Rildean Pty Ltd v TJF Scaffolding Maintenance & Hire Pty Ltd;TJF Scaffolding Maintenance & Hire Pty Ltd v Rildean Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4877/01 - RILDEAN PTY LTD v TJF SCAFFOLDING MAINTENANCE AND HIRE PTY LTD

5147/01 - TJF SCAFFOLDING MAINTENANCE AND HIRE PTY LTD v RILDEAN PTY LTD JUDGMENT 1 HIS HONOUR: These proceedings relate to entitlements to possession of a substantial quantity of scaffolding used in association with a business of hiring-out scaffolding equipment which was conducted by Rildean from premises which it leased at 6 Grand Avenue, Camelia, New South Wales. Rildean carried on business under the trade name Action Skyline (NSW), and is sometimes referred to in the evidence as Skyline or as Action. It was not the first company which carried on business under that trade name. The principal figure in Rildean's affairs is Mr Brian John Baker its General Manager. Mr Baker's evidence was that with his wife he held beneficial ownership of 90 per cent of the equity of Rildean and that his son Brett Baker held the remaining 10 per cent. Mr Brett Baker was the Director of the company and Mr Brian Baker was not a director. Mr Brian Baker's evidence was that he had been in the scaffolding hire industry for more than 20 years. Prior to 1995 he owned scaffolding, Ochar Pty Ltd which he described as "my family company" also owned scaffolding, and the scaffolding was hired out through a company called Action Scaffolding and Building Services Pty Ltd (ASBS). ASBS entered into an agreement on 1 May 1995 with Sunblest Plant Hire Pty Ltd to provide scaffolding equipment on hire for 50 months; there was an option to purchase the equipment at the conclusion of the lease for $360,000, and the option was exercised in June 1997. At some time which is not clear but appears to have been in 1995, Rildean, as well as ASBS, carried on the business of hiring out equipment, using scaffolding obtained from these various sources. 2 Mr Brian Baker also gave evidence that over the five years from 1997 he (meaning Rildean) purchased boards and timber from various sources, and that in 1999 Rildean purchased scaffolding equipment which it had earlier hired from and was owned by Girraween Scaffolding and Plant Hire Pty Ltd, paid $1.25m for the equipment purchased and leased other equipment. Between 1995 and 1999 Rildean and ASBS purchased equipment through Tower International Pty Ltd, the principal of which was Mr Frank Fentie; these purchases were financed through Esanda Finance. Rildean and ASBS also purchased equipment, mainly boards and accessories, from Brooker Pty Ltd, purchased boards from Phoenix Pty Ltd, and also purchased equipment from AKA Stage and Seating Pty Ltd. ASBS also acquired equipment in 1994 from a company called Dumebuild Dunabold Pty Ltd in lieu of payment of a debt, and acquired 6000 boards in 1995 from sources referred to as "Greg Fuller / McKenna". As I understand paras. 6 and 14 of his affidavit taken together, BAK Investments Pty Ltd purchased scaffolding from Girraween Scaffolding and Plant Hire Pty Ltd between 1995 and 1999 for about $1.5m which was advanced by way of loan by Kimberley Securities Ltd. The effect of his evidence then is that by 2000 Rildean had acquired from many sources and also had possession and control of equipment owned by Ochar Pty Ltd, forming a substantial stock of scaffolding equipment. Rildean did not however attempt to give in evidence any inventory in detail of the stock which it owned and controlled, or any calculation of the value of that stock, other than in the summary way to which I have referred. 3 It was also Mr Brian Baker's evidence that Mr Fentie of Tower International Pty Ltd arranged for ASBS to be introduced to Investor Partnerships managed by Mr Andrew Robinson and Mr Garry Parker, and the Investor Partnerships hired scaffolding to ASBS in 1996. The investors were brought together, Mr Brian Baker says, "through structures designed around the 100 per cent taxation depreciation for scaffolding items". At one time, which apparently included 1996, taxation law enabled a business which purchased scaffolding to obtain a 100 per cent depreciation allowance in the first year. The Investor Partnerships managed by Mr Andrew Robinson were named Omega and Omega Hunter Valley and the partnerships managed by Mr Garry Parker were referred as the Churchill Partnerships. These hired scaffolding to ASBS in 1996. From 1996 onwards Mr Fentie of Tower International had some part as a representative of the investors in obtaining and delivering the scaffolding so hired. 4 Mr Brian Baker's evidence was that in 1998 the operations of ASBS were reorganised into Rildean, "as part of the acquisition and merger of Skyline NSW Pty Ltd." These arrangements were not explained in detail by evidence. Mr Brian Baker said that the transfer of hire arrangements to Rildean was agreed to by Investor Partnerships. ASBS was wound-up on 21 March 2001. 5 Rildean began to fall behind in hire payments, negotiated lower rates with the Investor Partnerships and then, on 30 June 2000, entered into an agreement with TJF Scaffolding Maintenance and Hire Pty Ltd, the other party to these two proceedings. TJF was formed in the early months of 2000. Before it entered into the agreement of 30 June 2000 it did not have any significant business or own any stock of scaffolding. Mr Brian Baker's evidence was that Mr Fentie introduced Rildean to Mr Fakhoury of TJF. 6 A Deed of Agreement of 30 June 2000 established arrangements under which TJF was to manage and operate Rildean's yard at Camelia. Recitals to the Deed referred to Rildean's current trade under the name Action Skyline NSW the business of which was to supply, erect and dismantle scaffolding and to hire it out. The recitals also said "(g) Rildean agrees to assign the management and operation of the Yard to TJF following an initial transitional period of thirteen (13) weeks from 1 July 2000 to 30 September 2000 … " and went on to contemplate further documentation. By the first clause it was agreed that "As of 30th June 2000, the Parties agree that [TJF] shall enter into possession of that part of the Business situated at 6 Grand Avenue Camelia, NSW … as manager/operator." Other provisions of the first clause were: "(b) TJF shall exercise operation, management and control in a manner that is consistent with the conduct of the business, and in no way adverse, prejudicial nor prohibitive to [Rildean] …" "(c) That TJF shall remain at liberty to enter into such agreements as it sees fit with current staff employed by the Business for the purposes of conducting scaffolding hire from the Yard; (d) That TJF IMMEDIATELY undertake a full stock-take and inventory of all scaffolding equipment (both in-situ and stored at the Yard), materials, plant, equipment, fixtures and or chattels currently under the control of Rildean and used by the Business as at the date of this Agreement with such stock-take to be updated on 1 October 2000; ". 7 Clause 2 is entitled "Financial Arrangements". By cl.2(b) TJF was to meet all running costs (which were defined) for 13 weeks. By cl.2(c) Rildean was to see that invoices with a minimum total value for $4,200,000 should have been issued within the 13 weeks, by cl.2(d) TJF was to pay Action at least $1m at the conclusion of 13 weeks, and by cl.2(e) Rildean warranted that TJF was to receive a payment from a financier. Clause 2(f) contained a provision which is difficult to follow but seems to be directed to ensuring that all payments on invoices came to TJF, and by cl.2(g) each invoice was to provide for payment to an account controlled by TJF. 8 Overall, the intended operation of the Deed of 30 June 2000 is difficult to see, and was not explained in evidence. As far as it can be understood, it seems to have been directed to putting the management of Rildean's business into the control of TJF, at least for 13 weeks, directing all the flow of payments on invoices into the control of TJF, and for TJF to meet the running costs (which as defined included unpaid hire charges owed under leases of scaffolding equipment from the Investor Partnerships and others). Rildean was to see that at least $4,200,000 was invoiced and TJF was to see that Rildean received at least $1m. 9 A later agreement set aside these provisions and their significance now is the context they provide for what was done towards preparing the full stocktake and inventory of all scaffolding equipment both at building sites and stored at the yard referred to in para.1(d). 10 Rildean and TJF made another Deed of Agreement on 13 September 2000 (or on 18 September; both dates appear). The recitals refer to the parties' previous legal relations and their wish to revoke and supersede all existing arrangements and legal relations. By cl.1 all previous agreements were terminated, by cl.2 all previous legal relations were revoked and by cl.3 there were mutual releases. 11 Clause 4 contained many provisions under the heading "Financial Arrangements" which appear to be related to the termination of the previous legal relationship. Provisions of cl.4 which appear to have continuing significance are these: "(c) Rildean acknowledges the legal ownership and control of TJF over all material leased by Omega, Churchill and Prime that is currently subject to lease arrangements with TJF and agrees to pay hire charges to TJF IN PROPORTION to the percentage of any such equipment hired by TJF to Rildean trading as Action Skyline, no later than 37 days after presentation of a monthly hire invoice. (d) Rildean agrees that TJF shall be entitled to employ its own yard labour (in addition to any labour employed and paid for by Rildean) and TJF agrees to be responsible for payment of wages, insurances, taxes, levies or any other cost. TJF agrees it will seek the consent of the Lessor prior to any employment and the Lessor agrees that it will not unreasonably withhold such consent. (e) Rildean agrees to provide any and all transport as reasonably required to TJF on commercial terms as agreed between the parties." 12 There were further provisions relating to adjustment of liabilities and claims under the previous arrangement. 13 An understanding of the acknowledgement in cl.4(c) requires some understanding of the circumstances. The Investor Partnerships referred to as Omega Churchill and Prime had, or claimed to have terminated their leases of equipment to Rildean with effect on or earlier than 30 June 2000. TJF did not, so far as appears from any evidence or from any contention made before me, ever acquire ownership of the equipment the subject of the equipment leases by Omega Churchill and Prime to Rildean, and TJF did not ever lease or agree to lease that equipment to Rildean. The effect of the acknowledgement in cl.4(c) is that Rildean agreed with TJF to treat TJF as the legal owner of and entitled to control all the equipment which had earlier been hired from Omega Churchill and Prime. Clause 4 (c) also contemplates that there were to be arrangements in the future for TJF to hire the stock of scaffolding, or a proportion of it, to Rildean, referred to as Action, for which Rildean would pay hire charges. 14 Clause 6 provided for Rildean and TJF to enter into a joint venture with respect to the operation, management and control of a part of the business at Camelia. There were many provisions regulating the joint venture, including provision for Rildean to grant a sublease of the yard to TJF (and this does not appear to have been carried out), and for sharing lease outgoings. By cll.6(b)(4), (5) and (6) provisions were made which show that it was contemplated that TJF would have access to and use the yard at Camelia to store and maintain scaffolding equipment "owned or pledged to the TJF group of companies". 15 While the Deed of Agreement of 13 September 2000 is obscure in expression and creates a legal relationship which it is difficult to classify, my understanding is that it was contemplated and the deed provides for both Rildean and TJF to operate scaffolding businesses out of the yard, TJF with scaffolding which included the scaffolding which had at earlier times been hired to Rildean by the Investor Partnerships, while cl.4(c) seems to show in an obscure way that it was contemplated that by future arrangements Rildean might hire some of this stock from TJF and would incur hire charges for it. Clause 6(d) showed contemplation that the parties might agree to pool scaffolding stock where required, showing that in their understanding the scaffolding stock was not already pooled. The agreement established a contractual relationship in which Rildean was bound to treat TJF as the legal owner and entitled to the control of the stock formerly leased from the Investor Partnerships, notwithstanding that, for anything that appears, TJF was not actually the legal owner; their legal relationship were to be conducted upon the convention that TJF was the legal owner and entitled to control. 16 There was no provision for any stocktake in the agreement of 13 September 2000. TJF gave no commitment that any scaffolding would be kept in or hired out from the yard. The joint venture related to occupation and use of the yard; the joint venture did not relate to owning, controlling or hiring out stocks of scaffolding, except to the extent to which the parties later made pooling arrangements. There is no evidence that they ever did make pooling arrangements. 17 It will be seen that (if there ever had been any restriction on TJF's right to remove and dispose of stock which had earlier been hired by Investor Partnerships) there was under the Agreement of 13 September 2000 no restriction on the right of TJF to remove from the yard and dispose of scaffolding stock which had earlier been the subject of hire arrangements to Rildean. The importance of this is that it deprives of any force evidence and claims, not carried to identifying any particular stock as stock owned by Rildean, and not carried to identifying the quantities of the stock or the destinations, that large quantities of stock were moved out of the yard while it was under the control of TJF and that in some way TJF is liable to Rildean or is obliged to account to Rildean for that stock. While there may well have been scaffolding stock owned or controlled by Rildean in the Camelia yard, or otherwise in use in Rildean's business but out on hire, the evidence does not establish in any reliable way what that stock was, or how much of Rildean's stock was ever in the yard while TJF was operating there. Evidence that large quantities of stock were moved out of the yard under the control of TJF without accounting for the stock or giving an explanation to Rildean for its movement goes no distance whatever towards establishing that TJF has dealt wrongly with stock owned by Rildean or is accountable to Rildean. Rildean bears the onus of proof that stock removed from the yard by TJF and consigned to distant places or otherwise dealt with was stock owned by Rildean with which TJF was not entitled to deal; TJF was, as against Rildean, entitled to deal with large quantities of stock in the yard and associated with Rildean's business, namely the Investors stock formerly hired to Rildean. Rildean does not discharge any onus of proof, or go any distance towards discharging it, merely by showing that there were large unquantified movements of unidentified stock. 18 The parties made a further agreement which does not bear date but from its terms appears to have been made early in November 2000. Clause 1 of this Agreement contained agreements by Rildean, including agreements to pay for hiring scaffolding during September and October 2000, and regulating the means of ascertaining the amount of hire payments; and agreements that: "Action shall … (iv) Ensure and acknowledge the control and ostensible authority of TJF over scaffolding material managed by Vanepe Pty Ltd and owned by Omega, Churchill and Prime Partnerships. (v) Meet any request to progressively return scaffolding equipment belonging to any or all of the above entities to a premises other than Camelia as so requested by TJF." 19 Clause 2 contained agreements which seem to show that TJF was to send invoices to customers for hire charges for moneys due to Rildean for hire of Rildean's scaffolding during July, August, September, October and November 2000. Clause 2 also contained provisions regulating requirements for Rildean to return stock. These provisions recognise that not all of the stock at the Camelia yard was available to Rildean as it includes a handwritten provision "TJF DOES NOT guarantee that Action can or will acquire gear from alternative suppliers if TJF material is removed." 20 Then on 2 May 2001 two agreements were made to which Rildean and TJF were parties. There were six parties to the Compromise Agreement of 2 May 2001 Exhibit C. The first two parties were Rildean and Ochar Pty Ltd. Rildean was referred to as "Action." Three parties to the Compromise Agreement were or were a representative of Investor Partnerships which until 30 June 2000 were lessors of scaffolding to Action. These were Omega Scaffolding Pty Ltd, Omega Scaffolding (Hunter Valley) Pty Ltd (which themselves were lessors) and Vanepe Pty Ltd which was the manager of the Churchill Partnerships and had power to bind them. Recital B established that Omega, Hunter Valley and Vanepe's principals were lessors of scaffolding to Rildean until 30 June 2000, and (Recital C) Rildean owed amounts totalling $3,243,153.90. The lease agreements were terminated and TJF was appointed managers for the scaffolding of the lessors (Recital D), TJF advanced Rildean $1,600,000 for working capital and other purposes (Recital E) and there was an agreement to compromise claims (Recital F). 21 By cl.1(a) Rildean acknowledged the indebtedness set out. By cl.1(b) "Action and TJF acknowledge and represent that they remain in control of the entire stock … and are in a position to return this stock in accordance with this Agreement and without any claim against this stock by any third party." 22 Clause 2 provided for compromise of Rildean's debts. By cl.3(a) Rildean and/or Ochar were to procure the transfer to TJF of $1m in value of second-hand scaffolding on the date of the agreement, valued on the basis of the purchase price paid by Omega between 1996 and 1998 for its stock. By cl.2(b) Rildean was to pay TJF $50,000, with a further $50,000 in one month's time cl.2(c) and by cl.2(d) Rildean was to pay TJF $1,500,000 within six months by cash or transfer of second-hand scaffolding equipment valued in the same manner. 23 Rildean was to provide a fixed charge over $1,500,000 in value of scaffolding stock as security for its obligation in cl.2(d). By cl.4 Rildean was to have an option of re-purchase (which has not been exercised). By cl.5 there were releases and by cl.6 TJF was given an election to terminate the agreement which has not been exercised. 24 The significant effects of the operative parts then are these:

1. Rildean and TJF acknowledged to all parties (including to each other) that on 2 May 2001 they (meaning both of them together) remained in control of the entire stock which before 30 June 2000 had been leased to Rildean.

2. TJF had an entitlement to the following: On 2 May 2001, transfer of $1m in value of equipment, valued on the basis of the purchase price paid by Omega; On 2 May 2001, payment of $50,000 On 2 June 2001, payment of $50,000 Prior to 2 November 2001, payment of $1,500,000 or transfer of stock valued in the same way. 25 Apart from the acknowledgement that Rildean was still in control of the entire stock formerly leased and was in a position to return it, an acknowledgement which TJF also gave, nothing was done by the Compromise Agreement to resolve what was to happen in respect of the stock which had earlier been leased. Stock valued at $1m and $1.5m which Rildean was to transfer in settlement of the Action debt of $3,243,153.90 obviously was to be stock which Rildean owned, not stock which had formerly been leased to Rildean and had not been returned. 26 The Scaffolding Agreement was also dated 2 May 2001. The only parties to it were Rildean and TJF. Recitals in the Scaffolding Agreement established (Recital A) that since about July 2000 TJF had rented scaffolding from the Investor Partnerships, that in an agreement in September 2000 called the TJF Lease Agreement (which must be the agreement of 13 September 2000) TJF and Rildean agreed that TJF would rent scaffolding to Rildean based on scaffolding stock actually used and that they would share expenses relating to the Camelia yard. Recital C stated that TJF claimed approximately $600,000 under the TJF Lease Agreement and that the parties agreed to compromise. In the operative part cl.1 provided for Rildean to procure the transfer to TJF of $500,000 in value of second-hand scaffolding equipment; the parties were to exchange information to enable the amount payable for rent under the TJF Lease Agreement to be calculated, and that amount was to be paid in cash when calculated. Clause 2 provided for future arrangements in relation to the scaffolding. Rildean agreed to return all the stock which was under its control as at 2 May 2001 and utilised on construction sites, and to do so on or before 30 September 2001. Rildean was not to use any of the equipment currently in the yard at Camelia without the consent of TJF, and TJF was authorised to remove stock from the yard provided the quantities removed were recorded and signed for. TJF was to use best endeavours to cease any activities at the yard before 30 September 2001. There are provisions for calculation and payment of TJF's contribution to yard costs, and for Rildean to pay rent on scaffolding utilised by Rildean until its return. Clause 2(g) provided "Until all stock is returned, Action will remain responsible for any shortages and will effect all insurances required or expedient as lessee of equipment." There are also provisions relating to an option to re-purchase (which Rildean did not exercise), for release and other matters. 27 Rildean commenced proceedings 4877/01 on 4 October 2001 by Statement of Claim. Its principal claims were for damages, for "A declaration that the defendant is estopped from relying upon its legal rights under Clause 2(d) of the Compromise Agreement" (that is from its right to $1,500,000 in cash or stock by 2 November 2001), for an order restraining TJF from exercising rights on any default under cl.2(d), and for an order that TJF account to Rildean for profits derived from the use of Rildean's scaffolding. The other remedies claimed included claim (f) relating to the effect of the Deed of Charge but this was not pressed at the hearing;, indeed it was not mentioned. 28 The issues of substance arising on the pleadings are these. The Statement of Claim alleged various obligations of TJF under the Agreement of 30 June 2000 and TJF pleaded to the effect that these were terminated by the Agreement of 13 September 2000. TJF's position is indisputably correct. It was alleged (SC14) that TJF undertook a stocktake of scaffolding equipment in August 2000; TJF while admitting that a stocktake was taken of certain scaffolding equipment does not admit the allegations in terms. SC16, 17, 18 and 19 allege various obligations of TJF under the Agreement of 13 September 2000. It is then alleged in para.21 "On or about mid November 2000 the defendant without the plaintiff's consent commenced moving scaffolding to and from the Yard without the said movements being countersigned by the plaintiff." TJF does not admit this. Countersigning is alleged in SC20 to be a term of the agreement of 13 September 2000; however there is no such provision in that agreement. SC22 is: "On or about 10 August 2001 the plaintiff undertook a full stock-take and inventory of the scaffolding equipment and discovered that some of its scaffolding was missing from the Yard." TJF does not admit this. Remarkably no evidence was offered by Rildean relating to this alleged stocktake, although if Rildean had conducted such a stocktake it would have been of high importance for making out the case presented at the hearing. SC23 and following allege a demand for an account and return of missing scaffolding, and allege that TJF is in breach of bailment. There are claims for the value of the missing scaffolding which is alleged to be $16,900,000, and for consequential loss. 29 The Statement of Claim then in paras.29 to 35 alleges obligations in the Compromise Agreement and asserts in para 35 that by reason of TJF's breaches alleged in earlier passages of the Statement of Claim it would be unconscionable for TJF to rely on its legal rights pursuant to cl.2(d) of the Compromise Agreement by reason of those breaches "which have the effect of wrongfully depriving the plaintiff of scaffolding to enable it to meet its obligations under the Compromise Agreement." 30 The Statement of Claim is expressed in ways which are not easy to follow. It refers to breach of bailment without alleging any bailment or any acts which could clearly be understood to be a bailment of Rildean's stock of scaffolding equipment to TJF. Nor does the evidence show any events which could be regarded as a bailment; if the reference to bailment is a reference to the control and management of the yard by TJF under the Agreement of 30 June 2000, any effects which that can have produced ended when rights under that Agreement were terminated by the Deed of 13 September 2000 and the parties made another arrangement, obscurely expressed, under which both were to operate out of the same yard. 31 A brief summary of the defence is to the effect that TJF denies removing stock belonging to Rildean, except for dealings which Rildean authorised. Involved in this defence is that TJF disputes that Rildean had a large stock of scaffolding equipment. 32 At the hearing Rildean's counsel did very little to associate himself with the pleaded case, and took the position that, upon the evidence put forward, the court ought to order a reference to an expert to ascertain what scaffolding equipment of Rildean had been removed or not accounted for by TJF. The principal significance of putting the case in this way was the implied acknowledgement that Rildean had not established what was the quantum of equipment which it alleged that it was entitled to have but had been removed or not accounted for in circumstances for which TJF was responsible. Although I will endeavour to deal with Rildean's case in the manner in which it was presented, it should be understood that the presentation of the case had very little to do with what were truly the issues in the proceedings, and that Rildean did not make out its pleaded case, and can hardly be understood to have attempted to do so. Rildean did nothing of substance to establish what stock owned by it, or leased to it from sources other than those which TJF represented, was in the Camelia yard or hired out to building sites by Rildean during the time when, as Rildean complains, TJF was responsible for the removal of stock. Only Rildean could possibly be in a position to embark on establishing what stock it had; Rildean's counsel could not dispose of the need to establish this by asserting that a reference to an expert should be undertaken and that TJF should be required to participate in an inquiry. 33 Rildean's accounts, both as of 30 June 2000 and in respect of earlier financial years, do not show that Rildean had stock which could possibly have been worth in the order of $16,900,000; this is so even if it were to be understood that the accounts show the historical cost value of stock, as it would not be credible that there should be such a large escalation in value between gradual acquisitions over many years, accounted for at historical costs, and the huge sum asserted in the Statement of Claim. Mr Brian Baker gave in evidence more or less random accounts of various acquisitions, which he did not prove in any detail, over a number of years, at costs which could not be represented as historical costs in the accounts of 30 June 2000. He did not give or attempt to give any explanation of how it could possibly be that Rildean had what was, in the scale of its operations, an enormous amount of stock which it owned itself and which could have been available for TJF to deal with inappropriately. Nothing in the evidence could make credible the contrast between the claim to have had $16,900,000 worth of stock for which TJF should account, and the figures in the accounts to 30 June 2000. By various provisions in the agreements of 2 May 2001 Rildean bargained away stock (which must mean its own stock) worth $3m on the special valuing basis promoted for; I do not see any reason in the evidence to suppose that after doing that Rildean would have anything of value left. It must be said of the evidence of Mr Baker in support of showing that there was a large stock, not only that his evidence does not show any array of transactions which could explain that matter, but that his evidence created a strong impression that he was not reliable in respect of matters of detail, and indeed not reliable at all, both in respect of his not advancing any evidence with precision or detail, but also very markedly in respect of his manner and demeanour while giving his evidence. 34 TJF commenced proceedings 5147/01 by Summons on 24 October 2001 and filed a Statement of Claim on 2 November 2001. It claims a declaration that TJF is entitled to return by Rildean of so much of the scaffolding return of which was required by the Scaffolding Agreement and the Compromise Agreement as had not already been returned, an order for the return of the outstanding scaffolding, damages and interest and related ancillary claims. The Statement of Claim in substance alleges the history of the dealings between the Investor Partnerships and Rildean and its predecessors, and between TJF and Rildean, the debts which arose in the course of the relationship and existed on 2 May 2001, and obligations undertaken by Rildean in those agreements. Many of the allegations were denied or not admitted in Rildean's defence, although the evidence establishing them was not disputed at the hearing. Some paragraphs of the Defence disputed allegations relating to debts or other moneys payable, alleging that they had been satisfied by later agreements or by performance; these issues do not require adjudication because TJF does not make claims for the recovery of debts. The substantial issues relate to the obligations in the Compromise Agreement and the Scaffolding Agreement to deliver scaffolding. 35 The effect of para.17 of the Defence is that Rildean contends that its obligation in the Compromise Agreement to pay $1,500,000 or transfer scaffolding prior to 2 November 2001 was satisfied because TJF took from the defendant in excess of $1,500,000 in value for second-hand scaffolding and this satisfies the obligation. In para.19 of the Defence Rildean raised a defence to the effect that the obligation in the Scaffolding Agreement to transfer $500,000 in value of the scaffolding stock was satisfied by a transfer of $500,000 in value of scaffolding made on or about 19 April 2001. It is on the evidence common ground that this transfer took place, although TJF's evidence says that it happened on 2 May. The same matter of defence is raised again in para.24 of the Defence. 36 The substance of the Defence, which principally appears in para.27, is to the effect that Rildean refers to certain returns of scaffolding which it has made but otherwise does not admit that it is in breach of obligations to return scaffolding. The substantial issue then is that TJF alleges and Rildean disputes that Rildean did not return to TJF the scaffolding which the two agreements of 2 May 2001 obliged Rildean to deliver. 37 Exhibit H is a sheet headed "Calculation of Action stock level based on August 2000 stock take". According to its terms it shows that there was a shortfall in the Action stock level of $14,700,000, although its terms do not show when there was a shortfall. $14,700,000 is expressed to be WACO, which is said in evidence to be an industry standard valuing method, not necessarily the same as the price which would be paid by an investor for scaffolding stock. Exhibit H says that Investors Cost as a proportion of WACO prices is 60.00 per cent. This suggests that WACO prices are higher than the cost which an investor would incur to acquire scaffolding stock, and also that the Investors Costs which appear in Exhibit H are not actual costs, but are assessed on the artificial base of taking 60 per cent of WACO, which itself is an artificial base for valuation of scaffolding stock. Still the assumption is that Investors Costs can be ascertained by taking 60 per cent of the WACO price. 38 Exhibit H was produced to me by Rildean's counsel Mr Finch during the course of his opening address to illustrate contentions he then made. However he did not tender Exhibit H as part of his case, or tender evidence which explains what it shows or proves facts which are assumed in it. Exhibit H was actually tendered by TJF's counsel who undertook the forensically difficult task of tendering it and proceeding to show that it could not be relied on. 39 I cannot make a clear finding about who prepared Exhibit H, or when it was prepared. Mr Brian Baker, Rildean's General Manager, in evidence first attributed it to Mr John Peters, an officer of Rildean, and Mr Don Campbell of TJF but later in evidence agreed that he attributed to it to Mr Peters and not to Mr Campbell. The statements which he made in evidence about Exhibit H includes statements to the effect that he had never seen it before appearing in Court (t.2/2), but the figures in it were correct (t.1/34), and that WACO price of $35,747,000 was an agreed starting point (t.1/33). He appeared to identify himself with asserting the conclusion that there was a shortfall of Action Kwikstage stock of $14,700,000; he said (t.1/31) "It is not there, I am asking where it is. At the bottom of the page it says 'shortfall: 14.7', it says 14.7m. It is not in my yard, they had the keys, I didn't have them. Where is the gear?" As the document was unfamiliar to him and he did not claim to have taken any part in establishing the figures on which it turns, these assertions have no weight. Mr Peters did not give evidence. The opening figure of $35,747,000 as the WACO price established for Kwikstage scaffolding at a stocktake in August 2000 has not been established by any evidence about a stocktake at that time. The document seems to assume many facts which need to be established by evidence and it seems to turn on assumptions which need to be explained. There is no basis on which to appraise the validity of the way it deals with conversions between Investors Price and WACO price. Those terms need to be explained and related to the facts. The document contains statements that there were sales to other scaffolders of $3,000,000 and stock taken by Tower $2.1m (on the Investors Cost basis) but no evidence establishes that such things happened and that the figures are correct, or shows why figures on those accounts should be deducted from Investors Stock available to Action. 40 Whatever adjustments are made, there is no evidence of any weight in support of the opening value of $35,747,000, so whether or not the intervening adjustments can be understood or are correct if understood, the conclusion that there was a shortfall of $14,700,000 can have no validity. 41 Rildean's financial accounts in Exhibit G include a balance sheet at 30 June 1999 in which there are the following statements:

FIXED ASSETS PLANT AND EQUIPMENT $3,891,410.00 LESS ACCUMULATED DEPRECIATION ($1,934,457.00) $1,956,953.00

Exhibit G also contains a balance sheet as at 30 June 2000 with the following entries.

Fixed assets, plant and equipment $6,898,731.00 Deduct provn for depreciation ($2,537,238.00) $4,361,493.00. 42 Exhibit G also contains a balance sheet for 30 June 2001 which unlike that for 30 June 2000 is not supported by a director's declaration and compilation report by accountants. In this document plant and equipment are shown as follows:

Plant and equipment fixed assets at cost $20,889,700.00 Depreciation ($ 2,537,238.00) $ 18,352,462.00 43 Exhibit G also contains a draft balance sheet as at 30 September 2001, not certified or verified in any way, which includes the following item:

Plant and equipment Fixed assets at market value $27,085,987 Depreciation

That is to say, nothing is allowed for depreciation. 44 The informal nature of the balance sheets as at 30 June 2001 and 30 September 2001 and their lack of certification mean that they have no real weight, but for whatever weight they have, they are not consistent with the proposition that Rildean had Kwikstage scaffolding valued, on any available basis, at $35,747,000 at August 2000. The discrepancy between the values for plant and equipment and depreciation in the balance sheet of 30 June 2000, the only one in the series to bear certification, and the figure of $35,747,000 attributed to a stocktake two months later makes it very difficult to accept or take seriously the figure attributed to the stocktake, particularly when taken with other figures in the balance sheet relating to company's capital and liabilities, and in the absence of evidence any transactions which might have produced such a large volume of stock. The acceptability of the exercise is not really assisted if the figure of $35,747,000 is rated down to 60 per cent, according to the internal logic of Exhibit H, to produce $21,448,200. 45 Mr Baker was unable when cross-examined to give any clear account of what underlay the references to sales to other scaffolders $3,000,000 and stock taken by Tower $2,100,000, which appear (although not clearly so stated) to be treated as deductions out of the entitlement of Investors to Kwikstage stock; he did not give particulars of the transactions, did not know when they occurred although he said they occurred "… in probably 1999 or something like that" and he agreed that there was probably no occasion when he wrote to anyone on behalf of TJF and asserted that there had been such a transaction. 46 Two persons who took part in a stocktake, or parts of a stocktake, conducted for TJF about August 2000 gave evidence, and their evidence did not show that Exhibit H should be relied on. 47 In any event it is not a correct approach to Rildean's case for me to address whether or not assertions in Exhibit H have been shown to be correct, or incorrect or unreliable; Rildean simply did not introduce any substantial evidence that it ever had such a large quantity of scaffolding stock as it alleges that TJF caused to be removed, nor has Rildean proved any surrounding circumstances that might make a claim to have had such a large quantity of stock credible, such as by proving, either in detail or in a general way when, how and from whom it was acquired, and how it was paid for, or to overcome the apparent effect of the balance sheet as at 30 June 2000, which is the only clear and apparently regular record in Rildean's case, and the extreme improbability which it suggests of Rildean's owning a huge volume of stock, which by any method of valuation could be reckoned at anything like $35,747,000, by some time in August 2000. There is simply no proof, either by showing that there was a stocktake in August 2000 and showing the result of it, or by calling any officer of Rildean who could have had any knowledge of the matter, that Rildean owned scaffolding stock of any such order. 48 Mr Brian Baker asserts in evidence that "On 30th August 2000, a physical stock take of the gear/equipment in the yard was made on behalf of the plaintiff and defendant …". "Every component of scaffolding in and out of the yard was counted and entered into our computer by Margaret Ireland and she maintained and updated the stock position daily." Mrs Margaret Ireland was not called as a witness and the computer record was not put in evidence. 49 Mr Brian Baker gives an account, not clear or connected, of various dealings of Rildean. Among other things he says that "In November 2000, Rildean entered a joint venture arrangement with Kimberley Securities Limited designed to assist Rildean in purchasing a large quantity of scaffolding stock it had on long term hire from Girraween Scaffolds & Plant Hire Pty Ltd." In his affidavit he also says "In January 2001, I began to receive reports about movements of stock in and out of the yard … At the time, I checked our records to ensure that there was sufficient scaffold at Rildean's clients' sites to account for the scaffolding Rildean owned and controlled excluding any provided through the TJF sub-hire. From our records this appeared to be the case. In subsequent investigations, we discovered that the computer listing of the stock on client's sites also included stock on TJF or its client's site that reflected movements of scaffold occurring since TJF took control of the yard in July 2000". He gives an account of operating under the Compromise Agreement (dated 2 May 2001) and says "In attempting to quantify the amount of the hire due under the Compromise Agreement, I called for the yard movement documents that related to TJF's movement of scaffolding in and out of the yard." … "In July and August 2001, demand for scaffolding hire increased and Rildean found itself extremely short of scaffold to fulfil hire requirements." 50 Mr Brian Baker's evidence may perhaps had been intended to allude to such matters, but does not in a concrete way show that Rildean had any ascertainable large quantity of stock, or that TJF was responsible for removing large quantities of stock, or acted wrongly in doing so. 51 There are scattered references to Rildean's dealings with Girraween Plant Hire at a number of places throughout the evidence, but there is no clear explanation of those dealings, and overall it cannot be understood what the dealings were or what effect they had on the availability to Rildean of quantities of scaffolding stock. 52 Mr Clive Walker gave evidence on affidavit and oral evidence on behalf of Rildean. After working in the organisation since 1995, first as a driver, he became Rildean's transport manager in December 2000 and among other things looked after the yard at Camelia, secured the stock, supervise and arrange transport inwards and outward, maintained inventory and performed other tasks. He described the working routine in the yard including maintaining work order sheets and delivery dockets. He says that during the period December 2000 to June 2001 the controllers for the yard were Mr Fakhoury (who was associated with TJF), Mr Keeble and his associates, and that they had unfettered access to the stock. Stock was removed on a daily basis by TJF Scaffolding and its contractors without using Rildean's documentation and record system. He says the stock was removed at a very high rate - "33. The last few months before TJF left the yard semi-trailers were coming from everywhere regularly, most days a week, at a rate of 2-3 per day. Each semi-trailer loaded 20 tonne of stock and removed it from the yard." He also said "It appeared that they were using some form of a recording system … I was refused access to the documentation." He said to the effect that this substantially emptied the yard by approximately 90 per cent. Cross-examination confirmed that he saw that Mr Keeble was using a recording system, although not using Rildean's dockets. Mr Walker's complaint was that he did not know what was going out of the yard. He did not know what agreements were in place between TJF and Rildean. In cross-examination he maintained his evidence to the effect that scaffolding was removed at a very high rate over the last months, up to 100 tonnes a day. He was under the supervision of Paul Stewart as his immediate manager; he would report on the impossibility of obtaining documentation and recording what was happening to Mr Paul Stewart. Mr Paul Stewart was not called as a witness. 53 It does appear clearly from his evidence that Mr Walker's knowledge about the movement of stock, his perceived difficulty with obtaining documentation and his dissatisfaction were passed on to higher management of Rildean, so that if events the like those alleged had actually happened they must have been well known to the management of Rildean over some months. If the situation was unsatisfactory or contrary to Rildean's rights, it was not so perceived at the time, as there was no response appropriate to the enormity which it would have been. 54 Mr Todd Baker, who is the son of Mr Brian Baker, was employed by Rildean as yard co-ordinator from December 2000 on. He made some intermittent records of removal of stock by TJF, and took some photographs, but these do not constitute a systematic record and removal of stock cannot be quantified. Nor does any evidence of his establish that any removal of stock was unauthorised. 55 This confused and confusing body of material put forward in support of Rildean's case has not established that Rildean owned or controlled any large stock of scaffolding, or that TJF removed or misappropriated any scaffolding belonging to Rildean. The proofs offered in support of Rildean's case are unsatisfactory in every matter of detail, and I have a strong impression of the unreliability of their source. There are no significant records of Rildean offered in evidence, although any business conducted on a reasonable basis could be expected to have records in detail of its inventory. At the times when, according to Rildean's evidence, large quantities of stock was being moved out of the Camelia yard under TJF's control, TJF was conducting operations of its own out of the yard, and it was quite legitimate for TJF to be dealing with and controlling the movements of large quantities of stock to which Rildean had no entitlement. The quantities of stock which Rildean claims to have had are very improbable in the light of its own documents particularly its balance sheet as of 30 June 2000, and the quantities spoken of in evidence produced on behalf of Rildean as having been removed are unbelievably enormous and I regard them as fantastic. Rildean alleges in its pleading that it had a stocktake in August 2001, but gave no evidence of it. 56 In the negotiations leading to the agreements of 2 May 2001 Mr Baker and Mr Campbell joined in assuring Mr Robinson that all of the stock, meaning the stock which had been leased by Investor Partnerships to Rildean, was intact and that the investors would be told that Mr Fakhoury of TJF would get control of all of it. In so finding I have accepted the evidence of Mr Robinson in preference to that of Mr Baker. Rildean entered into contractual arrangements on 2 May 2001 in which it joined in giving an assurance that all the Investor Stock was still available and made contractual commitments on the basis that Rildean has available large quantities of stock of its own with which it could deal. It is not credible that Rildean would have entered into the two agreements of 2 May 2001 if it had reason to believe that over the preceding period of about six months TJF had wrongly removed vast quantities of stock to which Rildean was entitled.

57 Mr Campbell is Financial Controller of a company associated with TJF, and from July 2000 on he acted as manager of the operations of TJF. His responsibility included preparing financial reports for the group and implementing and monitoring stock control programmes. He took part in the preparation in August 2000 of an inventory of scaffolding recorded in Exhibit 3 based on an inventory of the physical stock in the yard and on Rildean's reports for the stock on building sites, which were verified by inspecting a sample number of sites. 58 The result produced by the physical inventory taken in August 19 and 20 is reported on in Exhibit K which are notes made by Mr Campbell. The contents of Exhibit K are very obscure and there are internal inconsistencies. Mr Campbell's conclusions dealing with Kwikstage stock would have this effect: the valuation of stock in the yard and on sites, at cost, valued according the average unit buying price that had been paid by Omega and Charterbridge Investor Partnerships, was $16.8666 million : $4.9 million of this was deducted as being on hire from Girraween Scaffolding and Plant Hire, and the balance of $11,966,000 was identified as the value, on that valuation basis, of stock on hire from Omega and Charterbridge Investor Partnerships; the value on that basis of the stock originally hired by Action was $12,930,000; therefore there was a loss of $964,000. Similarly there had been a loss in respect of Anglok stock leased to Action by Charterbridge. 59 Whatever else this difficult document may mean, it is entirely inconsistent with Rildean's case that Rildean had large quantities of stock which it owned, in addition to stock which it had leased from Investor Partnerships, in the yard or on building sites in August 2000. 60 Mr Keeble, the scaffolding yard manager, worked as yard manager of the Camelia yard for Rildean from February 1998 until 14 November 2000. His main duty was to control Rildean's stock and to monitor and record deliveries of scaffolding to and from the Camelia yard. He gives a description of the method of maintaining records of stock movements. The evidence also shows that although he kept accurate records, there were large irregularities in the practices of Rildean under the control of Mr Brian Baker with respect to recording movements of scaffolding. As well as the stock dealt with at the Camelia yard, a large volume of old and damaged stock was kept by Rildean in the backyard at the house of Mr Darren Gilbert, who was also employed by Rildean. Mr Keeble raised with Mr Baker many material discrepancies between Mr Keeble's source records of stock movements and what was shown in the computer record. As well as speaking to Mr Baker about inaccuracies he spoke to data entry staff, but he was unable to secure operating practices in which the computer records were accurate. From June 2000 on he acted at the direction of Mr Fakhoury, or TJF, as he was instructed by Mr Baker to do so; this arrangement continued until 14 November 2000. During this time he observed that there were large anomalies in the delivery of scaffolding which Mr Baker said he had brought from Girraween Plant Hire; Mr Keeble's evidence was that far less scaffolding was delivered than was recorded as having been bought, and Mr Baker gave an explanation which he regarded as unsatisfactory. 61 On 14 November 2000 Mr Keeble was dismissed by Mr Brian Baker when Mr Keeble would not give him TJF's delivery dockets. On the same day he was employed as yard manager by TJF and he was in that employment at the time of the hearing He maintained control and kept records of stock movements of TJF's operations in the Camelia yard. It was his evidence that his own source records, both up to 14 November 2000 and thereafter, were accurate records of what he observed. He gave evidence assessing the considerable volume of the equipment which would be involved in storage and movement if Rildean's claims about the quantity of stock which it owned were true, and this evidence has a prominent place in my view that Rildean's claims to have owned a very large stock which TJF has in some way removed or misappropriated are fantastic. 62 Generally Mr Keeble's evidence is quite inconsistent with Rildean having owned a huge stock such as Rildean has alleged, or with TJF having removed it by irregular dealing with stock at the Camelia yard. The main burden of Mr Keeble's evidence was not challenged by cross-examination and I regard him as a witness of truth and a firm basis for the view that there were no large and irregular dealings with stock in the Camelia yard under TJF's control. 63 I do not accept Rildean's claims to have owned or to have lost a large and valuable stock of scaffolding equipment, or its claim that TJF is responsible for any such events. For these reasons Rildean's claim will be dismissed. 64 Mr Brian Taylor, chartered accountant, gave evidence for TJF. He had a small part in the stocktake of August 2000, but did not complete a stocktake then. His firm was retained on 31 October 2001 to do a stocktake of scaffolding at TJF's yard at Prestons, being the stock that was transferred to TJF from the yard at Camelia. Mr Keeble was a basic source of information for Mr Taylor and identified and distinguished new scaffolding purchased by TJF after 1 July 2000, which had not been involved in the operations at Camelia; Mr Taylor's stocktake related to the Camelia yard and stock which had been in it. The process of transfer consisted of directing stock which had been sent out on hire from Camelia to be returned to Prestons when the hire completed; so the process took place over considerable time and only one truckload was directly transferred from Camelia to Prestons. Mr Taylor had a knowledge of the records system for recording stock and stock movements, and had familiarity with operations in the industry including TJF's operations. His work included by way of a sampling exercise inspection of stock at a building site on stock which was recorded as being out on hire. He explained in evidence the sources of imprecision in a stocktake of this kind. He found a higher degree of accuracy than he had expected. He made some test counts. He reviewed records for scaffolding purchased by TJF from 1 July 2000 and adjusted his findings for the stock so purchased. The stock that was left was all of the scaffolding that had originally been at the Camelia yard and which was returned by Camelia yard customers to the Prestons yard. His method was mainly based on documents and is susceptible to any inaccuracies in documents. 65 He prepared a spread sheet which showed the scaffolding owned by Investor Partnerships, control over which was given to TJF by the Scaffolding Agreement of 2 May 2001, the scaffolding to be transferred under the two agreements of that date, the totals of the above sources of scaffolding; then his spreadsheet shows the amount of scaffolding returned to TJF and deduced the shortfall. 66 The opening figures of scaffolding to which TJF was entitled are based on the terms of the attachments to hire agreements and the agreements of 2 May 2001, not on any stocktake by Mr Taylor. The spreadsheet produces a conclusion which expresses Mr Taylor's opinion that Rildean has not returned TJF's entitlement to the extent listed in the final column of the spreadsheet. As corrected in his oral evidence in corrections as shown in Exhibit L, his conclusion is that TJF was entitled to the return of 891,797 pieces of scaffolding, identified by descriptions in the spreadsheet in Exhibit L, that Rildean had returned only 232,827 items of scaffolding, and that Rildean had failed to return 658,970 pieces of scaffolding. His evidence did not reduce the deficiency to value according to the terms of the agreements of 2 May 2001; the deficiency remains unvalued. Cross-examination of Mr Taylor did not challenge the conclusion in Exhibit L or produce any real grounds for doubt about the reliability of Mr Taylor's stocktake and conclusion. Cross-examination was directed to the stocktake of August 2000, in which Mr Taylor took a relatively small part, and which, in his view and according to the part he took, was not completed. 67 In the circumstances I accept Mr Taylor's evidence and the conclusion shown in Exhibit L. My conclusion is that TJF has a contractual entitlement to delivery to TJF by Rildean of 658,970 pieces of scaffolding stock as shown in Exhibit L. 68 There was very extensive cross-examination of Mr Robinson, solicitor, who is the Managing Director of Vanepe and had a large part in dealings with Rildean and its predecessors on the part of some of the Investor Partnerships. The main significance of the cross-examination was that it assisted me to form the view that Mr Robinson's evidence should be preferred to that of Mr Baker where they were in conflict. There was also extensive cross-examination of Mr John Fakhoury. However the evidence of neither of them is of prominent importance for acceptance of TJF's case relating to entitlement to return of the scaffolding and failure to do so. 69 TJF's claims in the Statement of Claim include a claim for an order for specific delivery of scaffolding by Rildean to TJF. In my view specific delivery of items of scaffolding is not an appropriate order; it does not seem that it is practically possible either to identify or to locate the particular items to which TJF is entitled, it is very improbable that Rildean actually has stock with which to comply with such an order, and my expectation is that it would prove impossible to enforce an order for specific delivery. In the circumstances the appropriate remedy is damages, with an inquiry to ascertain the amount of the damages. Although the inquiry involves close attention to many matters of detail the basic elements are established by Exhibit L. The valuing method provided for in the agreements of 2 May 2001 does not apply to the valuation of the stock which should have been returned by 30 September 2001, and in the assessment of damages it is to be valued as at that date. 70 ORDERS:

4877/01 RILDEAN PTY LTD v. TJF SCAFFOLDING MAINTENANCE AND HIRE PTY LTD Give judgment for the defendant with costs.

5147/01 TJF SCAFFOLDING MAINTENANCE AND HIRE PTY LTD v. RILDEAN PTY LTD 1) Declarations as claimed in paragraphs 42(a) and (b) of the Statement of Claim. 2) Judgment for the plaintiff for damages for an amount to be assessed and interest. 3) Direct that it be referred to a Master to inquire ascertain and certify the amounts of the damages and interest for which judgment should be entered and further direct that judgment be entered for the plaintiff for the amounts so certified. 4) Order that the defendant pay the plaintiff's costs of the proceedings including the costs of the Inquiry. ********

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