeds being distributed to the claimants in proportion to the quantities that they each owned unless the claimants could reach agreement as to the distribution of the scaffolding between themselves.

52 Mr Austin's report noted the difficulties in establishing the ownership of scaffolding that he listed as follows: · The principal method of identification is by paint colour. Evidence was heard that a specific colour is often overpainted and Rildean had completely repainted all scaffolding used on one building company's projects. · Branding is not reliable because some firms sell as well as hire equipment with that company's brand. · It is common practice for material to be bought second hand at auction. · With few exceptions the colours on the material stacked in the yard were mixed. · The scaffolding in the yard was only a small amount of that on hire. Far more scaffolding was on site than stacked in the yard.

53 The report also notes that there would be a shortfall of items, which I understand to mean that there was more claimed than in fact were known to exist. It also noted that some of the items in the yard were damaged and that, from Mr Austin's experience, there would be a significant loss of material from the building sites, although he did not quantify the extent.

54 Upon receipt of Mr Austin's report Mr Petrina formed the view that it was impossible for any of the claimants to establish ownership of the scaffolding.

55 On 30 October 2002, TJF commenced proceedings against Rildean, the plaintiff and others seeking a declaration that the scaffolding held by Rildean was not the property of Rildean and a declaration as to the ownership of the scaffolding held by Rildean from amongst TJF, the plaintiff and fourteen other defendants. TJF, however, went into receivership on 8 July 2003 and these proceedings were discontinued on 23 December 2003. Solicitors for the defendants then wrote to RMD on 16 January 2004 advising that because of the termination of the TJF proceedings the defendants were in a position to sell the scaffolding. They invited offers for the purchase of it and received responses from Girraween and ACS in the amounts of $500,000 and $1,000,000 respectively. RMD responded with an objection to the proposed sale.

56 The defendants informed claimants of the offers and invited parties to injunct the sale if they so wished. RMD responded with a threat to commence legal proceedings in the event that its equipment was not returned. A number of items of correspondence to this effect were exchanged.

57 Finally, in November 2004 the defendants entered into an agreement for the sale of the Rildean scaffolding to ACS for a price of $1,000,000 plus GST. The agreement included a provision that Rildean was not selling any scaffolding that belongs to any third party. There was also a provision that Rildean and the defendants gave no warranties that Rildean owned or was capable of delivering or transferring the scaffolding to ACS. The proceeds of the sale were paid into Rildean's account on 3 December 2004 where they have, apparently, remained apart from withdrawals to pay for legal costs and disbursements.

58 On behalf of the defendants, the question before the Court was framed as follows: Is it more probable than not that the specific items of scaffolding identified in the O'Mara stock-take and claimed by the plaintiff in the plaintiff's schedule were the property of the plaintiff rather than the property of Rildean or that of any other third party hirer?

59 In my view it would be more apt to pose the question raised by the pleadings as this: Is it more probable than not that the items supplied by the plaintiff to Rildean and not returned were still in the possession of Rildean as at 18 July 2002?

60 That is not to ignore the fact that there were claims made by other companies, and by Rildean itself, to ownership of scaffolding in Rildean's possession on that date. The question I have posed, however, more directly focuses on the issue that the plaintiff is required to make good if it is to succeed. Posing the question in the manner suggested on behalf of the defendants tends to assume the existence of competing claims that may or may not be valid.

61 The plaintiff's submissions started with the propositions that it was common ground that Rildean received from RMD all scaffolding items which RMD's records disclose was hired to Rildean between 19 September 2001 and 18 July 2002 and there is no evidence that RMD received back from Rildean any items other than those RMD acknowledged having received back. As a consequence, it was submitted, the court should find that Rildean received and never returned those items that RMD's records indicated were still on hire to Rildean. So much may be accepted but it does not answer the question as to where those items were as at 18 July 2002 and whether they could be reliably identified as belonging to RMD.

62 It was submitted on behalf of the defendants that the exact whereabouts of RMD equipment that had been hired to Rildean was not known. There were no records within Rildean that could have been used to determine where the items hired from RMD were deployed, or stored. In addition there is an abundance of evidence to the effect that identification of the owner of scaffolding equipment by visual observation was difficult, if not impossible.

63 Apart from the items identified in the yard meetings of 23 July and 25 October 2002 there is no direct evidence that RMD's scaffolding was in the possession of Rildean as at the date of appointment. Clearly the plaintiff is relying upon the drawing of an inference that this was so. Senior counsel for the defendants drew my attention to a number of authorities dealing with the care with which a court should approach the task of drawing inferences. I was referred to The Insurance Commissioner v Joyce (1948) 77 CLR 39 at 61 as authority for the proposition that a court should not substitute suspicion for inference or reverse the burden of proof or use intuition instead of ratiocination. I note that this appears in the judgment of Dixon J who dissented as to the result but there is no disagreement as to the proposition. Reference was made to Luxton v Vines (1952) 85 CLR 352 at 360 for the proposition that before an inference can be drawn it must be one that has a higher degree of probability than other possible inferences. See, similarly, Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5. An inference is a reasonable conclusion drawn as a matter of strict logical deduction from known or assumed facts. It must be something that follows from given circumstances as certainly or probably true, and the mere possibility of truth is not sufficient to justify an inference to that effect: Gurnett v Macquarie Stevedoring Co Pty Ltd (1955) 55 SR (NSW) 243 at 248.

64 The defendants referred to the evidence of the possibility that RMD scaffolding may have become lost, damaged or stolen at building sites, or returned to other hirers. That possibility, however, could hardly be thought to account for anywhere near the majority of RMD items. Regard must be had to the relatively short period of the relationship between RMD and Rildean. If it was a relationship that had extended over some years, then the inference of loss, damage, theft, or return to other hirers might be more significant. The plaintiff acknowledged that evidence but submitted that there was no evidence that any items were in fact lost, either in the period 19 September 2001 to 18 July 2002, or from then until the sale in November 2004. Therefore, it was submitted, the court should infer that Rildean did not lose any of RMD's scaffolding. I accept that submission. In the absence of direct evidence or a reliable basis to draw that inference, to conclude otherwise would be speculative.

65 Reference was made in the defendants' submissions to a schedule prepared by Mr Campbell. That schedule was based upon information as to all scaffolding equipment acquired, either by hire or purchase, by Rildean in the past, as well as the items that were being claimed by Ace Access Pty Limited, Landlush Pty Limited and Kensea Pty Limited as being their property that was in the possession of Rildean. It was submitted that this showed that the scaffolding sighted by O'Mara was "nearly all" accounted for as coming from those four sources as opposed to having come from RMD. It was noted that this analysis did not even take into account the claims of others, such as Girraween and Hillsley Hire Pty Limited. Accordingly, it was submitted that it was mere conjecture or supposition to propose that the scaffolding noted in the O'Mara stock-take was necessarily that of RMD rather than belonging to Rildean or another third party supplier.

66 The problem with that analysis is this. Mr Campbell relied upon material compiled by Mr Baker that showed acquisitions by Rildean. Mr Baker described this material as showing "scaffolding purchased by (Rildean) or that was or had been in its possession, which is supported by relevant invoices and sale or hire agreements". This was an exercise that he carried out with a view to defeating the claim made by TJF against Rildean. Some of the source documents indicate that these acquisitions were made over quite a number of years. There is no corresponding data as to any disposals by sale or losses from theft, damage or misplacement. So, the analysis by Mr Baker that was relied upon by Mr Campbell is indicative of scaffolding acquired by Rildean in the past. It says nothing about what was on hand as at the date of appointment.

67 In the Campbell schedule, the total number of items in the "Rildean Total" column is 454,751. Comparison is made by the defendants with the total number of items sighted during the O'Mara stock-take (about 154,000) and the number of items being claimed by the plaintiff (25,673). However, the 454,751 in the "Rildean Total" column is derived by adding the 36,208 claimed by the three third parties to the 418,543 of gross historical acquisitions by Rildean. So, 92% of the total in the Campbell analysis of items possibly in the possession of Rildean as at the date of appointment were items acquired by Rildean over the years with no evidence as to how many may have been on hand at the date of appointment. The balance is the amount claimed by three third parties with no evidence as to the accuracy and reliability of their claims. Certainly there were documents produced to Mr Austin in support of the claims that showed prior deliveries to Rildean but there is nothing to indicate how much was actually on hand as at the date of appointment. Of the 36,208 items claimed by those third parties, 23,867 were claimed by Landlush, which had been dealing with Rildean since at least June 1999. Assuming the claim by Landlush correctly reflected the number of items it had hired to Rildean in that 3 years or so, there remains a question as to how many of the items were still on hand as at July 2002. For these reasons, I do not regard the submission based upon the Campbell schedule as providing a reliable basis to conclude that "nearly all", or anywhere close to "nearly all", the scaffolding on hand as at the date of appointment belonged to either Rildean or those three companies.

68 I do, however, accept the submission on behalf of the defendants that one cannot simply rely upon a comparison between what was sighted in the O'Mara stock-take and the quantities claimed by the plaintiff for a conclusion that in respect of most of the items there was a sufficient number to satisfy the plaintiff's claim and therefore they must be items that belonged to the plaintiff.

69 It was submitted on behalf of the defendants that there was "positive evidence that the scaffolding identified in the plaintiff's schedule cannot possibly all have been the property of the plaintiff". Reference was made to Mr Dutton having identified 10% to 25% of scaffolding at 6 building sites being in RMD colours whereas in the plaintiff's schedule there is a claim in respect of "many of the items" of more than 50% of the total items recorded in the O'Mara stock-take. The reference to "many of the items" is an overstatement. That situation pertains to 4 out of the 30 items listed. Given that Mr Dutton visited only 6 building sites, and made what was at best a rough estimate from the outside, often viewing scaffolding through shade cloth, I do not regard any comparison of the percentages in this manner as useful.

70 Reference was also made to the plaintiff's schedule showing a claim by RMD for items where the number sighted by O'Mara was zero. That is the situation in respect of 7 of the 30 product lines listed. It relates to a claim for 616 items out of the total claimed of 25,673, a relatively insignificant proportion. It was contended that this supported the proposition that losses did occur. Accepting for the moment the correctness of that proposition, it does not provide a basis for concluding that this was the fate of any more of the plaintiff's scaffolding than those 616 items. It would be speculative to conclude otherwise. Moreover, the longer the equipment had been out on hire and deployed around various building sites the more likely losses would be occasioned. However, the equipment hired from RMD had come into Rildean's possession less than a year before the date of appointment.

71 It was submitted that it could not be assumed that any of the stock sighted in the O'Mara stock-take belonged to RMD but even allowing for a finding that there was RMD stock, it was submitted that nevertheless it was impossible to determine just how much. Determining a number was, counsel submitted, a matter of guesswork. Up to a point that is correct. The O'Mara stock-take must be seen as an incomplete account of all of the scaffolding Rildean had out on hire to building sites.

72 The report of the stock-take lists the items sighted under each of the building sites attended. It was pointed out on behalf of the defendants that five of the sites ticked on the list that it was claimed Mr Baker gave to Mr MacDonald, one of which was visited by Mr Dutton where he claimed to have seen scaffolding in RMD colours, are not listed in the O'Mara stock-take. Consequently, it was submitted that there is the real possibility that RMD equipment was to be found at building sites other than those included in the O'Mara count. The extent to which RMD equipment was not included in the O'Mara stock-take is impossible to determine. However, the fact that an item may not have been included does not mean that the item was not on hand at the date of appointment.

73 There are, in fact, four versions of lists of building sites at which Rildean scaffolding was deployed; that is, scaffolding that Rildean either owned or had hired. There is the computer printout obtained from the Rildean records by Mr Petrina on the date of appointment that lists 51 building sites. There are 38 sites listed in the O'Mara stock-take report. Then there is the document Mr MacDonald claimed to have received from Mr Baker in which 62 sites are listed. Finally there is an annexure to Mr Austin's first report in which 55 sites are listed, although 4 of them appear to be duplicated entries. Moreover, it is almost impossible to reconcile the information in each list. For example, there are sites mentioned in the O'Mara report that are not mentioned in any of the other lists. There are many sites mentioned in the MacDonald/Baker list which are not mentioned elsewhere. There is, however, a high degree of consistency between the Petrina printout and the annexure to the Austin report, although not an exact correlation which may be explicable by the time that had elapsed between the two.

74 There are also discrepancies between the numbers of items on hand at particular building sites when a comparison is made between the Petrina printout and the O'Mara stock-take. I will cite some examples. At the Alessi Constructions site at Leichhardt there were 472 items according to the Petrina printout but only 180 in the O'Mara stock-take. At the Austruc Pty Ltd site at Wahroonga, there were 4,427 (Petrina printout) or 522 (O'Mara). At Mainbrace Constructions, Forestville there were 1,687 or 1,255. At Mac-Corp, Cammeray there were 355 or 163.

75 What can be concluded from this is that there must be some scepticism about the accuracy of the records maintained by Rildean from which these lists were derived. The comparison of what was supposed to be on hand at particular building sites (the Petrina printout) with what was in fact on hand (O'Mara stock-take) is indicative of that. Further, it seems clear that the building sites attended during the course of the O'Mara stock-take exercise were far from being all of the sites at which equipment hired from Rildean was deployed. Accordingly, there is considerable force in the defendants' submission that scaffolding belonging to RMD may well have been found on sites that are not included in the O'Mara listings. As was submitted on behalf of the plaintiff, there is "inevitably a gap, and hence a question mark about the comprehensiveness of the O'Mara stock-take". As mentioned a moment ago, this does not mean that items not listed by Mr O'Mara were not on hand. It simply means that Mr O'Mara did not see them.

76 Finally, reference should be made to a submission on behalf of the defendants that what was described as a conclusive evidence clause in the terms and conditions of the hire agreement was not available to overcome a deficiency in proof of Rildean's possession of the scaffolding. This was a reference to clause 22(l): Provided Goods in the possession of the Customer match the quantities and description of the Goods hired by RMD to the Customer, then such Goods shall be deemed to be the subject of the Hire Agreement.

77 The submission was that such a clause represented a personal covenant given by Rildean to RMD that Rildean would accept that any RMD goods in its possession were the subject of the hire agreement. It was submitted that the defendants were not bound by it as they were not parties to such a personal covenant. The provisions of s 419A(8) Corporations Act should be noted in this respect.

78 However, as was made clear in the course of the plaintiff's submissions, that clause was only relevant to the defendants' liability to pay money that Rildean would otherwise have been liable to pay. In other words, I do not understand the plaintiff to be relying upon the clause to overcome any deficiency in proof of possession by Rildean of the plaintiff's scaffolding as at 18 July 2002. Given the conclusion I have reached, however, any such reliance would have been unnecessary in any event.

79 There is direct evidence that 26,731 items of scaffolding were outstanding on hire from RMD to Rildean as at 18 July 2002. There is no direct evidence, or evidence that would justify a reliable inference, that any of those items were lost or the like. Of all of the inferences suggested in the course of submissions, the one that has the higher degree of probability is that the items were still in the possession of Rildean as at that date.

80 Claims were made by RMD and other companies to ownership of scaffolding that was on hand as at 18 July 2002. There was quantification of the claims made by four companies but not in the case of any of the other companies. None of those claims were substantiated in the evidence. Indeed, no real attempt was made on behalf of the defendants to do so. The evidence only goes so far as to establish the fact of the claims, not their correctness.

81 The stock-take conducted by O'Mara Valuers and Auctioneers counted a total of about 154,000 items, 98,005 being of the same description as items claimed by RMD. That stock-take was incomplete in that a number of building sites at which scaffolding on hire from Rildean was deployed were not attended.

82 Absent proof that items of scaffolding belonging to RMD had been lost prior to the date of appointment, or that claims made by Rildean or other parties were correct to the extent that it could not be possible that the items on hand as at the date of appointment were sufficient to meet the claim by the plaintiff, it must be concluded that all of the items claimed by the plaintiff came into the possession of the defendants upon their appointment. To conclude otherwise in the absence of such evidence would be to engage in processes of reasoning that I was counselled to avoid.

83 The first cause of action pleaded is pursuant to Section 419A Corporations Act, which is in the following terms: Liability of controller under pre-existing agreement about property used by corporation (1) This section applies if: (a) under an agreement made before the control day in relation to a controller of property of a corporation, the corporation continues after that day to use or occupy, or to be in possession of, property (the third party property ) of which someone else is the owner or lessor ; and

(b) the controller is controller of the third party property. (2) Subject to subsections (4) and (7), the controller is liable for so much of the rent or other amounts payable by the corporation under the agreement as is attributable to a period: (a) that begins more than 7 days after the control day; and

(b) throughout which: (i) the corporation continues to use or occupy, or to be in possession of, the third party property; and

(ii) the controller is controller of the third party property.

(3) Within 7 days after the control day, the controller may give to the owner or lessor a notice that specifies the third party property and states that the controller does not propose to exercise rights in relation to that property as controller of the property, whether on behalf of the corporation or anyone else.

(4) Despite subsection (2), the controller is not liable for so much of the rent or other amounts payable by the corporation under the agreement as is attributable to a period during which a notice under subsection (3) is in force, but such a notice does not affect a liability of the corporation.

(5) A notice under subsection (3) ceases to have effect if: (a) the controller revokes it by writing given to the owner or lessor; or

(b) the controller exercises, or purports to exercise, a right in relation to the third party property as controller of the property, whether on behalf of the corporation or anyone else.

(6) For the purposes of subsection (5), the controller does not exercise, or purport to exercise, a right as mentioned in paragraph (5)(b) merely because the controller continues to be in possession, or to have control, of the third party property, unless the controller: (a) also uses the property; or

(b) asserts a right, as against the owner or lessor, so to continue

(7) Subsection (2) does not apply in so far as a court, by order, excuses the controller from liability, but an order does not affect a liability of the corporation.

(8) The controller is not taken because of subsection (2): (a) to have adopted the agreement; or

(b) to be liable under the agreement otherwise than as mentioned in subsection (2). (Emphasis added)

84 I have determined that Rildean was in possession of the plaintiff's scaffolding as at the date of appointment, or, the "control day". It enjoyed that possession under an agreement made before the control day. It continued after that day to possess and use that property. The plaintiff was the owner and lessor of the property and the defendants became the "controller" of that "third party property". (See the definitions of "control day" and "controller" in s 9). As a consequence the preconditions in s 419A(1) for the application of the section are satisfied. With it being common ground that no notice under s 419A(3) was given, the defendants became liable for so much of the rent and other moneys payable by Rildean under the hire agreement during the period that began more than 7 days after the control day, that is, 25 July 2002, in which Rildean continued to use or be in possession of the plaintiff's property and the defendants were the controller of that property. The only remaining question would be whether the court should excuse the defendants from liability pursuant to s 419A(7).

85 Unless excused, the defendants would become liable after 25 July 2002 for payment of rent for equipment remaining out on hire until such items were returned, interest accruing from that date on overdue payments of rent, and also to pay for replacing any lost or damaged goods at RMD's ruling list prices.

86 However, on behalf of the defendants it was contended that s 419A did not apply. Reference was made to clause 22(c) of the agreement between Rildean and RMD which provided: The Customer must not sublet or assign any interest in the Goods or remove them from the site or location to which the Goods were first delivered, without the prior written permission of RMD which permission will not be unreasonably withheld subject to a separate contract of hire being entered into by the proposed assignee or sublessee.

87 It was submitted that because Rildean had dealt with RMD's scaffolding by way of hiring it out to various building and construction companies, it was in breach of the provisions of that subclause. So, the submission was, Rildean's possession of RMD's scaffolding, assuming that this could be established, was not pursuant to the terms of the agreement. Reliance was placed on the judgment of Campbell J in Re: Nardell Coal Corporation (In Liq) v Hunter Valley Coal Processing [2003] NSWSC 642; (2003) 46 ACSR 467; (2003) 21 ACLC 1505 where he stated: 81 Before Nardell continues, after 20 February 2003, to use or occupy or be in possession of the Plant under the agreement for lease of the Plant, it is not enough that Nardell be, as a matter of fact, using or occupying or in possession of the Plant. As well, that use, occupation or possession must be in accordance with the terms of an agreement made before the control day which confers a right to use, occupy, or be in possession of, that property. Clause 5.1 of the Lease has the effect that that requirement is satisfied in the present case.

88 There was no issue in that case that the "use, occupation or possession" was in breach of a term of the agreement. Campbell J was speaking about the provisions of s 419A(1) in general terms. Here, the defendants' submission is that the use of the plaintiff's equipment was in breach of cl 22(c) of the agreement and so it was not "in accordance with the terms of (the) agreement". In my view the reference to the "use" is a distraction from the real issue. In this case, Rildean acquired possession of RMD's scaffolding pursuant to the agreement of 19 September 2001 and the individual contracts generated at the time of each hiring between the date of that agreement and the date of appointment. Rildean doing something with the scaffolding that was in breach of cl 22(c) did not absolve it from liability to pay RMD what became due under the agreement. That liability did not come to an end on the date of appointment but continued and became the liability of the controller under s 419A.

89 The terms and conditions of trading part of the agreement documentation, aside from clause 22, make provision for RMD to hire goods to Rildean and for Rildean to pay RMD the hiring charges for such goods. Clause 22 commences as follows: In addition to and without derogating from the generality of the preceding terms when the goods are HIRED out by RMD to the Customer, the Customer is granted a licence to use the Goods on the following further terms and conditions.

90 Clearly the liability for payment of hire charges is a fundamental condition of the agreement. It is not dependent upon compliance with the "further terms and conditions" in cl 22. Accordingly, I do not accept that any failure to comply with any of the further terms and conditions such as cl 22(c) meant that the continued possession by the defendants of RMD's scaffolding did not render them liable for the payment of continuing hire charges. To hold otherwise would be to construe s 419A(1) in a manner that is beyond its plain meaning. It would be as if to read into it something to the effect of "provided that before the control day the corporation has strictly complied with each and every term of the agreement". There is no warrant for doing so and no authority was cited in support of such a proposition.

91 The next matter to consider is whether the defendants may be excused from liability under s 419A(7).

92 The defendants put forward a number of reasons why they should be so excused. The first submission was that they could not serve notice under s 419A(3) because they were unable to establish the ownership of the scaffolding in the Camellia yard or on the building sites. Mr Tayeh gave evidence that giving notice would have been an acknowledgement of possession of each of the claimants' scaffolding, and he did not know who owned the scaffolding. In response to this the plaintiffs submitted that there would have been no difficulty in the defendants formulating a notice that did not admit possession of goods in respect of which they could not be satisfied as to ownership. Mr Gray asked rhetorically why a receiver in such a position could not say, "I do not know how much, if any, of your property I am in possession of, but if I am in possession of any of it, I am giving notice under s 419A(3)". There is some force in that submission, although it must be acknowledged that there would remain practical difficulties for a controller to know what property it should and should not exercise rights in relation to. The notice would cease to have effect under s 419A(5) as soon as the controller exercised rights in relation to the third party property in circumstances in which the controller would not know that it was in fact third party property.

93 The defendants then submitted that they had acted responsibly in organising the yard meeting on 23 July 2002 to give claimants an opportunity to identify their items. It was submitted that they acted with similar responsibility in the appointment of Mr Austin to adjudicate on the respective claims. The evidence was that the defendants had no interest in the scaffolding that was owned by third parties, the only interest being in identifying that which belonged to Rildean itself. These matters are all relevant to the issue. However, another matter that must be borne in mind is that notwithstanding the difficulties the defendants undoubtedly experienced in determining the competing claims, they did continue to use scaffolding that belonged to the plaintiff and that use generated revenue that went to reduce the debt owed to their principal. In other words, they acted in a way that brought benefit for their principal with no recompense for the plaintiff. It is understandable that the defendants acted with the interests of secured and unsecured creditors in mind but this cannot obscure the fact that in doing so they acted contrary to the interest of the plaintiff.

94 Next it was submitted that the defendants did not enter into any new agreements with third party builders for the use of the scaffolding. That is strictly correct. But they entered into the licence agreement with ACS that permitted it to use scaffolding, including that belonging to RMD, in performance of existing contracts and in the performance of any new contracts.

95 Then it was submitted that there was fault in the plaintiffs, for example, in not advising the defendants that they had attended building sites and were able to identify stock on those sites. The response that would have been forthcoming from the defendants if the plaintiff had have done so is obvious. Consistently with the way they responded to the detailed and itemised claim that the plaintiff had made on and from the day of appointment the defendants would not have accepted such an assertion without agreement from competing claimants. It was also submitted that there was in some way fault in the plaintiffs not seeking access to the building sites in that, if they had done so, the defendants would have arranged for Mr Austin and the other claimants to all attend and endeavour to identify the ownership of the scaffolding on those sites. If that had have occurred, there is no reason to think that the exercise would have been any more productive than the meetings in the Camellia yard in July and October 2002.

96 The plaintiff maintained that the appropriate course of action for the defendants to take was to institute interpleader proceedings under Part 43 of the Uniform Civil Procedure Rules 2005. The defendants' response was that such proceedings were inappropriate given that they were claiming an interest in that part of the scaffolding that was owned by Rildean. In other words, they were not an entirely neutral stakeholder. They submitted that their action in notifying the claimants of the proposed sale of the scaffolding and inviting proceedings by way of injunction was reasonable in the circumstances. The plaintiff's response was that even with the defendant's claiming an interest in some of the scaffolding, interpleader proceedings were still available. That is not correct on my reading of Part 43. The applicant in such proceedings must claim no interest in the subject matter in dispute other than for charges or costs: see, for example, rule 43.9.

97 These considerations do not all point in the same direction. On balance, however, I have concluded that the defendants should not be excused from liability under s 419A(7). The most persuasive consideration is that the defendants continued with use of RMD's scaffolding in a manner that brought financial benefit to Navmost and, indirectly, Mr Baker, with no recompense to RMD. Excusing the defendants from liability would not be just in those circumstances.

98 The plaintiff's submissions as to the commingling of its goods with goods acquired from sources other than RMD commence with reference to the following provision in the contract with Rildean: "(e) RETURN POLICY Any Goods hired from RMD must be returned to RMD cleaned and oiled and in at least equal condition to when they were despatched from RMD's depot, fair wear and tear excepted, the assessment of which condition shall be made solely by RMD. Rildean will be responsible for the cost of any necessary repairs and/or cleaning. At the end of any period of hire, Rildean will be responsible for replacing all lost or damaged Goods at RMD's ruling list prices at the time, in addition to hire charges already rendered" . (Emphasis added).

99 It was submitted that this provision was incompatible with any contention that the precise identity of RMD property was irrelevant. Reference was also made to RMD's practice of having its scaffolding painted in distinguishing colours in support of the submission that the precise identity of its items of scaffolding was of significance and that it was not prepared to accept the return of items that were not its own. That may be so in terms of an expectation by RMD at the time it entered into the contract but whether that was an expectation that was carried through into practice is another matter. I have earlier reviewed the evidence as to this.

100 Next, it was submitted that there was no commingling of RMD scaffolding with scaffolding from other sources that destroyed the separate identity of RMD scaffolding. Reference was made to a distinction between commingling that destroys the separate identity of goods (confusio- for example the commingling of goods such as milk or wheat in bulk in a vat or silo) and commingling that is no more than the mixing together of similar goods which does not render identification and separation impossible (commixtio - for example the running together of two flocks of differently ear-marked sheep). It was submitted that the commingling in the present case "at most" established commingling of the commixtio type, not of the confusio type. It was contended that if the Court accepted that there was no evidence that Rildean "lost" any scaffolding prior to 18 July 2002 and also accepted that RMD's scaffolding was differentiated from other scaffolding by its paint marking, then it must follow that there was never more than commixtio commingling. However, there was evidence that another company from which Rildean acquired scaffolding painted its items with the same colour scheme as RMD. There was also evidence that scaffolding sent by Rildean to at least one building site was repainted to meet the requirements of that particular builder. Also to be borne in mind is that there is no evidence as to where scaffolding with those colours was, apart from the "identification" by rough estimate by Mr Dutton.

101 The plaintiff submitted that commixtio commingling did not affect its title and that Rildean, and now the defendants, were liable for the return of the plaintiff's scaffolding and also to pay all moneys due for hire of that scaffolding from 25 July 2002. In the alternative, it was submitted that even if there was commingling of the confusio type, that would operate to entitle the plaintiff to the return from the commingled aggregation of an amount of scaffolding equal to the amount outstanding as at 18 July 2002. When the defendants took possession of the commingled scaffolding on 18 July 2002, they did so in the legal condition in which it existed whereunder the plaintiff had a prior right to have returned to it the same quantity and quality of its scaffolding that had been commingled.

102 Support was sought for that contention by reference to Indian Oil Corp Ltd v Greenstone Shipping SA [1988] 1 QB 345 at 370-371 where Staughton J stated: "(W)here B wrongfully mixes the goods of A with goods of his own [counsel submitted for the present case this should be read as "goods for which he is answerable"], which are substantially of the same nature and quality, and they cannot in practice be separated, the mixture is held in common and A is entitled to receive out of it a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of A. He is also entitled to claim damages from B in respect of any loss he may have suffered, in respect of quality or otherwise, by reason of the admixture".

103 Finally, on the commingling issue, the plaintiff submitted that any commingling that occurred after 18 July 2002 amounted to conversion. As to that it can be immediately noted that the evidence to my mind is clear that the commingling occurred prior to that date.

104 Reference is now necessary to the decision of the Court of Appeal in Hill & Anor v Reglon Pty Limited [2007] NSWCA 295, which, coincidentally, has some connection to the present case. Reglon Pty Limited (Reglon) entered into a hire agreement with ACS Hire Pty Limited (ACS Hire) for the on-hiring of Reglon's scaffolding to other scaffold users. Contrary to the terms of the hire agreement, ACS Hire gave the Reglon scaffolding to ACS, which in turn on-hired the scaffolding. ACS also owned scaffolding of its own, that which it had purchased from the defendants and Rildean in the present case, which was subject to a charge in favour of Citadel Financial Corporation Pty Limited (Citadel). ACS painted the Reglon scaffolding a distinctive red colour. Citadel required it to also paint its own scaffolding the same colour. A proportion of the Reglon scaffolding was also micro-dotted but that was ineffective as a specific identifier. So, there was no means of distinguishing between ACS scaffolding and Reglon scaffolding. The two groups of scaffolding became mixed. ACS Hire defaulted in payment of hiring fees to Reglon. ACS fell into arrears in its payments to Citadel. Citadel appointed a Mr Grahame Hill as receiver and manager of the assets of ACS. He took possession of all scaffolding stored in a yard and gave notice of his appointment to persons operating building sites where ACS scaffolding was out on hire. A month after his appointment Mr Hill licensed the business of ACS to Action Construction Services (NSW) Pty Limited (Action NSW). Reglon's solicitor informed Mr Hill that part of the scaffolding in his possession belonged to Reglon. Notwithstanding this, the licence agreement permitted Action NSW to use all of the mixed stock. Mr Hill later retired as receiver and Citadel, as mortgagee, entered into possession of the ACS assets. It too licensed Action NSW to use all of the scaffolding. Reglon commenced proceedings against Mr Hill and Citadel, alleging that they had converted the Reglon scaffolding. The trial judge, Windeyer J, found in favour of Reglon on this point and entered judgment in an amount being the value of the Reglon scaffolding that had been the subject of the hire agreement.

105 Windeyer J, prior to dealing with the claim of conversion, held that there had been commingling which had not been authorised by Reglon: Reglon Pty Limited v Hill and Ors, supra. He held (at [23]) that: "In the present case the mixing was not shown to be authorised yet there is no mixing of substance. In those circumstances as between the owners entitled to claim and Action, I would hold that Reglon was entitled to recover from the articles painted red, equipment to the amount claimed in the summons".

106 The Court of Appeal, at [86] - [104], upheld the correctness of this decision as being supported by Sandeman & Sons v Tyzack & Branfoot Steamship Co Ltd [1913] AC 680 and Indian Oil Corporation Ltd v Greenstone Shipping SA, supra.

107 I have held earlier that Rildean was in possession of RMD's scaffolding and that upon their appointment the defendants came into that possession. I am satisfied that RMD's scaffolding had been intermingled with items that Rildean had acquired from other sources and that this was not authorised by RMD. The plaintiff was therefore entitled to an amount of scaffolding in the possession of Rildean and the defendants equivalent to the number and description of items that it has claimed.

108 The evidence for the defendants was to the effect that the purpose of entering into the licence agreement was to ensure that the contracts then in place and being performed could be completed so as not to expose Rildean to any liability for breaching such contracts. However, it is unnecessary to refer in any detail to the evidence beyond that provided in recital H of the agreement itself. The terms of that recital were set out earlier at [40]. The provisions of clause 2 are also relevant to this issue (see also at [40]).

109 I am satisfied that the effect of this agreement was to confer upon ACS effective possession and control of all of the scaffolding that had previously been in the possession and control of Rildean. That possession and control was, however, something it acquired on behalf of Rildean and the defendants. The agreement did not purport to transfer any proprietary rights in the scaffolding to ACS. If, for example, there was scaffolding that actually belonged to Rildean, the licence agreement permitted ACS to use it in the manner described in the agreement but there is nothing in its terms that would transfer ownership or permit ACS to deal with the scaffolding in a manner inconsistent with Rildean's ownership. The same must be said in respect of scaffolding that Rildean had hired from parties such as RMD. Whatever was the status of Rildean's possession of such scaffolding, that status was unaffected by this agreement. I accept the submission made on behalf of the defendants that this agreement was something akin to the appointment of ACS as an agent for Rildean and the defendants in carrying on the business formerly conducted by Rildean.

110 I do not think, however, that this view of the licence agreement leads to the result that it did not constitute an act of conversion. In Hill & Anor v Reglon Pty Limited, supra, Beazley JA, with whom the other members of the Court agreed, accepted as a correct statement of principle the following in the judgment of Somers J in Coleman v Harvey [1989] 1 NZLR 723: Conversion is the wrongful act of dealing with goods in a manner inconsistent with the owner's rights with the intention of denying the owner's rights or asserting a right inconsistent with them. One of those rights is possession or the immediate claim to it.

111 Her Honour proceeded to apply that principle to the facts of that case as follows: 124 The question to be determined therefore is whether the entry into the license agreement constituted an act of conversion. Under the licence agreement, Action NSW took over the business of Action, including taking over the performance of all existing contracts that Action had, as well as entering into new contracts in the future of the same kind as Action had entered into. Action agreed to make available all of its scaffolding, and any other scaffolding that was being used by it to perform its existing contracts to enable Action NSW to continue to perform those contracts and to enter into new contracts.

125 Reglon contend that in circumstances where its scaffolding could not be distinguished from the Action scaffolding, the entry into the licence agreement constituted an act that was inconsistent with its rights as joint co-owner. In short, the effect of the licence agreement was to enable Action NSW to use all of the commingled scaffolding for its own purposes, to the exclusion of Reglon, in circumstances where there was no possibility that Reglon could ever use or recover the Reglon scaffolding because it could not ascertain what was its scaffolding and what was the scaffolding of Action.

126 It is possible that one answer to that contention is that Reglon, as a co-owner would have had the right to use the whole of the scaffolding. Whilst that is right as a matter of principle, it also explains why, in my opinion, the licence agreement was an act of conversion. Under the licence agreement, a third party, over whom Reglon had no control and with whom it had no contractual relationships, had the use of the scaffolding. Reglon itself could not use the scaffolding and did not necessarily know where it was. The licence agreement, by enabling Action NSW to continue with the on-hiring of the commingled scaffolding and to enter into new on-hire contracts in respect of which Reglon had no benefits, had the effect that Action NSW exercised a right of exclusive control over the scaffolding, which was inconsistent with Reglon's right to immediate possession.

127 It follows, in my opinion that the trial judge was correct in finding that the entry into the licence agreement constituted a conversion of the Reglon scaffolding.

112 The same reasoning should be applied in the present case. The licence agreement enabled ACS to use scaffolding that include that belonging to RMD for its own purposes and for the benefit of entities not including RMD. RMD had no contractual relationship with ACS and no control over how and where its scaffolding was used. It received no benefit for the use of its scaffolding. ACS was given a right of control over the scaffolding that was inconsistent with RMD's right to immediate possession. Accordingly I find that the licence agreement constituted an act of conversion.

113 Senior counsel for the defendant sought to draw a distinction between the facts of the present case and those in Hill v Reglon Pty Limited. He pointed to what he said was the evidence in that case of the receivers not only attending the yard and taking possession of the scaffolding stored there but also to attending the individual building sites and taking possession of the items there as well. I was referred to paragraph 15 of the judgment of Windeyer J at first instance as the source of this but all that is indicated in that paragraph is that the receiver gave notice to the operators of the various building sites of his appointment. I do not see this as a point of material distinction between that case and this on the question of whether Rildean, and then the defendants, were in possession of the scaffolding.

114 Another way in which it was sought to distinguish Hill v Reglon Pty Limited was by reference to the terms of the licence agreement. In that case it purported to make available to the licensee, "Action scaffolding and any other scaffolding (if any) that is being used by it to perform the contracts to enable the licensee to enter into and perform such contracts". It was submitted that the absence of such a description in the present case was significant in that there is no incorporation in the agreement of the property of RMD. I do not regard this as a material distinction either. The licence agreement in the present case refers to ACS performing all of the existing contracts that had formerly been performed by Rildean. These included contracts that involved the use of RMD's scaffolding. It is not the case, in my view, that specific reference to the property of RMD in the licence agreement must necessarily be found before conversion can be established.

115 In relation to the sale agreement of November 2004, the first matter to note is that there was no evidence that any items of scaffolding were "lost" between the date of appointment and the date of sale. Accordingly, I am satisfied that the scaffolding on hand at the time of the licence agreement that belonged to RMD was still on hand at the time of the sale.

116 The sale agreement constituted a complete transfer to ACS of the proprietary rights in all of the scaffolding that was, effectively, the subject of the licence agreement. The sale agreement includes a provision about ownership of the scaffolding and another provision in which it was said that Rildean and the defendants were not selling any scaffolding that belonged to any third party. Those clauses may give rise to some action between the parties to the agreement but it does not avoid the fact that the agreement purported to transfer ownership to ACS of scaffolding that actually belong to RMD.

117 The fact that the defendants may have been motivated by good intentions and thought that they were entitled to proceed as they did in relation to both the licence agreement and the sale agreement is of no benefit to them. Property rights are protected at the expense of an innocent mistake: The Law of Torts, J G Fleming, 9th ed, LBC Information Services 1998 at p 66. Reference was made in the plaintiff's submissions to the following in the judgment of Sperling J in Whelan Kartaway Pty Ltd v G & C Weatherburn Pty Ltd [2002] NSWSC 677: 27 It is no answer for a defendant sued for conversion to say that he was unaware of the true ownership of the goods. Sutton (KCT Sutton, Sales and Consumer Law (4th Ed.) , (LBC: Sydney, 1995)) says (at 430): It is a fundamental rule of the law of personal property that no one can give what he or she does not have. Nemo dat quod non habet. No one can transfer to another a better title than he or she has, and consequently a person who has no title at all can transfer none and the fact that the purchaser pays value in good faith is irrelevant.

118 The same reasoning I applied in relation to the licence agreement should also be applied in relation to the sale agreement. Clearly it constituted a further act of conversion in that it purported to completely divest ownership of all scaffolding then being used by ACS, which included the plaintiff's scaffolding, in further conflict with the plaintiff's right to possession.

119 Senior counsel for the defendants challenged any finding of conversion on the basis that there had been no physical interference with the goods. He employed the following analogy: If I purport to sell you the Harbour Bridge, obviously no title passes and I am not converting anything of the Government's. If I then have some physical interference with that property such as delivery, then there is a conversion, but in the absence of any physical interference the mere purported sale is just a nullity. No right of the true owners (is interfered with) and therefore no conversion takes place.

120 It was submitted that the Court of Appeal in Hill & Anor v Reglon Pty Limited did not consider this requirement for conversion. Reliance was placed upon Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700, The Public Trustee v Jones (1925) 25 SR (NSW) 526 and a statement of principle in Fleming.

121 I regard the first of those authorities as not supporting the submission. An important point of distinction between the facts of the present case and that in Australian Provincial Assurance Co Ltd v Coroneo is that in that case the plaintiff had no right to possession of the chattels the subject of the claim at the time of the alleged act of conversion by the defendant. Jordan CJ said (at 716): Now, in order to establish conversion, the plaintiff must give evidence of an immediate right to possession in himself when the alleged act of conversion was done by the defendant, and the doing by the defendant of an act which interfered with that immediate right of possession.

122 The alleged act of conversion in that case was the execution of a memorandum of lease of certain chattels to a third party, but as the plaintiff at that time had no right to immediate possession there was no interference with such a right. Jordan CJ went on to say (at 716-717): It is clear, upon the evidence, that immediately before the execution of the unregistered memorandum of lease by the defendant on 28th January 1936, the plaintiff had no right to possession of the chattels. That right was outstanding until 18th October 1936. Neither the defendant company nor the Kurri Kurri company had then either a common law right to possession or actual possession of the chattels; and there is no evidence that by, or by virtue of, the execution of that lease any change took place in the character of the immediate actual possession of the goods; or that anything occurred in the nature of a wrongful dealing with the goods which at one and the same time remitted the plaintiff to a right of immediate possession and operated as a wrongful interference with that right. Even a purported sale of the chattels would not have operated as a conversion if unaccompanied by delivery of possession or other interference with the character of the actual possession. There does not appear to be any authority which decides that there can be conversion by a defendant unless there has been some physical interference with the goods or with access to the goods by the defendant or someone for whose act he is responsible; or some change of the character in which a person in actual possession of the goods holds that possession, the defendant or someone for whose act he is responsible, being responsible for the change. (Citation of authorities omitted).

123 I do not see this as authority for a proposition that there can only be conversion if there is an actual physical interference with the property in question.

124 The Public Trustee v Jones concerned an allegation of conversion by an auctioneer who sold items of furniture on behalf of somebody who was not the true owner. He had been informed that there was a dispute as to the ownership of the furniture. He advertised the auction and he presided at it by selling each lot to the highest bidder. He then left the premises immediately after the last lot was sold and before any item was delivered. Collection of payment and delivery of the goods were carried out by the person who had engaged the auctioneer and by that person's agent. It was held that what the auctioneer did could not amount to conversion. He did not physically deliver the goods to another and so his actions did not wilfully interfere with the rights of the person entitled to possession. That is a very different situation to that in the present case. I do not read this as authority for a proposition that there must be an actual physical interference with the property in question for there to be an act of conversion. The later case of Australian Provincial Assurance Co Ltd v Coroneo in the passage I have quoted makes it clear that it is not just such a physical interference that can make out conversion.

125 The defendant also relied upon the following passage in Fleming (at p 66): The classical mode of conversion consists in unauthorised transfer or disposal of the goods, whether by sale and delivery, pledge, or mistaken delivery to the wrong person. As already intimated, it is not even an answer to have acted under authority from someone who had himself no right to dispose of them, so that a sale and delivery by an agent or auctioneer constitutes conversion as against the true owner, although made in the honest belief that his principal had title to the goods. Property rights are protected at the expense of an innocent mistake.

A bare sale or other attempted disposition without delivery is not ordinarily actionable, because it affects neither possession nor title. It will, however, amount to conversion once consummated by transfer of possession to the buyer or if it occurs in those exceptional circumstances when a person in possession of goods without title can so dispose of them by sale, pledge or otherwise as to confer a good title on an innocent transferee in the interest of commercial convenience, because its effect will be to deprive the true owner of his title. (Emphasis added).

126 Again, I do not see this passage as providing support for the proposition that there must be actual physical interference. In the present case the licence agreement, and later the sale agreement, operated to transfer possession of the scaffolding to ACS, first so as to enable it to perform the existing contracts and pursue new ones and, secondly so as to transfer ownership to it. As the emphasised portion of the passage quoted makes clear, this can amount to an act of conversion.

127 The defendants are liable pursuant to s 419A Corporations Act for rent and other amounts payable by Rildean under the agreement with the plaintiff of 19 September 2001 on and from 25 July 2002.

128 The defendants are not excused from that liability under s 419A(7).

129 The defendants are also liable for conversion of the plaintiff's property by the licence agreement of 8 August 2002 and the sale agreement of November 2004. Orders 130 Judgment will be entered in favour of the plaintiff.

131 I will hear the parties on the issues of quantum and costs. **********

15/12/2009 - Heading amended; the word "before" inserted after the word "hearing" - Paragraph(s) 18; 48

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