Zarfati v McMillan

The law - summary dismissal and strike out

1. McMillan relies upon UCPR 13.4(1) and 14.28. They relevantly read: "13.4(1) Frivolous and vexatious proceedings (1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings-- … (b) no reasonable cause of action is disclosed, or (c) the proceedings are an abuse of the process of the court, the court may order that the proceedings be dismissed generally or in relation to that claim. … 14.28 Circumstances in which court may strike out pleadings (1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading-- (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or … (2) The court may receive evidence on the hearing of an application for an order under subrule (1)."
2. Recently in Colombini v De Berigny [2021] NSWSC 374, Ward CJ in Eq at [44] stated: "44 The principles on a summary dismissal application are well known. There is a high threshold to be satisfied. The test generally applied on applications for summary disposal of part or all of proceedings is that set out in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125; [1964] HCA 69 at 128-9 (General Steel). It is necessary for there be a very clear case before proceedings will be summarily dismissed (General Steel at 129; Dey v Victorian Railways Commissioners (1949) 78 CLR 62; [1949] HCA 1 (Dey) at 91). As Dixon J (as his Honour then was) noted in Dey at 91, "once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process"."
3. UCPR 14.28 enunciates grounds, upon which a defective pleading may be struck out. Whereas UCPR 13.4 focuses on the weakness of a party's case rather than defects of pleading: see Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937.

The function of pleadings

1. It is necessary that I now briefly refer to the function of pleadings here.
2. The main function of pleadings is to state, with sufficient clarity, the case that has to be met by the defendant. In this way, pleadings serve to define the issues for decision and ensure the basic requirement of procedural fairness, that a party should have the opportunity of meeting the case against him or her: Banque Commerciale SA En Liquidation v Akhill Holdings Ltd (1990) 169 CLR 279; HCA 11 at 286-287 and 302-3. For a fuller explanation, see McGuirk v The University of New South Wales [2009] NSWSC 1424 at [21] to [35]. McMillan has not filed a defence on the basis that they cannot do so due to deficiencies in Zarfati's pleadings in the statement of claim.
3. However, it is important to appreciate that the statement of claim pleads that the parties entered into oral agreements. Hence, the terms of the oral agreement or agreements will depend on each parties' written statements and oral evidence given at trial. For these reasons this type of claim does not normally lend itself to strike out on summary dismissal.

Issues now in dispute

1. Zarfati raises five causes of action in his pleadings. Zarfati offered to amend his current statement of claim to overcome so called inadequacies pleaded in the statement of claim in order to save costs. There are still three issues in dispute that are now the subject of this judgment. They are firstly, whether it was part of the contractual agreement to allow a third party being Sydney Allen Printer, to use the equipment and whether McMillan in some way controlled the operations of Sydney Allen Printer. Secondly, whether the causes of action in conversion, detinue, bailment and trespass can be made out. Finally, McMillan says that Zarfati's claim for lost damages is not properly pleaded.

Breach of contract

1. The relevant paragraphs of the statement of claim relating to breach of contract are [1]-[15] and [18]-[20]. They read: "1. At all material times prior to about September 2015 the Plaintiff: a. was entitled to possession of the equipment itemised and numbered in the schedule to this statement of claim (11 Equipment") and/or; b. was in possession of the Equipment; and/or c. was the owner of the Equipment. 2. In or about July-August 2015 the Plaintiff and the First Defendant ("McMillan") entered into an agreement in respect of the Equipment and in respect of payments to be made to the Plaintiff. ("Equipment Agreement"). Particulars a. The agreement was oral. b. The parties to the original discussions giving rise to the agreement were the Plaintiff and McMillan. 3. [Pleads in the alternative, the same as [2]] except that: the agreement was entered into by McMillan as agent for McMillan Investment Holdings Pty Ltd ("McMillan Investments"). … e. McMillan referred to all of the hitherto unrelated entities operating under the umbrella of McMillan Investments. 4. It was a term of the Equipment Agreement that the Plaintiff would permit McMillan and/or McMillan Investments to: a. remove the Equipment; and b. relocate the Equipment to premises at XXXXX South Granville; c. use the Equipment and allow the businesses operating or to operate as Sydney Allen Printer to use the Equipment; provided that McMillan and/or McMillan Investments and/or the businesses operating or to operate as Sydney Allen Printer would look after and service the Equipment thereafter; d. the business contacts and reputation of the Plaintiff would enhance the Plaintiff role as a sales executive with Sydney Allen Printers. ("Relocation and Use Term"). 5. It was a further term (or terms) of the Equipment Agreement that: a. McMillan and/or McMillan Investments would pay the first Plaintiff $2,000 per week as a contract fee in respect of printing business of Elders Print which would henceforth be undertaken by McMillan out of the Granville premises, with the Plaintiff initially working at XXXX Condell Park until Sydney Allen Printer was relocated to South Granville, and thereafter from Granville. ("Commission Term"); b. upon the relocation of the Equipment McMillan and/or McMillan Investments would henceforth pay the first Plaintiff $1,500 per week for 4 years as a rental fee for use of the Equipment ("Rent Term"); c. at the end of the 4 year period the parties would value the Equipment and McMillan and/or McMillan Investments would either purchase it, or continue renting it from the first Plaintiff, or return it to the Plaintiff or as he may reasonably direct ("Renegotiation Term"). 6. In compliance with the Relocation and Use Term the Plaintiff permitted McMillan and/or McMillan Investments to, (and McMillan and/or McMillan Investments did): a. remove the Equipment; and b. relocate the Equipment to premises at XXXXX South Granville; 7. In further compliance with the Relocation and Use Term, the Plaintiff permitted the use of the Equipment by McMillan and/or McMillan Investments which operated the printing businesses known as Sydney Allen Printer and Lindsey Yates Printing, using the Equipment. 8. In breach of the Commission Term McMillan and/or McMillan Investments defendant did not pay the Plaintiff $2000 per week. Particulars A few sporadic payments were made to the Plaintiff in response to his requests up until March 2016 at which time they ceased. The Plaintiff estimates that he received approximately $10,000 over that period. 9. In breach of the Rent Term no payments were made at all to the Plaintiff either in the period up to March 2016 or at all. 10. As a result of the breaches of the Commission Term and the Rent Term the Plaintiff suffered loss and damage. Particulars a. Loss of Commission Payment in the sum of $2,000 per week; b. Loss of Rent in the sum of $1,500 per week. 11. In breach of the Renegotiation Term, at the end of the 4 year period: a. McMillan and/or McMillan Investments did not value the Equipment nor cause it to be valued; b. McMillan and/or McMillan Investments did not purchase the Equipment; c. McMillan and/or McMillan Investments did not continue renting the Equipment from the Plaintiff; d. McMillan and/or McMillan Investments did not return the Equipment to the Plaintiff. 12. As a result of the breaches of the Renegotiation Term the Plaintiff suffered loss and damage. Particulars Loss of the value of the Equipment, the particulars of which will be provided after valuation evidence has been obtained if the values are not able to be agreed. 13. In breach of the Relocation and Use Term McMillan and/or McMillan Investments failed to look after and service some of the Equipment. Particulars The Schneider guillotine which is referred to in the attached schedule were left outside, are rusted and damaged by weather conditions beyond repair, has not been looked after or serviced, or at least not properly so, is unable to be used. 14. As a result of the breach of the Relocation and Use Term the Plaintiff suffered loss and damage. Particulars The guillotine and possibly other equipment is unusable, would require great repairs, if they are repairable at all, in order to be used, and have lost value. 15. Further, or in the alternative, it was an implied term of the Equipment Agreement that McMillan and/or McMillan Investments would not dispose of the Equipment (Non­disposal Term). Particulars The term is necessary to give business efficacy to the Equipment Agreement the more so given the Relocation and Use Term, which was predicated on McMillan and/or McMillan Investments -and not a third entity - using the Equipment; and the Renegotiation Term which necessitated the retention of possession of the Equipment by McMillan and/or McMillan Investments." … 18. McMillan and/or McMillan Investments have failed to return the Equipment to the Plaintiff. 19. McMillan and/or McMillan Investments: a. disposed of or otherwise made the Equipment available for the use of another entity; b. are now incapable of returning the Equipment to the Plaintiff, except for the Schneider Guillotine, the Schneider Restacker and the Schneider Jogger. 20 McMillan and/or McMillan Investments have breached the implied term not to dispose of the Equipment with respect to all of the equipment except for the Schneider Guillotine."
2. The schedule, at the end of the statement of claim, specified 32 items of equipment.

Involvement of Sydney Allen Printer

1. McMillan has provided several ASIC documents confirming Sydney Allen Printer to be a printing business and showing it was placed into voluntary administration in early April 2016 and then into liquidation in May 2016.
2. Zarfati submitted that Sydney Allen Printer was a party at the time they entered into the oral agreement. He is of the belief that Sydney Allen Printer were owned/operated by McMillan. The inclusion of letting Sydney Allen Printer to use the equipment was in the agreement to enhance his [Zarfati's] role as a sales executive with Sydney Allen Printer as outlined in [4] of the statement of claim earlier in this judgment.
3. McMillan submitted that Sydney Allen Printer is a third party. McMillan, in submissions, says that Sydney Allen Printer were not part of the agreement and further denied their involvement in ownership and operations of the business and refers to several ASIC documents that show who are the true owners of Sydney Allen Printer.

Resolution

1. At 3 Zarfati has pleaded that at the time of making the agreement McMillan referred to unrelated entities operating under the umbrella of McMillian Investments.
2. Whether Sydney Allen Printer is owned or under the control of McMillian or a McMillan entity is a matter that has to be determined at trial.
3. I shall now refer to the adequacy of the pleadings in relation to breach of contract, detinue, conversion, bailment and trespass. These torts all involve wrongful conduct by a person or entity in dealing with another's property. In summary, Zarfati has pleaded that he was entitled to possession of the equipment and was the owner of the equipment that he would (and did) permit McMillan (and/or McMillan Investments) to remove the equipment and relocate the equipment to the Granville premises, McMillan and McMillan Investments have (a) failed to return the equipment or have disposed of it; or (b) otherwise made the equipment available for the use of another entity; or (c) are now incapable of returning the equipment (with the exception of a Schneider guillotine, restacker and jogger) to Zarfati.
4. Conversion and detinue are similar torts. They differ in that detinue, the owner specifically requests the property be returned.

Conversion

1. Paragraph [24] of the statement of claim pleads conversion. It reads: "24. As a result of the conversion of the Equipment, the Plaintiff has suffered loss and damage, being loss of use of the Equipment, loss of the Equipment itself and loss of the value of the Equipment."
2. In Penfolds Wines Pty Ltd v Elliott [1946] HCA 46; (1946) 74 CLR 204 ("Penfolds Wines"), Dixon J explained the essence of conversion (at 229): "The essence of conversion is a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel. It may take the form of a disposal of the goods by way of sale, or pledge or other intended transfer of an interest followed by delivery, of the destruction or change of the nature or character of the thing, as for example, pouring water into wine or cutting the seals from a deed, or of an appropriation evidenced by refusal to deliver or other denial of title. But damage to the chattel is not conversion, nor is use, nor is the transfer of possession otherwise than for the purpose of affecting the immediate right to possession, nor is it always conversion to lose the goods beyond hope of recovery. An intent to do that which would deprive "the true owner" of his immediate right to possession or impair it may be said to form the essential ground of the tort."

McMillan submissions

1. McMillan submitted that Zarfati's claim in conversion is premised upon McMillan exercising a dominion over the equipment inconsistent with a right to and/or title of Zarfati and have thereby converted the equipment to its/their own use. Fundamental to Zarfati's cause of action in conversion is that he was the true owner of each item of the equipment, and to identify each item it is, therefore, essential for Zarfati to properly plead and particularise these matters, which he has failed to do.

Zarfati's submissions

1. Ownership and possession may each give an entitlement to sue for conversion and several of the other causes of action pleaded.

Resolution

1. As explained in Penfold Wines, an intent to do that which would deprive "the true owner" of his (or her) immediate right to possession or impair it may be said to form the essential ground of the tort of conversion. Zarfati has pleaded that he is the owner of the equipment and has suffered damage from the loss of the use of the equipment, the loss of the equipment itself and the loss of the value of this equipment. Zarfati's right to possession (although omitting the word "immediate" has been pleaded in the statement of claim at [1]. Although the damages and loss have been pleaded together, in my view, McMillan knows the case he has to meet in conversion.

Detinue

1. The paragraphs relating to detinue are set out at [17]-[18] and [28]-[29] of the statement of claim. They read: "17. The Plaintiff has demanded return of the Equipment. Particulars a. The Plaintiff has made various verbal demands. b. Letter from Pope & Spinks dated 17 April 2019 to Robert McMillan. 18 McMillan and/or McMillan Investments have failed to return the Equipment to the Plaintiff. … 28. Further, or in the alternative, the failure to return the goods constituted an unlawful detention of the Equipment. 29. As a result of the unlawful detention of the Equipment the Plaintiff has suffered loss and damage, being loss of use of the Equipment, loss of the Equipment itself and loss of the value of the Equipment and brings an action in detinue for the unlawful detention."
2. An insistence on a right to hold goods or a refusal to deliver them to the rightful owner, does not establish detinue: see EE McCurdy Ltd (in liq) v Postmaster-General [1959] NZLR 553. Wrongful detention may be established by proof that Zarfati demanded the return of the equipment and that McMillan refused to return the equipment or failed to do so: see Gillie Re; Ex parte Cornell v Gillie (1996) 70 FCR 254; (1996) 150 ALR 110. The demand for the return of the equipment must be unconditional and specific: see Rushworth v Taylor (1842) 3 QB 699; (1842) 6 Jur 945; (1842) 12 LJQB 80; (1842) 114 ER 674. It must also be shown that the refusal to return/redeliver the equipment is categorical and unqualified. Detinue is a continuing cause of action which accrues at the date of wrongful refusal to deliver up the equipment and continues until the equipment is recovered or judgment is obtained: see General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1936] 1 WLR 644 per Diplock LJ.
3. The normal measure of damages in detinue is the value of the goods if they are not returned, with damages for additional losses suffered from their wrongful detention. The date of valuation is the date of judgment because conceptually the damages are in lieu of the return of the goods: see Rosenthal v Alderton & Sons Ltd [1946] 1 AII ER 583; [1946] KB 374.
4. As a result of the unlawful detention by McMillan, Zarfati alleges that as a result he has suffered loss of damage, loss of use of equipment, loss of equipment itself and loss of the value of the equipment.

McMillan submissions

1. The fundamental cause of action in detinue is that Zarfati had at the time of demand for delivery up and continuing, the right to immediate possession of the equipment. Zarfati's immediate right to possession must be predicated on him being the owner of the equipment. In his pleadings he has failed to properly plead and particularise any alleged immediate right to possession.

Resolution

1. Zarfati has pleaded that he is entitled to possession albeit that he has omitted the word "immediate" right before the words "to possession", he has demanded the return of the equipment and McMillan has failed to return the equipment to him. It is my view that McMillan knows the case he has to meet in relation to detinue.

Bailment

1. The paragraphs relevant to bailment are at [16]-[19] and [25] of the statement of claim. They read: "16. Further, or in the alternative the Equipment Agreement constituted a bailment between the Plaintiff and McMillan and/or McMillan Investments with respect to the Equipment. 17. The Plaintiff has demanded return of the Equipment. Particulars a. The Plaintiff has made various verbal demands. b. Letter from Pope & Spinks dated 17 April 2019 to Robert McMillan. 18. McMillan and/or McMillan Investments have failed to return the Equipment to the Plaintiff. 19. McMillan and/or McMillan Investments: a. disposed of or otherwise made the Equipment available for the use of another entity; b. are now incapable of returning the Equipment to the Plaintiff, except for the Schneider Guillotine, the Schneider Restacker and the Schneider Jogger. … 25. Further, or in the alternative, as a result of the breach of bailment of the Equipment, the Plaintiff has suffered loss and damage being loss of use of the Equipment, loss of the Equipment itself and loss of the value of the Equipment."
2. In Pangallo Estate Pty Ltd & Ors v Killara JO Pty Ltd [2007] NSWSC 1528, Brereton J at [13] stated: "It is well established that a bailment may involve an obligation to return the goods in an altered form. Halsbury's Laws of England, 2nd edition, cites the definition of bailment in Bacon's Abridgment, in which it was said (emphasis added): A bailment, properly so called, is a delivery of personal chattels in trust, on a contract, express or implied, that the trust shall be duly executed, and the chattels redelivered in either their original or an altered form, as soon as the time or use for, or condition on which they were bailed, shall have elapsed or been performed."
3. In the case of a bailment at will, the bailee has physical possession, but the bailor has constructive possession (the ability to control the use of the good), and thus a stronger possessory title to the chattel. If, however, the bailment is for a fixed term, or until satisfaction of a condition, the bailor will have no physical possession, no immediate right to possession and only a qualified constructive possession, and thus a lessor possessory title than the bailee: Flack v National Crime Authority (1997) 80 FCR 137; (1997) 150 ALR 153, 141 (Hill J), referring to Howe v Teefy (1927) 27 SR (NSW) 301.

The McMillan submissions - bailment

1. McMillan submitted that Zarfati has failed to specify the required paragraphs, subparagraphs and particulars relevant to bailment in his statement of claim. Zarfati in answer to particulars says: "The bailment arises out of the fact of the Defendants (Mr McMillan/MIH) taking the equipment into their possession".
2. McMillan further submitted that fundamental to the cause of action in bailment is a proper pleading by Zarfati for having a better right of possession, as bailor, of each of the items of the equipment, which is ultimately based upon a proper pleading and particularisation of ownership and an immediate right to possession, which plaintiff has failed to do.

Zarfati's submissions - bailment

1. Zarfati submitted that there should be no issue concerning bailment. The fundamental premise of the entire claim is Zarfati gave permission to McMillan to take all of his equipment. So, the claim is one in ownership and/or immediate right to possession. Zarfati's case is that he had an agreement with McMillan to make his equipment available for use to at least one other organisation. As McMillan failed to do so, the bailment terminated, and upon the bailment terminating Zarfati had an immediate right to possession.

Resolution

1. Zarfati has pleaded that as a result of the bailment, he has suffered loss and damage being loss of use of the equipment, loss of the equipment itself and loss of the value of the equipment.
2. As stated earlier, Zarfati has pleaded that he is the owner of the equipment and was entitled to possession of the equipment. The word "immediate" needs to be inserted right before "possession". It is also pleaded that he had an agreement to make the equipment available to Sydney Allen Printers. However, Zarfati has not pleaded that McMillan failed to make the equipment available to Sydney Allen Printers. The bailment was terminated and Zarfati was entitled to an immediate right to possession. The pleading in bailment is not adequate in its present form.

Trespass

1. The paragraphs relating to trespass are at [26]-[27] of the statement of claim. They read: "26. Further, or in the alternative, the conversion of the Equipment also constituted a trespass to the Equipment. 27. The Plaintiff has suffered loss and damage by virtue of the trespass, being loss of use of the Equipment, loss of the Equipment itself, and loss of the value of the Equipment."
2. In Penfolds Wines Starke J (at 222) agreed with Dixon J (at 226) as to the first rule of trespass: "The first rule is that, where there has been a trespass de bonis an action lies against the person committing trespass not only at the suit of the person in possession, but also at the suit of the person immediately entitled to possession."
3. Trespass to goods is a wrongful interference of a direct and physical kind by McMillan with Zarfati's possession of goods. Any unjustified interference with Zarfati's possession may constitute trespass to goods provided the interference is direct and immediate. Direct physical interference required for trespass may be committed in a variety of ways including: 1. to use goods without authority: Penfolds Wines at 214; 2. to destroy goods or damage them, however slightly: Fouldes v Willoughby (1841) 8 M&W 540 (Fouldes); 3. to remove a chattel from one place to another: Kirk v Gregory [1876] 1 Ex D 55 (Kirk). 4. Trespass is a wrong to actual possession. Accordingly, a person must (subject to a few exceptions which are not relevant) be the possessor of the goods at the time of interference which is complained of. If there is no infringement or invasion of actual possession, there can be no trespass. to use goods without authority: Penfolds Wines at 214; 5. to destroy goods or damage them, however slightly: Fouldes; and 6. to remove a chattel from one place to another: Kirk.
4. Trespass to goods is not committed where the person is not actually in possession of the goods but merely entitled to possession of those goods at the time of the interference: see Penfolds Wines at 145.

McMillians' submissions

1. Zarfati alleges that McMillan's conversion of the equipment also constitutes a trespass to the equipment.
2. In oral submissions, counsel for McMillan gave a hypothetical on two different types of conversions (at T 6.13.22): "If your Honour were to give me a book on bailment, and I then gave it to Mr Barham and it wasn't a term of your handing that book to me to do that, then I have converted it. If I went into your chambers without permission and took that book, it's also a conversion but it's on two different bases. One is you have ‑ if I walked into your chambers without your permission and took the book, your claim is based on the fact you had actual possession of the book and I've taken it. If you've handed the book to me and I gave it to Mr Barham, it's based on the fact I was meant to return it to you and you had an immediate right to possession."

Zarfati's submissions

1. Zarfati submitted that it is true that trespass and conversion probably will not both lie in the circumstances where he has pleaded bailment, however, McMillan has not yet admitted the bailment. Therefore, it is premature to strike out the pleading of trespass in the absence of an admission of bailment.
2. Zarfati alleges loss and damage by virtue of the trespass, being loss of use of the equipment, loss of the equipment itself, and loss of the value of the equipment. Zarfati submitted that if McMillan admits there was a bailment in its defence, then the cause of action in trespass will fall away.
3. However, if McMillan admits to bailment and it turns out the court finds that possession never left them, and they maintain possession, Zarfati has a case in trespass.

Resolution

1. I accept that if McMillan admits that there was a bailment when he files his defence, it is my view that the current pleadings of trespass will fall away.

Damages

1. The final issue is the pleading of damages.

McMillan's submissions

1. McMillan submitted that Zarfati has not specified the period of time referable to, and the quantum of, the loss of commission payments and rent. Nor has he specified his best current estimate of the values of each item of the equipment which make up the $1,400,000. Zarfati has also failed to estimate the quantum of the loss and/or destruction of the equipment valued at not less than $1,400,000 and the date at which this is to be calculated for each item of equipment; and the loss of value to the guillotine and the possibility that other equipment is unusable.
2. According to McMillan, Zarfati had not provided an estimate of the quantum of his "loss of use of" each item of equipment in the schedule, the date and basis on which this is to be calculated and the loss of use alleged. Nor has he provided the loss of each item itself, the date and basis on which this is to be calculated and what is the loss of itself alleged and the loss of the value alleged.

Resolution

1. Earlier in this judgment, I have set out the components of the damages pleadings.
2. At [5]-[6] Zarfati sets out weekly fees that the defendants were obliged to pay as commission and rent in relation to the use of the equipment. During the hearing, I expressed my view that the calculation of loss and damage (including commission and rent loss) are matters for an expert forensic accountant and maybe also a valuation expert. It is for the expert to determine the appropriate methodology to be applied and when the losses arose (if any) in relation to loss and damage. No further amendments in relation to loss and damage are required.

Conclusion

1. For the reasons given earlier in this judgment, the causes of action in conversion and detinue have been properly pleaded. Also, the involvement of Sydney Allen Printers and the quantification of damages have also been properly pleaded.

The Court orders that: 1. The notice of motion filed 3 February 2021 is stood over before the Registrar at 9.00 am on 13 August 2021 for the allocation of a hearing date. 2. Costs are reserved.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 July 2021