ACN 116 746 859 (formerly known as Palermo Seafoods Pty Ltd) v Lunapas Pty Ltd - [2017] NSWSC 1583

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: ACN 116 746 859 (formerly known as Palermo Seafoods Pty Ltd) v Lunapas Pty Ltd & Anor [2017] NSWSC 1583
Hearing dates: 4, 5, 6 September and 7 December 2017
Date of orders: 11 December 2017
Decision date: 14 December 2017
Jurisdiction: Equity
Before: Slattery J
Decision:
Defendants liable for conversion of plaintiff’s stock, plant and equipment. Damages assessed at $250,000 plus interest up to judgment. Costs to be argued.

Catchwords:
TORTS – Conversion and detinue – plaintiff/retail tenant wrongfully evicted by landlord/defendant – upon eviction landlord takes possession of tenant’s stock, plant and equipment – earlier hearings decide the tenant’s eviction was in breach of lease but neither determined whether the landlord converted the tenant’s plant and equipment, nor assessed damages for conversion – new trial ordered on these issues – whether the landlord converted the tenant’s plant and equipment – whether the director of the corporate landlord was involved in the commission of the tort - whether the tenant abandoned its plant and equipment – whether the plant and equipment should be valued on a going concern basis or on a liquidation sale basis – whether there is sufficient evidence of the market value of the plant and equipment - quantification of the market value of the plant and equipment.
CIVIL PROCEDURE – Separate determination of questions – Consequences of - new trial ordered by Court of Appeal – new trial limited to the plaintiff’s claim for damages by reason of the defendants’ use of and failure to return the appellant’s plant and equipment
Legislation Cited: Civil Procedure Act 2005, s 14
Legal Profession Uniform Law Application Act 2014
Supreme Court Act 1970, s 75A(10)
Uncollected Goods Act 1995, ss 9, 18
Uniform Civil Procedure Rules 2005, rr 7.1, 7.36, 51.53
Cases Cited: Allen Manufacturing Co Pty Ltd v McCallum Pty Ltd (2001) 53 IPR 400
Bellinger v Autoland Pty Ltd [1962] VR 514
Bellos v AMP [1999] NSWCA 385
Bunnings Group Ltd v Chep Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342
Butler v The Egg and Pulp Marketing Board (1966) 114 CLR 185
Clayton v Le Roy [1911] 2 KB 1031
Craig v Marsh (1935) 35 SR (NSW) 323
Egan v State Transport Authority (1982) 31 SASR 481
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Reports 81-244
Furness v Adrium Industries Pty Ltd [1996] 1 VR 668
JSBG Developments Pty Ltd v Kozlowski (2009) 75 NSWLR 745
General & Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 1 WLR 644
J & E Hall Ltd v Barclay [1937] 3 All ER 620
Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171
Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19; [2002] 2 AC 883
Malouf v Malouf (2006) 65 NSWLR 449
Palermo Seafoods Pty Ltd v Lunapas Pty Ltd (No 2) [2014] NSWSC 1323
Palermo Seafoods Pty Ltd v Lunapas Pty Ltd [2014] NSWSC 792
Palermo Seafoods Pty Ltd v Lunapas Pty Ltd [2016] NSWCA 82
Penfolds Wines v Elliot (1946) 74 CLR 204
Petre v Heneage (1701) 12 Mod Rep 519
Re Jigrose Pty Ltd [1994] 1 Qd R 382
Reglon Pty Ltd v Hill [2006] NSWSC 1360
Sadcas Pty Ltd v Business & Professional Finance Pty Ltd [2011] NSWCA 267
Semenov v Pirvu [2011] VSC 605
Sinclair v Haynes [2000] NSWSC 642
Tanks & Vessels Industries Ltd v Devon Cider Co Ltd [2009] EWHC 1360 (Cth)
Upton & Anor v TVW Enterprises (1985) ATPR 40-611
Wollongong City Council v Fregnan [1982] 1 NSWLR 244
Texts Cited: N Palmer, Palmer on Bailment, (3rd ed, 2009)
Category: Principal judgment
Parties: Plaintiff: ACN 116 746 859 (formerly Palermo Seafoods Pty Ltd)
First Defendant: Lunapas Pty Ltd
Second Defendant: Luciano Menniti
Representation:
Counsel:
Defendant: J Murphy
Solicitors:
Plaintiff: in person
Defendants: John Gregg, Gregg Lawyers

File Number(s): 2013/206954
Publication restriction: No

Judgment

The plaintiff was formerly known as Palermo Seafoods Pty Ltd (“Palermo”). From July 2006 the first defendant, Lunapas Pty Limited (”Lunapas”) leased to Palermo certain retail premises in Tweed Heads (“the premises”), from which Palermo operated a seafood shop and restaurant. In May 2013, Lunapas wrongfully terminated the lease and re-entered the premises. The second defendant, Mr Luciano Menniti, was and is the sole director of Lunapas. Now Palermo seeks damages against Lunapas and Mr Menniti for their alleged wrongful conversion of the plant and equipment which remained on the premises.
The Court has already considered aspects of this dispute three times: twice at first instance and once on appeal. In June 2014, Young AJA determined the nature and terms of the lease at the time of the Lunapas re-entry into the premises and found that the re-entry was a breach of its lease to Palermo: Palermo Seafoods Pty Limited v Lunapas Pty Limited [2014] NSWSC 792 (“the June 2014 judgment”), but in a second judgment the Court found that the pleadings did not permit it to decide whether Lunapas had converted Palermo’s goods upon the re-entry: Palermo Seafoods Pty Limited v Lunapas Pty Limited (No 2) [2014] NSWSC 1323 (“the September 2014 judgment”). Upon Palermo’s appeal, the Court of Appeal (Simpson JA and Sackville AJA, Emmett AJA agreeing) ordered a new trial on the conversion issue: Palermo Seafoods Pty Ltd v Lunapas Pty Ltd [2016] NSWCA 82 (“the appeal judgment”).
The plaintiff was de-registered after the appeal judgment. But on 17 November 2016 this Court (Brereton J) ordered ASIC to reinstate the registration of Palermo, so it could conduct the present action. Brereton J also granted leave until further order, pursuant to Corporations Act 2001, s 206G, to Frank Palermo to manage Palermo notwithstanding that he is an undischarged bankrupt.
Palermo achieved re-registration on 6 December 2016, under its current name, ACN 116 746 869. But for convenience these reasons will continue to refer to the plaintiff as “Palermo”.
Mr Frank Palermo, and his son, Mr Joe Palermo, control Palermo, which is their family company. They are Palermo’s shareholders. Mr Frank Palermo is now able to act in the position of its sole director.
Palermo was not represented by legal practitioners in the present proceedings. Prior to the present trial the Court ordered, pursuant to Uniform Civil Procedure Rules 2005 (“UCPR”), r 7.36, that Messrs Palermo be referred for possible pro bono legal assistance. But this referral was not able to secure legal representation for Palermo. So shortly prior to the hearing and continued at the hearing, the Court granted leave, on terms, for Mr Frank Palermo to represent the corporate plaintiff, Palermo. Throughout the proceedings, Mr Joe Palermo assisted his father in this task. It is important for the Court to be even-handed between the parties notwithstanding that one of them is a litigant in person: see Malouf v Malouf (2006) 65 NSWLR 449; [2006] NSWCA 83. The Court proceeded on this basis.
The Court heard the proceedings over three days between 4 September and 6 September 2017, and for an additional day on 7 December 2017. Mr J. Murphy of counsel appeared, apparently upon direct access instructions for both defendants. Since then Mr Murphy has ceased to act for the defendants, during the first three days. After the hearing, the Court was informed that Mr John Gregg, the defendants’ previous solicitor was still on the record for the defendants, and was being retained by the defendants until delivery of judgment.
The Court made orders in these proceedings on 11 December 2017. The Court excused the parties from attendance at the making of orders because the defendants were in Queensland and Messrs Palermo were living on the north coast of this State. The Court provided these reasons to the parties on 14 December 2017.

Lunapas, Palermo and a Dispute in Tweed Heads - 2005 to 2013

From November 2005, Mr Joe Palermo and Mr Frank Palermo operated, through Palermo, a seafood shop and restaurant business on River Terrace, Tweed Heads. It traded as “Palermo Seafoods”. Messrs Palermo were Palermo’s directors, from November 2005 until May 2013, whilst “Palermo Seafoods” traded.
Palermo initially leased the premises from Lunapas’ predecessor in title. Palermo’s initial lease of the premises from Lunapas was to expire on 1 July 2012. In January 2009, the parties revised the terms of the lease to include an option for a further three years, expiring on 1 July 2015.
In 2012 and early 2013, landlord and tenant began to disagree about rental arrears and repairs required at the premises. In the midst of unresolved disagreements, on 28 March 2013, Lunapas re-entered the premises. But Palermo resumed occupation by agreement.
But consensus only lasted about six weeks. Lunapas re-entered the premises again, on 8 May 2013, some two years before the expiry of the lease.
Palermo’s stock, plant and equipment remained inside the premises. After the re-entry Messrs Palermo claim on Palermo’s behalf that Lunapas operated its own seafood business from the premises, using some of Palermo’s stock, plant and equipment. Then, Lunapas authorised another operator to take over, and use Palermo’s assets. Lunapas’ taking and use of Palermo’s equipment at the premises in and from May 2013 is the foundation of Palermo’s claim in conversion and the subject of this judgment.
Lunapas contests Palermo’s claim. Lunapas says: that it attempted to re-deliver the stock, plant and equipment to Palermo, but Palermo refused to accept it; and that Palermo thereafter refused to collect the various assets from their designated place of storage. Lunapas says Palermo thereby abandoned this property.
Lunapas also contests Palermo’s claimed quantum of damages for conversion. Palermo claims the full alleged replacement cost of the plant and equipment in an amount of $521,025.90, together with various consequential losses including a loss of profits for being deprived of the use of its plant and equipment. Alternatively, Palermo claims that the equipment should at least be valued on a going concern basis. But Lunapas contends that the value of any converted plant and equipment is more appropriately assessed on a forced liquidation sale basis as Palermo was liable to be evicted on short notice. Lunapas contends that this amounts to a maximum of $44,558.
Palermo’s claim will, for convenience, mostly be described in these reasons merely as a claim in “conversion”, although on this supplementary hearing it was clear, as will be described below, that Palermo maintains causes of action both in conversion, and in detinue.
The Court’s findings in the previous judgments in the Equity Division and in the Court of Appeal provide the foundation for the present contest, which is principally concerned with relevant events on and after 8 May 2013. The Court of Appeal has ordered that the Court’s findings in this supplementary hearing must be consistent with the findings of fact in the June 2014 judgment, which must now briefly be examined.

The June and September 2014 Judgments of Young AJA

In the June 2014 judgment, Young AJA determined 11 issues concerning the nature of Palermo’s tenancy and its eviction from the premises. Young AJA concluded that the Lunapas - Palermo lease in force upon the Lunapas re-entry in May 2013 was a tenancy at will, terminable at a month’s notice under Conveyancing Act 1919, s 127: June 2014 judgment at [48].
Young AJA found in the June 2014 judgment: that Lunapas had given only 14 days’ notice of termination; that Palermo’s re-entry was wrongful because a month’s notice had not been given (at [135]) that Palermo was only entitled to nominal damages for the loss of the remaining two weeks’ notice (at [72]); and, that Palermo had accepted the termination as a repudiation of the lease, such that no issue arose at the hearing as to who was entitled to possession of the premises (at [135]).
Young AJA further concluded in the June 2014 judgment: that Palermo was not entitled to damages for its claimed loss of opportunity to earn income; and that Lunapas’ actions in re-entering the premises had been justified although its timing was premature (at [135] and [184]). But because so many aspects of the case had not been properly argued, Young AJA allowed the parties an opportunity to make further submissions in light of his reasons about matters not previously considered by the Court, but not otherwise to re-open their cases (at [196] – [203]).
Following an additional hearing in August 2014, Young AJA delivered his second judgment in September 2014. In the September 2014 judgment, Young AJA dismissed Palermo’s claim which his Honour characterised as one in constructive trust over the goods left in the defendant’s possession, which he found he could not be the case (at [43]).
And his Honour found that a common law claim in conversion or detinue had not been pleaded and could therefore not be considered (at [44] and [45]). His Honour made an important incidental finding: that on 8 May 2013 Lunapas had given Palermo until 5.00pm on the following day to remove its goods and chattels and stock; but that Lunapas attached a condition to the offer that neither Messrs Palermo could be involved in the removal, on the basis that Mr Menniti feared for his safety if those persons were present. His Honour observed that Mr Menniti’s fears may well have been justified because Queensland police had subsequently charged Mr Joe Palermo with the attempted murder of Mr Menniti.
His Honour found that the one-day period Lunapas had provided to Palermo to collect its plant, equipment and stock was insufficient in the circumstances (at [40]).
Finally in the September 2014 judgment, Young AJA ordered the second defendant, Mr Menniti to pay Palermo $9,500, upon Palermo’s action, for certain cheques not met on presentation, and otherwise dismissed the proceedings with costs.

Palermo Appeals – December 2014

In December 2014, Palermo appealed against the September 2014 judgment’s refusal to consider the conversion issue. The appeal grounds considered in the appeal judgment (at [46] per Emmett J) were:

Whether Young AJA erred in holding that he could only decide the issues raised in the pleadings, and that the unpleaded claims in detinue, trover and conversion could not be considered;

Whether Young AJA erred in holding that, although Palermo may have a claim concerning the contents of the premises, nothing pleaded in the case would justify a finding in Palermo’s favour on that issue;

Whether Young AJA should have held he had power to make a finding in favour of Palermo as to the contents left on the premises upon the Lunapas re-entry; and

Whether Young AJA should have held that Lunapas was liable to Palermo in respect of the identified goods and stock, which were wrongfully retained by Lunapas.

The Court of Appeal noted (at appeal judgment, [20] and [24]) that the essence of Palermo’s appeal was that Young AJA had erred in holding that because neither detinue nor conversion were expressly pleaded by the plaintiff in its Amended Statement of Claim, his Honour could neither consider nor decide these issues.

The Appeal Judgment – April 2016

The appeal judgment given on 19 April 2016, allowed the appeal. Simpson JA, Sackville AJA (Emmett AJA agreeing) found that the deficiency in Palermo’s pleadings did not preclude the Court from considering a claim for damages for conversion or detinue on the basis of what had been pleaded and presented to the Court at trial.
Palermo was legally represented at trial, but was not legally represented on the appeal. The Court of Appeal granted leave to Mr Frank Palermo to represent Palermo. During the appeal, Mr Frank Palermo had the assistance of a Mr Michael Fern.
In the appeal judgment, Simpson JA and Sackville AJA reasoned (at [30]) that facts had been pleaded that were sufficient to found a conversion claim:

“Although it was only one aspect of a multi-faceted claim made by the appellant (which was largely directed to the exercise of the option, the asserted breaches of the lease by the first respondent, and the consequences of those breaches), the factual basis for a claim for damages by reason of the allegedly wrongful use of and denial of access to the appellant’s plant and equipment was adequately pleaded and made the subject of submissions. That, in the Amended Statement of Claim, the appellant mistakenly characterised the claim as referable to a constructive trust is immaterial. It was, therefore, erroneous for the primary judge to decline to deal with an issue that was properly before him. The appeal must therefore be allowed.”

Simpson JA and Sackville AJA concluded (at appeal judgment, [34]) that as Young AJA’s findings of fact in the June 2014 judgment relevant to Palermo’s claim for damages were not challenged, a new trial should be ordered on the basis that the parties do not challenge those factual findings.
Simpson JA and Sackville AJA’s joint judgment conveniently summarised the key factual findings in the June 2014 judgment (at appeal judgment, [13]), as follows:

“13. On 16 June 2014 the primary judge delivered the First Judgment. The findings of fact are not easy to follow as they tend to be subsumed in the discussion of other issues. However, the findings made by the primary judge include the following:
the appellant had been entitled to an equitable lease of the premises for a period of three years from 2 July 2012, but by 8 May 2013 the lease had ceased to be specifically enforceable because the appellant was no longer willing, ready and able to fulfil the terms of the agreement for lease (at [47]);
accordingly, by 8 May 2013 the appellant no longer had a three year lease in equity, but merely a tenancy at will terminable on one month’s notice, pursuant to s 127 of the Conveyancing Act 1919 (NSW) (at [37], [48], [138]);
on 22 April 2013, the first respondent gave the appellant a notice to remedy breaches of the agreement for lease relating to the payment of rent (at [66]);
it followed that the taking of possession of the premises on 8 May 2013 was “premature” (at [69]);
the first respondent’s action was wrongful because one month’s notice had not been given, but as the appellant had accepted the termination of the lease as a repudiation no issue arose as to the right to possession (at [135]).”

The Court of Appeal made the following orders on 19 April 2016:

Appeal allowed;

Set aside the orders made by Young AJA on 26 September 2014 dismissing the proceedings with costs;

Direct that there be a new trial limited to the appellant’s claim for damages by reason of the respondents’ use of and failure to return the appellant’s plant and equipment (“the appellant’s claim”);

Further direct that the new trial be conducted on the basis that the parties do not challenge the findings of fact made in the judgment of Young AJA delivered on 16 June 2014, insofar as those findings are relevant to the appellant’s claim;

The respondents pay the appellant’s costs of the appeal;

The respondents, if otherwise qualified, have a certificate under the Suitors’ Fund Act 1951 (NSW).

The Court of Appeal’s Order (4) requires the parties on this re-trial hearing in September 2017 to work within the factual framework of Young AJA’s findings in the June 2014 judgment. This they did, although in the re-trial they debated at times the scope of Young AJA’s findings. Most of Young AJA’s relevant findings have been set out above in the background to these reasons.

The Re-Trial Hearing

On the re-trial hearing, the Court encountered a number of challenging evidentiary issues. The Court had two sets of court books presented to it: a white court book comprising one volume, handed up by the defendants through their counsel (“the Lunapas Court Book”); and another black court book comprising two volumes, which was tendered by Palermo, and marked Exhibit TA. Exhibit TA had the advantage that it was the materials that had been used in the Court of Appeal hearing. Mr Joe Palermo confirmed on the first day of the hearing that there was nothing in Exhibit TA that had not been before the Court of Appeal.

Despite the Court’s directions there were unresolved disagreements at the hearing about the compilation of the court books. Sorting out all these disagreements would not have been cost-effective. The Court therefore proceeded on the less preferable basis that both sets of court books would be used. Both sets of court books were deficient: some documents were missing; some documents were incomplete. The court book position presented to the Court on the re-trial was no better than that that confronted the Court of Appeal: appeal judgment at [22]. But the parties asked the Court to work with the material presented, so it did.

The Court Books

Exhibit TA came in two volumes. The first volume largely consisted of miscellaneous documents from the first trial before Young AJA, previous judgements and pleadings and the various notices of appeal and interlocutory processes that brought the matter into the Court of Appeal. The first volume had been assembled to present Palermo’s case in the Court of Appeal. It was ultimately tendered without objection on Mr Murphy’s part.
One part of the first volume of Exhibit TA included the transcript of the trial before Young AJA in which Mr Gurcuillo was cross-examined. Although that material is nominally in evidence, it meant little without Mr Gurcuillo’s report to which Mr Murphy strenuously objected, and which in the absence of Mr Gurcuillo, the Court has declined to admit. The Court has therefore not taken Mr Gurcuillo’s oral evidence in the transcript into consideration as to do so my view would have created unfairness to the defendants. Neither side adverted to the existence of this material in Exhibit TA at the time the argument took place about the admissibility of Mr Gurcuillo’s report. But this is ultimately of little moment. The Court has decided the claim for loss of profits against Palermo not because of the absence of Mr Gurcuillo’s report but on the ground that Lunapas was entitled to terminate Palermo’s tenancy two weeks after it did and any loss of profits in the meantime was nominal as the company was not trading very profitably at the time and any long-term loss of profits must fail due to Palermo’s lack of tenure at the site.
The second volume of Exhibit TA contains the annexures to Mr Frank Palermo’s affidavit of 30 March 2017. The affidavit contains nothing more than a statement as to who Mr Palermo is and then annexes 16 groups of documents entitled FP1 to FP16. The affidavit is really just a convenient point of collection for these documents. The probative value of each document still needs to be examined individually. Some of the documents are merely pleadings or documents relating to eviction but not bearing upon the claimed conversion, some are business records but some are also prepared in anticipation of litigation. Where mentioned, these documents are referred to by their FP number in these reasons.
The plaintiff filed a Further Amended Statement of Claim on 19 May 2017. On 14 June 2017, the defendants filed an Amended Defence. These were the final version of the pleadings for re-trial. The Further Amended Statement of Claim did not appear in either Court Book. It is possible that this document was excluded from the court books in error. The Court made its own inquiries and located it on the Court file.
When the proceedings were first listed for pre-trial directions, it was unclear what evidence Palermo sought to rely upon to support its claim for the value of the plant and equipment. A list of Palermo’s plant and equipment, the subject of its claim for loss, was particularised in a document titled “Annexure FP10 - Replacement Value of Assets to Business and Stock Movement” (“FP10”). FP10 listed the assets/equipment and ascribed a replacement cost for each item. The assets/equipment were grouped into eight categories: (1) fridges and freezers; (2) benches/shelving/sinks; (3) scales and cash registers; (4) jetty outside area; (5) undercover dining area; (6) trays/tubs/etc; (7) misc equipment; and (8) fryers/grills/cookers. This document is considered in more detail later in these reasons.
Palermo contends that the replacement cost of the plant and equipment listed in FP10 should be used to assess the quantum of Palermo’s damages for conversion. But at the pre-trial directions hearing, it was not at all clear why it was being contended that replacement value should be used as a measure of damages rather than market value.
So the Court sought greater clarity. On 16 August 2017, the Court directed Palermo to provide by 25 August, a reference in the evidence to be adduced at the hearing to the material which justified Palermo’s claim to the replacement value of the assets referred to in FP10. The defendants were also directed to provide a statement of the values of the FP10 items which they intended to dispute at the hearing.
At a further directions hearing on 28 August 2017, Mr Joe Palermo handed up to the Court a bundle of documents titled “Palermo’s Bundle of Documents as to the Replacement Value of Items in FP10”. But the documents presented at this time were not obviously connected in an organised way to the listed items in FP10. The Court directed that the bundle, which contained 10 printouts from online equipment suppliers, featuring prices for the purchase of equipment and products dated around May 2013, be cross-referenced to: (i) the items in FP10 to which each of the valuation documents referred, and (ii) any affidavit evidence which sought to establish the searches and gathering of evidence that had resulted in the production of the bundle.
On the first day of the hearing, Mr Joe Palermo tendered a handwritten statement (Exhibit TD), which sought to explain how FP10 was constructed and why replacement value was being claimed. Exhibit TD is not lengthy and is reproduced here in full exactly as it is written:

“I, Joseph Palermo,
Certify that all the documents listed in Annexure FP10 Replacement Value of Assets of Business was sourced on a replacement value as we were denied access to the premises to obtain a valuation of the equipment that the landlord had now taken ownership.
From previous depreciation schedules and financial records of the business myself and my accountant had formed a list of assets and I then proceeded to source cost pricing on all the assets as per the schedule of FP10. Some ways I obtained this pricing was by some commercial industrial supplier who provided quotes on a replacement value by the actual brand of product that we had had.
This list was not finished being priced due to the large amount of equipment we had and that my accountant had provided in evidence by way of affidavit in the hearing of May 2014 which was on a depreciated amount of the actual price to purchase this equipment.
It was not until order of Justice Slattery had asked me to complete this list by providing of what the amounts are based on and proof of what is [sic] was worth. Which I attended to do so by the internet. By obtaining prices on a replacement value of the equipment we had: entering product codes of exact equipment such as fryers, ice, machine and other equipment that was available to me to obtain pricing on.
We have gone on a replacement value of our assets due to the landlord claiming ownership of the equipment. And that if we to replace this it would have to be on a replacement value. As you could not purchase majority of the equipment second-hand.
I have obtained this prices [sic] by as best way possible and over the period of the lockout 8/5/2013 until recent request to do so.
The price and sources of how this has been done is by majority of the internet sites of supplier in the hospitality industrie [sic].
The item and prices I have used are to the exact replacement and the best of my knowledge and expertise of running this business for 9 years by way of either replacement value of equipment of repair, or to even new equipment we had purchased over this time.
The prices as used in Schedule FP10 list of values is in my knowledge true and correct.
Joseph Palermo.”

One reason Mr Joe Palermo gives here for using replacement value of the assets as a measure of Palermo’s loss is “due to the landlord claiming ownership of the equipment”. But any Lunapas’ claim to ownership of the equipment is irrelevant to the Court’s assessment of loss. Young AJA found (at [43]) that the goods belong to Palermo at common law. At this re-trial that is the starting point: Lunapas does not have any valid claim of title to the goods.
The second main reason given in Exhibit TD for using replacement value is that if Palermo had to replace the plant and equipment replacement value would have to be used as the measure because one cannot purchase the majority of the equipment second hand. This second reason is evaluated later in these reasons.
Exhibit TA also included a document with a table which included the FP10 items cross-referenced to the printouts from online equipment suppliers, titled “As per order – Slattery J 16 August 2017 – Valuation/Determination of Value of Assets $521,025.90” (“Value of FP10 Items - Cross-referenced”). But not all items which appeared in FP10 had been cross-referenced in the table to the online printouts from online equipment suppliers.
Despite the procedural informality of aspects of the proceedings, Mr Murphy filed written submissions in advance of the hearing that assisted in defining the scope of the issues for trial. These submissions are referred to throughout these reasons as “Mr Murphy’s submissions” or the “defendants’ submissions”. The plaintiff’s written submissions are likewise referred to by that name.

Application by defendants through their counsel pursuant to UCPR, r 7.1(2)(a) and 7.1(3)

The representation of the plaintiff company, Palermo, itself led to issues at the re-trial.
On the first day of the hearing, the defendants, through Mr Murphy, sought in written and oral submissions to stay the proceedings on the basis that Mr Frank Palermo should be precluded from appearing on behalf of Palermo Seafoods. These submissions were that the requirements of UCPR, rr 7.1(2)(a) and 7.1(3) prevented Mr Frank Palermo from appearing for Palermo because, although acting as a director of Palermo (authorised under Corporations Act, s 201G by Brereton J), he does not have a cause of action against the defendants and is not a plaintiff in his own right.
UCPR, r 7.1(2)(a) states :

“(2) A company within the meaning of the Corporations Act 2001 of the Commonwealth:
(a) may commence and carry on proceedings in any court by a solicitor or by a director of the company…”

UCPR, r 7.1(3) states:

(3) In the case of proceedings in the Supreme Court, subrule (2) (a) authorises a company to commence proceedings by a director only if the director is also a plaintiff in the proceedings.

But Mr Murphy fairly conceded in argument that this application for a stay could have been brought much earlier than the first day of the hearing. The Court observed in the course of Mr Murphy’s submissions that the most cost-effective course may well be for the matter to proceed, at this point was taken at such a late stage. Mr Murphy did not disagree with the Court’s observations regarding the practical inconvenience arising from the defendants bringing this late application.
Mr Murphy’s analysis of the effect of UCPR, r 7.1(2)(a) and (3) is consistent with Barrett J’s analysis of these rules in JSBG Developments Pty Ltd v Kozlowski (2009) 75 NSWLR 745; [2009] NSWSC 1128. Their combined effect is that if the company and a director of a company are both plaintiffs, then the company may commence and carry on the proceedings by that director but otherwise the company may not commence or carry on proceedings by the director.
The position here is that the proceedings were indeed commenced by a solicitor, Mr Robert Nicholis of Prestige Legal and Corporate Services Pty Ltd. But by the time of the re-trial hearing it was not in contest that no solicitor was acting on behalf of the plaintiff.
The Court raised in argument with Mr Murphy the possibility of exercising the Court’s powers under Civil Procedure Act 2005 (“CPA”), s 14 to dispense with requirements of the rules “if satisfied that it is appropriate to do so in the circumstances of the case”. Mr Murphy submitted that the rules should not be dispensed with here for a variety of reasons. Principal among these reasons were the following: the plaintiff’s case was weak; Mr Frank Palermo was an undischarged bankrupt; Palermo is likely to be insolvent; the proceedings are likely to be protracted because of Mr Frank Palermo’s lack of understanding of the limited nature of the issues in the trial; and the plaintiff was seeking to rely upon a large number of documents.
The Court rejected the defendants’ application. Under the CPA the Court dispensed with the requirements of UCPR, r 7.1(2)(a) and (3): s 14. The Court allowed the supplementary hearing to proceed after Mr Frank Palermo gave oral evidence of his authority to act on behalf of Palermo, so as to comply with the formal requirements of his authorisation to act under UCPR, r 7.2.
Whatever the other merits of Mr Murphy’s arguments, in my view, the overwhelming argument to the contrary is the lateness of the defendants’ application. The hearing before me had been appointed on 29 June 2017, with an estimated hearing time of one day (in the event, the matter took the best part of three days and a subsequent day). A directions hearing had been held on 16 August 2017, in which the Court raised the question of the plaintiff’s representation. The issue of Mr Frank Palermo’s ability to conduct the proceedings on behalf of Palermo was then only argued on the first day of the hearing after Mr Murphy and Mr Menniti had come from Queensland and northern New South Wales and Mr Joe and Mr Frank Palermo had also come from northern New South Wales. Other witnesses were also in Sydney from regional New South Wales. The costs of preparation for the hearing had already been incurred. The dislocation and wasted costs that would have been involved in staying the proceedings on this ground on 4 September 2017 did not bear contemplation. If this really was an argument of substance, it should have been brought long before the first day of the hearing. Moreover, the proceedings seem to have been conducted in the Court of Appeal on much the same basis as the Court was now permitting them to proceed on the re-trial.

The Voir Dire Evidence

On the first day of the hearing, 4 September 2017, the defendants attempted to adduce evidence that Mr Joe Palermo had been involved in criminal activity in attempting to destroy property at the premises in early 2014. The Court was led to believe that Mr Joe Palermo had been charged with criminal conduct in relation to these alleged matters but the trial had not yet taken place. A detective who was involved in investigating the circumstances of these alleged events, Detective Senior Constable Ben Freebody from the Tweed Byron Local Area Command, gave evidence. But the Court only admitted this material, and everything related to it on the voir dire. The reason for this was that in a trial which had been ordered to proceed on affidavit and had been so proceeding for many years, no advance notice was given to Palermo, and in particular Mr Joe Palermo, that this evidence was going to be adduced. The Court took the view that this had a capacity to visit unfairness on Mr Joe Palermo in having to deal with the matter without advance notice.
Mr Murphy sought to answer this by saying that much of the material that he was relying upon had been served in the parallel criminal proceedings. That in turn raised the question that if the Court were to allow the material to be adduced in these proceedings, that Mr Joe Palermo would be entitled to apply for a stay of these proceedings until his criminal proceedings were concluded.
The Court reserved the issue as to whether this material would be part of the hearing or not. The Court has decided not to admit the material. Palermo was keen for these proceedings to be brought on and had done its best to comply with the Court’s orders. The admission of this material was likely to have created unfairness in the conduct of the hearing either to Messrs Palermo, or alternatively to result in delay to the hearing. Neither outcome was acceptable. There was no compelling reason advanced as to why the material was not served in advance of the hearing. The Court has therefore paid no regard to this material.

The 7 December 2017 Hearing

The principal part of the hearing took place on 4, 5 and 6 September 2017. But in the course of writing the judgment it became clear to the Court that, largely as a function of the lack of legal representation on all sides of the case, there was incompleteness in the rulings and treatment of the evidence. So the Court held a supplementary hearing, as part of the re-trial, on 7 December 2017. At that supplementary hearing the Court made rulings in relation to Mr Gurcuillo’s affidavit, clarified which parts of the Court books were in evidence on each side, confirmed the final version of the pleadings and verified that Mr Joe Palermo was not reading his affidavit of 11 November 2013, the annexures to which were missing from the defendants’ version of the Court book. The supplementary hearing also cleared up any misunderstandings on the part of the parties that the Court would accept the findings made by Young AJA but otherwise evidence had to be led afresh in these proceedings because this Court had not seen the witnesses that Young AJA had seen.

The Accountant – Mr Joe Gurciullo

Palermo tried to rely on the evidence of the accountant Mr Gurciullo. Palermo had relied on his report in the hearings before Young AJA, during which he was cross-examined. But the Court took the approach that the transcript and evidence of the Young AJA hearings was not automatically available to be deployed in Palermo’s case. The Court of Appeal Orders did not include an order that the transcript of prior hearings could be used without recalling witnesses. The power to so order is available to the Court of Appeal when it ordered the re-trial: UCPR, r 51.53(5)(c).
But the Court of Appeal did not make such an order. Indeed, its orders were that on the re-trial the Court was not to depart from Young AJA’s findings of fact in the June 2014 judgment. This suggested that the Court was to use Young AJA’s June 2014 findings as the basic structure for these reasons and otherwise not to look back at the transcript and draw its own inferences without assessing the witnesses for itself. That is what the Court did.
This had implications when the issue of Mr Gurciullo’s evidence arose. Palermo did not call Mr Gurciullo and make him available for cross-examination at the re-trial hearing. But it nevertheless emerged in final submissions that Palermo thought it could rely upon his evidence and said it wished to do so. The defendants objected. So the Court decided to receive written submissions on the admissibility of the evidence of the witness. The defendants advanced many reasons why Mr Gurciullo’s evidence could not be accepted.
At the supplementary hearing on 7 December 2017, the Court indicated it was prepared to receive Mr Gurciullo’s evidence and overrule the defendants’ objections. But the Court pointed out that if Palermo wanted to rely on Mr Gurciullo’s report that Palermo would have to make him available for further examination. As that would have meant a deferral of the hearing into next year, Palermo decided at that point that it did not want to rely on Gurcuillo’s evidence.

Overview of the issues for Determination

In the Further Amended Statement of Claim filed in March 2017, the plaintiff seeks damages for Lunapas’ failure to return its stock, plant and equipment, and for wrongful use and denial of access to the premises. It also seeks declarations regarding Lunapas’ failure to provide funding for repairs to the premises, and declarations relating to the re-branding of the business as “Menniti Seafoods”, leading to a claim for a total money judgment in the sum of $16,450,309.78.

The fact that Palermo no longer has legal representation in these proceedings, to an extent accounts for the deficiencies in the Further Amended Statement of Claim. But the Court did its best in exchanges with Messrs Palermo to understand it.
The pleadings are confusing. The Court of Appeal considered the Amended Statement of Claim: Exhibit TA, Tab 9. But by the time of the re-trial hearing, the Further Amended Statement of Claim had been filed. Appreciating the differences between the two documents is of some importance in these proceedings.
The Court of Appeal has decided what is being determined on this re-trial. What Palermo has included in its Further Amended Statement of Claim after the appeal judgment in April 2016 cannot expand the scope of what the Court is now deciding on the re-trial. Part of Palermo’s case on the re-trial involved misconceptions as to the breadth of what this Court is now deciding. That is why this brief analysis of the relevant parts of the pleadings is important. The Amended Statement of Claim before the Court of Appeal claimed the following (prayers for relief 7 to 10):

“7.   A declaration that on or about 8 May 2013 and the events that followed the first defendant and/or the second defendant held the assets of the business styled "Menniti Seafoods" conducted by the plaintiff at the premises, including plant, equipment and goodwill on constructive trust for the plaintiff.
8.   An order that the first defendant and/or the second defendant account to the plaintiff for the assets of the business styled "Menniti Seafoods", and account to the plaintiff for any profit gained in consequence of the use of such assets.
9.   An order that there be an inquiry as to the damages suffered by the plaintiff.
10.   In the alternative Damages and/or Equitable damages.”

It can be seen that the relief claimed in prayers 7 and 8 related to the assets of the business of “Menniti Seafoods” retained by the defendants, and sought an enquiry as to damages suffered by the plaintiff or equitable damages (prayers for relief 9 and 10), which would have been wide enough to encompass damages for the financial consequences of the defendants’ use of the plaintiff’s assets. This claim was then more fully set out in the body of the pleading:

“52.   On 8 May 2013 the first defendant took possession of the premises and precluded the plaintiff from access.
53.   For the reasons specified above the first defendant had no lawful entitlement to exercise any right of forfeiture of the lease, nor to possession of the premises.
54.   In consequence of such actions the first defendant repudiated the lease and option lease which repudiation was accepted by the plaintiff.
Particulars:
On 10 May 2013 the plaintiff sought access to the premises to retrieve its plant and equipment specified in schedule B to this claim, which access was denied by the first defendant.
55.   In consequence of such repudiation the plaintiff suffered loss and damage.
Particulars:
a)   The value of the business; and/or
b)   Future profits; and/or
c)   Plant and equipment as particularised in schedule B.
Further conduct by the defendants complained of by the plaintiff:
56.   From 8 May 2013 onwards the first defendant and/or the second defendant conducted the business of Menniti Seafoods on the premises, utilising the plaintiff's good will, plant and equipment, and staff, and maintained the business as a going concern.
57.   At a time unknown to the plaintiff, and on terms unknown to the plaintiff, the first defendant and/or the second defendant permitted 16th Holdings Pty. Limited to utilise the assets of the plaintiffs business at the premises, and conduct a seafood retail and restaurant business at the premises.
58.   In consequence of the above conduct the first defendant and/or the second defendant held the assets of the plaintiffs business on constructive trust for the plaintiff, and is liable to account to it for any benefit thereby derived.”

The Court of Appeal described the relevant paragraphs of the Amended Statement of Claim as being paragraphs [56] – [58] of those extracted above: Appeal judgment at [26]. The Court of Appeal’s statement as to what was relevant in appeal judgment (at [26]) and the balance of this reasoning shows just how confined the current re-hearing is.
These reasons have already set out the relevant Court of Appeal orders and paragraph [30] of the appeal judgment. To understand the scope of the new trial ordered in Court of Appeal, Order 3, “limited to the appellant’s claim for damages by reason of the respondents’ use of and failure to return the appellant’s plant and equipment”, it is legitimate also to look at the way the Court of Appeal described the new trial in its reasons. The majority, Simpson JA and Sackville AJA said of the new trial that it “….be limited to determining the appellant’s claim for damages by reason of the respondents’ alleged wrongful use of and refusal to return the appellant’s plant and equipment as pleaded in the Amended Statement of Claim” (at [34]). Emmett AJA said of the re-trial, in which he agreed: that the matter should be remitted to the Equity division “for further hearing of the question of Palermo’s entitlement to damages in respect of the wrongful denial to Palermo of reasonable access to the demised premises for the purposes of retrieving the property in question and the loss of that property”: appeal judgment at [47].
Palermo took up some of the language of the Court of Appeal and further amended the Amended Statement of Claim in March 2017 by substituting for a number of paragraphs before prayers for relief 3 the following two prayers for relief which had not appeared in the Amended Statement of Claim. Prayers for relief 1 and 2 in the Further Amended Statement of Claim are as follows:

“1. Damages sought for failure to return plant and equipment by defendant(s).
2. Claim for damages for wrongful use and denial of access to leased premises.”

Paragraphs 7, 8, 9, and 10 of the original prayers for relief in the Amended Statement of Claim before the Court of Appeal (set out above) were unaltered in the Further Amended Statement of Claim.
The scope of the present enquiry may be shortly stated. And a number of false issues may be eliminated from the scope of the present enquiry by reference to the Court of Appeal’s judgment.
The enquiry is as stated in the Court of Appeal, Order 3. It includes Palermo’s claim for the respondents’ use of and failure to return plant and equipment. But as Emmett AJA explained, this claim was due to Lunapas’ wrongful denial to Palermo of reasonable access to retrieve the property in question. It is clear from both the Court of Appeal’s orders and the reasons of the Court of Appeal that a basal assumption of the enquiry is that Lunapas has failed to return Palermo’s plant and equipment and that the plant and equipment should be treated as lost to Palermo. This is important; because Lunapas sought to re-contest some of these assumptions at the re-trial. The Court proceeded at the re-trial on the basis that: the assets in question belonged to Palermo on the 8 May 2013; that Lunapas had deprived Palermo of the assets on that date; and, that Lunapas used the assets after that date. Even though the Court of Appeal’s judgment required the Court to proceed on this basis, this created no conflict at the re-trial. The evidence adduced at the re-trial was quite sufficient for the Court to reach the same conclusions. But the re-trial still had to decide questions of whether the torts of conversion or detinue were made out or not, and the scope of any damages available to the plaintiff from those torts.
But what was not available on the Court of Appeal’s judgment was any equitable claim for an account of profits for Lunapas’ use of the assets, or for Lunapas’ use of the leased premises for its own business purposes. Young AJA has already found that, at best, Palermo was entitled to nominal damages for the two weeks’ occupation of the premises which it had been denied by reason of the premature termination of the lease: June 2014 judgment at [72]. The re-trial is not concerned with Palermo being deprived of the occupation of the premises as distinct from the loss of the goods. It is only concerned with Palermo being deprived of the goods.
After the Court makes its principal factual findings the remaining issues in the proceedings will be addressed in the following four stages: (1) whether subject to consideration of their defences there is prima facie evidence that each of the defendants have converted the plaintiff’s property; (2) if there is prima facie evidence of such a conversion, whether or not the defendants have advanced an effective defence to the tort; (3) what loss or losses (if any) were caused to the plaintiff by the conversion; and (4) what is the quantum of any loss suffered.

Factual Narrative – Palermo and Lunapas, 2012 to 2013

The following is a narrative of the relevant history. This narrative represents the Court’s findings on a number of the more significant contested matters in addition to Young AJA’s June 2014 findings. Supplementary findings are also included in the later legal analysis. There is some overlap but no inconsistency with Young AJA’s June 2014 findings. To the extent that the context indicates, sometimes only the parties’ allegations are being recorded in these reasons. For reasons of economy this narrative does not always include reference to versions of the facts that have been rejected. But first the credibility of the parties is assessed.

Credibility of Parties and Witnesses

A number of contests of fact had to be resolved for the Court to reach its findings. These contests mostly emerged from conflicts of oral evidence. The Court’s findings are based in part on its judgment about the credibility of the witnesses, who were cross-examined.
Mr Joe Palermo. Mr Joe Palermo, Mr Frank Palermo’s son, was a reasonable, if not always accurate, witness. He articulated strong recollections of the contested events in the proceedings, claiming at times a detailed recollection. Both he and his father were strongly driven by a sense of injustice in the conduct meted out to them by Mr Menniti and Lunapas. That sense of injustice had coloured their thinking. The Court was not always confident that Mr Joe Palermo was drawing upon actual recollections of events as distinct from what he thought must have happened, because of his overall view of the justice of the case. But when his recollection was compared with objective documents his account did appear in most cases to be confirmed and to fit the overall pattern of events not in dispute. There were allegations of criminal conduct against him, which had not been resolved at the time of the hearing of these proceedings. The Court did not have to determine any facts directly related to that alleged criminal conduct or to make assessments of his credibility based upon it. But Mr Joe Palermo was very bitterly disposed against Mr Menniti and for that reason alone his evidence was treated with caution.
Mr Frank Palermo. Mr Frank Palermo is Mr Joe Palermo’s father. Mr Frank Palermo’s English is less fluent than that of his son. The assessment of the father’s credibility is very similar to that of his son, except in one respect. Mr Frank Palermo’s bitterness against Mr Menniti and Lunapas was even more pronounced than that of his son. This meant that his evidence was treated with even more caution than was his son’s evidence. On the other hand, the objective facts support Mr Frank Palermo’s evidence. The Court has made specific findings in these reasons about which parts of Mr Frank Palermo’s evidence is to be accepted or rejected.
Mr Luciano Menniti. Mr Luciano Menniti was the principal of Lunapas, and is the second defendant in the proceedings. He had a reasonable recollection of the contested events in which he was involved with Messrs Palermo. But he was very conscious of the effect on his own self-interest of the evidence he was giving. His recollection was imperfect. He showed all the difficulties of attempting to recollect events that had occurred many years earlier. In places the Court has preferred the recollection of other witnesses rather than that of Mr Menniti. He was a witness who was mostly attempting to tell the truth. But he encountered difficulties because his recollection was coloured to a degree by the passage of time and the influence of self-interest. Mr Menniti seemed anxious to convey to the Court that he felt no ill-will to Messrs Palermo. Whether that was true or not was difficult to judge as Mr Menniti also expressed fears of Messrs Palermo. But overall he was less openly bitter about the dispute than Messrs Palermo were.
Mr Nicholas Crompton. Mr Nicholas Crompton had been the manager of Palermo Seafoods before its collapse and the Lunapas re-entry into the premises. Overall he was a good witness although his recollect was imperfect in places. He found himself in a position where he was trying to support a failing business by managing the payment of creditors. He clearly was juggling many financial difficulties at this time. He declared that he had “no interest in either party” in the proceedings and “no benefit for me for either side”. The Court accepts that he was a neutral party who was trying to do his best to give an accurate account of his involvement in the events the subject of these proceedings.
Mr Matthew Allen. Mr Matthew Allen is Mr Menniti’s son. He was alleged by the Menniti interests, and claims himself to be, the driver of the hired truck that attempted to deliver the goods to Joe Palermo’s house on the Sunday morning after the repossession of the premises. The Palermo’s case was that he was not present on this occasion. Their case was founded upon the video evidence, which does not clearly show Mr Allen being present on that occasion. I accept that he did drive the truck and that he was present during the events in question. His evidence as to his presence was compelling.
Mr John Murray Rossiter. Mr John Rossiter was a retired chartered accountant who was still doing bookkeeping and accountancy work for the Lunapas and Menniti interests. Mr Rossiter gave evidence consistent with his professional background and gave a good account of his involvement in the construction of the financial statements and financial affairs of Lunapas. The Court has no reason to doubt the integrity of his evidence. The only issue with Mr Rossiter’s evidence is that he was not very often able to give direct evidence of the contentious events. He was often only able to speak to the financial record keeping practices of the business of Lunapas.

The Events of 8 May 2013 and their Aftermath

Lunapas’ re-entry to the premises occurred on 8 May 2013 when none of Messrs Palermo were at the premises. The locks were changed before Messrs Palermo realised. There was no opportunity for them to retrieve any goods from the premises before the lockout occurred or during the lockout itself. But soon afterwards there was an important exchange of correspondence. This correspondence is significant in part because it is the only correspondence between the parties in evidence concerning the re-delivery of the goods, something that might be thought unusual in a conversion/detinue case.
A collection agent, Barclay MIS wrote on Lunapas’ behalf to Palermo’s solicitors, Prestige Legal and Corporate Services (“Prestige”), on 8 May 2013 after the lockout, giving a little over 24 hours for Palermo to remove its goods:

“RE: LUNAPAS PTY LTD - PALERMO SEAFOODS PTY LTD
We confirm that our client's managing agents have re-taken possession of the premises due to your client's failure to remedy the breach pursuant to the Notice that was given.
Our client has advised that your client can have until 5.00pm on Thursday 9th May 2013 to remove its goods and chattels and stock.
Our client will not permit either Frank Palermo or Joseph Palermo to be present if and when this occurs.”

Prestige replied the same day, taking issue with the denial of access to the goods and contending that insufficient time to collect them had been allowed:

“Dear Sir/Madam
…
We refer to your numerous correspondences on even date in respect of the Leased Premises.
We consider your request for our client to remove its goods and chattels and stock from the Leased Premises within the stipulated timeframe is unreasonable and unconscionable. It would also appear to be a futile exercise on the basis that our client has no capacity to store its stock at alternative premises due to the perishable nature of the inventory and the quantity of it at the time of your unlawful re-possession of the Leased Premises, and the size and nature of our client's plant and equipment located on the site.
As a direct consequence of your actions and those of your agent, our client, therefore has no ability to mitigate its position as to its stock or otherwise in respect of its business.
Consequently, our client has suffered, and continues to suffer, significant losses in respect of which our client will hold you and your agent responsible and accountable.
Similarly, the purported exclusion of our client's directors, without cause or justification, from attending the Leased Premises to implement your impractical request is unreasonable and unconscionable.
For the record, the statement in your facsimile today sent at 4:30 pm is a misstatement as it was, in fact, Mr Menniti of Lunapas that called our client's current manager, Mick. Further, the statement in relation to the stock attributed to Mick was made on behalf of our client and on the basis that our client is not willing to sell the stock to your client especially on the terms proposed.
The offer by Lunapas to purchase the stock from our client clearly indicates the intentions of Lunapas to assume purported ownership, control and direction of our client's business including its employees and assets. In fact, our client is in possession of objective and independent evidence confirming the intentions of Lunapas and its sole director in this regard and this stated position. For the avoidance of any doubt, our client remains the legal and beneficial owner of the business including all of its assets and undertakings and does not consent to Lunapas or any related entities using its assets or stock in the Leased Premises for any purposes whatsoever, including, but not limited to, operating the business.
Lunapas is hereby put on notice that our firm holds firm instructions from our client to apply to the Court for appropriate remedies including but not limited to an injunction to restrain you from progressing with any actions to deal with our client’s business and its property on or about the Leased Premises, declarations as to the illegitimacy of your actions and a claim for damages against you and your agent together costs on a full indemnity basis.”

The Court accepts as accurate this letter’s record that an offer had been made on behalf of Lunapas to purchase the stock. That is what Mr Menniti wanted.
The Prestige correspondence on 8 May 2013 involves a clear statement that Palermo: wanted to go back into the premises and access its goods; claimed title to the goods; disputed Lunapas’ entitlement to take possession and deal with the goods; and that the time that had been given for collection of the goods was unreasonable. There can be no doubt that as a result the defendants knew that the Palermos wanted to go back into the premises to access their stock. This is probably why the defendants soon attempted partial delivery.
After Prestige’s letter of 8 May 2013 was sent, there was no formal offer ever made by the defendants again cancelling the warning off in the Barclay MIS letter and setting up a regime whereby Messrs Palermo could have access to collect their stock.

Before 12 May 2013

Mr Menniti and Mr Crompton spoke many times on 8 May and early 9 May 2013. Mr Menniti decided on the lockout and then directed the dealings with the goods. Mr Menniti instructed Mr Crompton on 8 May 2013 to speak to Mr Palermo and tell him that the plaintiff’s goods were available for collection. But nothing that Mr Crompton said to Mr Palermo communicated anything different to what was in the Barclay MIS’ letter. Mr Crompton did not have any authority to allow Messrs Palermo to attend personally at the premises or to vary the time frame within which the Barclay MIS letter specified collection had to occur. I accept that in these early telephone calls Mr Joe Palermo declined to accept the terms that had been offered. But I do not accept that Mr Crompton made any phone calls to Mr Joe Palermo between 9 and 12 May 2013 in which Mr Crompton foreshadowed that any goods would be delivered to any of the Palermo’s houses on 12 May 2013, which indeed was the date that Mother’s Day was celebrated that year.

When the delivery did occur on 12 May 2013 it came as a surprise that morning to Mr Palermo. When the delivery was attempted Mr Joe Palermo refused to accept delivery and threatened to call the police. But nothing was done thereafter on either the defendants’ part or on Palermo’s part to vary the communications that had been exchanged between Barclay MIS and Prestige on 8 May 2013.
Mr Nick Crompton says that he telephoned Joe Palermo and told him that all the stock and portable chattels were available for him at the leased premises and that Mr Joe Palermo replied that they were not wanted.
The Court accepts that Mr Crompton had some such conversation but it had no legal effect beyond the exchange of correspondence which had occurred the previous day. Mr Joe Palermo and his solicitors were entitled to understand and continued to believe that Messrs Palermo were not welcome on the premises to collect the property. Mr Crompton, as distinct from Mr Menniti, or a lawyer acting on behalf of Lunapas, did not obviously have authority to alter the warning off of Messrs Palermo, which had occurred in the Barclay MIS letter of 8 May 2013.
The lack of prior notice can be inferred also as a matter of objective probability. It is highly unlikely that the Palermos would have agreed to delivery at their own premises on Mother’s Day had they been asked to consent to that course in advance.

Exhibit TE – the Video of the Attempted Delivery on 12 May 2013

The Court accepts that there was an attempt to deliver some kind of stock or equipment to Joe Palermo’s premises on 12 May 2013. This event is recorded on a video tendered in Palermo’s case (Exhibit TE). There is no doubt that a hire truck was driven to Joe Palermo’s premises, and that there was an offer to deliver something to Palermo. Mr Joe Palermo was clearly present and the video shows him declining to accept delivery. The driver seems to be quite civil. Although tense the attempted delivery ended peaceably enough.
But this delivery was not pursuant to a legal arrangement, nor was any clear advance notice of it given, and at the time of the attempt of delivery the Palermo’s actual legal rights were to go on to the premises and deal with the property in a calm, rational and orderly fashion.
The evidence on both sides strongly suggests that perishable items were either intended to be placed in the truck or to be included in further truckloads at some stage. The Court accepts that Mr Joe Palermo believed that perishable items may indeed be aboard. A delivery of such items without adequate advance notice so that storage facilities could be provided for them is not so much a delivery of valuable goods but an event which would probably lead to the destruction of the goods.
I accept the evidence of Messrs Palermo that they did not have the space, even in the combination of Mr Joe Palermo and Mr Frank Palermo’s homes, to store all the stock, plant and equipment had it been delivered on 12 May 2013 in multiple truck loads. The absence of such space makes more serious the consequences of the lack of proper advance notice to the Palermos of the delivery of 12 May 2013.
I accept Mr Matthew Allen’s evidence to the extent it is consistent with the inference that Mr Crompton called Mr Joe Palermo by mobile phone for the first time on the way to Mr Joe Palermo’s home on 12 May 2013.
To the extent that Mr Menniti’s evidence can be interpreted as saying that subsequent to 12 May 2013 he invited Messrs Palermo to collect the goods, I reject that evidence.
These reasons now analyse the legal merits of the plaintiff’s claim, based on these factual findings.

(1) Conversion or Detinue?

The first question is whether, subject to any specific defences raised, the plaintiff has established the elements of the torts of conversion or detinue, as a result of the defendants dealing with Palermo’s goods after Palermo was locked out of the premises.
The applicable legal principles may be shortly stated. In Penfolds Wines v Elliot (1946) 74 CLR 204, at 229, Dixon J identified the elements of the tort of conversion (Starke J agreed with his Honour’s statements of principle, at 221):

A person has actual possession, or an immediate right of possession in the chattels; and

Another person deals with the chattels inconsistently with, or “in a manner repugnant” to, the former person’s immediate right of possession in the chattels.

The authorities establish that a finding of an action in conversion involving a dealing in, or exercising ownership over goods, amounts to the required infringement of the owner’s possessory or proprietary rights, if it constitutes an “intended act of dominion or assertion of rights over the goods”: see Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 and KuwaitAirways Corporation v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19;[2002] 2 AC 883 (“Kuwait”) at 1084 [39] as cited in Bunnings Group Ltd v Chep Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 at [124]. The intent required to be established does not need to include the specific intent to deprive the plaintiff of its rights in respect of the property. But established principles must be applied in analysing how the goods are employed in the context of the particular factual circumstances, to determine whether or not a conversion is established: Bunnings Group Ltd v Chep Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 at [147] per Allsop P.
An action in detinue arises from the wrongful deprivation or detention of property, after a request has been made for its return, in circumstances where the plaintiff has a right to possession: Bellinger v Autoland Pty Ltd [1962] VR 514 and General & Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 1 WLR 644 (“Cooks Cars”), at 648-649 per Devlin LJ. The action is only available if a demand for the return of the chattels has been made before action is commenced: Reglon Pty Ltd v Hill [2006] NSWSC 1360.
But the overlap between conversion and detinue can be subtle. In the absence of bailment, an unqualified refusal to comply with the demand for delivery up of a chattel made by a person entitled to possession may amount to conversion, as an alternative to detinue, if the defendant at the time of the refusal was in actual possession of the chattel: Cooks Cars at 649 and Bunnings Group Ltd v Chep Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 at [117].
But although a demand is one way of establishing conversion when goods are in the possession of the defendant, it is not the only way. The mere detention or the mere handling of a plaintiff's goods will not necessarily amount to conversion by a defendant. But once the degree of use amounts to employing the goods as if they were owned, then a conversion is established. That point can be reached without any subjective intention to convert the goods. Such a conversion could be demonstrated, for example, by wearing the plaintiff's jewellery (Petre v Heneage (1701) 12 Mod Rep 519; 88 ER 1491) or locking up the plaintiff's tools or stock, so the plaintiff cannot use them, without lawful excuse (Upton & Anor v TVW Enterprises (1985) ATPR 40-611 ("Upton").
If a refusal to return goods after demand by a person who does not know of the plaintiff's title and has bona fide doubt as to the title of the goods, detention for a reasonable time may be justified in order to clear up the doubt and will not amount to conversion: Craig v Marsh (1935) 35 SR (NSW) 323.
The decision in Upton reflects many factual similarities with the present case and assists to a degree in the analysis at hand. In Upton a tenant was locked out of shopping centre premises but the tenant’s goods were moved to another location. No formal written demand for the goods was made. But the Court was satisfied that oral demands for return of the goods had been made. The landlord permitted some items of stock to be recovered. But the balance of the stock remained under the control of the landlord, which either declined, or failed, to re-deliver the stock to the tenant after the tenant’s oral request. The Court found that notwithstanding that the landlord had not otherwise demonstrated an intention to keep and use the stock as its own, by selling some of it or by otherwise dealing with it, the keeping of the stock with the intention to keep it in defiance of the plaintiff amounted to conversion by detention: Clayton v Le Roy [1911] 2 KB 1031 at 1052 and Upton at 46,943.
Palermo submits that immediately after the lockout, the landlord, Menniti re-opened the premises as “Menniti Seafoods” and used its stock, EFTPOS machines, plant and equipment to run a new business, Menniti Seafoods, from the premises. This re-trial proceeds on the basis of the existing findings: that the defendants did use the goods after 8 May 2013.
The defendants concede the plaintiff had an immediate right to possession of the plant and equipment at the moment the lockout occurred on 8 May 2013: Mr Murphy’s submissions, [54]. But they submit that the plaintiff cannot make out its claims either in detinue or conversion, because the plaintiff lost actual possession “at the instant of the lockout” and subsequently either abandoned or disclaimed its right to possession: Mr Murphy’s submissions, [61] – [63].
The defendants’ contentions are unpersuasive. The elements of the tort of conversion are made out here both at the moment of the lockout, and in the period thereafter, and in respect of all the goods.
The analysis of the alleged tortious conduct in these reasons starts by looking at the moment of the lockout. But the Court must look beyond just the moment of lockout. The Court then it proceeds to looks at the conduct of the parties with respect to the goods in the period thereafter. The defendants dealt differently with each class of the goods: the stock, the equipment and the plant. So the analysis also examines the parties’ conduct with respect to each of these classes.
The Moment of the Lockout. The loss by Palermo of actual possession at the instant of the lock out is not in contest. The moment of the lockout is Palermo’s posited moment of conversion. Palermo says that a conclusion of conversion should not be altered by subsequent events.
The defendants’ lockout was a clear act of dominion on that date, at a time when Palermo had possession of the goods. That act of dominion was at that moment inconsistent with, and repugnant to, Palermo’s possession and ownership of the goods. The suddenness of the taking of possession, the non-consensual nature of the denial of possession to Palermo, the stipulation on 8 May 2013 of an unreasonably short period for and other unworkable terms for Palermo’s possible access to the goods, terms wholly dictated by the defendants, all show dominion over the goods and repugnance to Palermo’s undisputed possession of them. The essential elements of the tort of conversion were established on 8 May 2013. The defendants cannot rely upon their own acts of depriving Palermo of possession to diminish Palermo’s claim.
It still remains whether by the conduct of the parties in the period thereafter that the defendants’ acts should be differently characterised and is dealt with next. Then the specific question of whether Palermo abandoned or disclaimed its right to possession is dealt with in the next section.
But first, the plaintiff has not made out a case in detinue. Detinue requires the plaintiff to make a formal demand for the goods before commencing proceedings. Palermo made requests for access to the goods but no such formal demand for delivery to it was made after they came into the actual possession of Lunapas. Such a demand is an essential element of an action in detinue. Detinue cannot be maintained here. It is sufficient in the balance of these reasons to analyse the plaintiff’s case as one in conversion.
Each Category of Goods after 8 May 2013. The issue of conversion must now be analysed by reference to each of the categories of the goods: the stock, equipment and plant. The stock generally comprised of fresh and frozen (or thawed, once frozen) fish and crustaceans (and other non-perishable merchandise) for sale in the business. The plant comprised of cool rooms, refrigerators and larger kitchen equipment, much of which was in the nature of tenants’ fixtures. The plant was substantial in size, could only be disassembled over time; and most of it was either heavy or fixed to the floor. Finally, the equipment comprised the general chattels of the business that could more easily be moved than the plant and included tables and chairs, signboards, counters and miscellaneous movable chattels.
There is no doubt that consideration of the events during the period after 8 May 2013 does not alter the conclusion that the stock and the plant were converted by the defendants. The only real contention about conversion exists with respect to the equipment. But in my view that too was converted on 8 May 2013 and nothing occurring thereafter should cause a revision of that conclusion. In respect of the conversion of all three classes of goods, in my view, Mr Menniti was the decision maker on behalf of Lunapas and was directly involved in and is equally liable for the tortious acts.
As to the stock, the perishable stock was thrown out. The defendants say that they put the frozen stock in storage elsewhere in Brisbane. The objective evidence of this is so poor that the Court does not accept that was done. But whatever happened to the frozen stock the defendants did not communicate to the plaintiff where it or the other non-frozen merchandise was; did not provide an inventory as to what they had; did not indicate where it could be collected; and, did not ever change the warning-off in the Barclay MIS letter of 8 May 2013 that Messrs Palermo could not approach them to collect stock.
Whilst there was no written demand for the return of the stock, these acts of dominion over it were sufficient on their own to amount to conversion. What happened thereafter must be seen in context. Messrs Palermo made clear that they wanted to return to the premises. Had that request been granted they would have regained possession of the stock. Messrs Palermo’s access to the premises would have allowed them to use and deal with the stock on their own terms. And as Young AJA has found, they were indeed entitled to access to the premises for another two weeks. Had they been allowed back in to access and organise the disposal of the stock in their own way, the Court has little doubt that it could have been saved and turned to profitable account.
The absence of a pure demand for their stock is not a complete answer to Palermo’s case. The defendants well knew that Palermo wanted to return to the premises. Prestige’s 8 May 2013 letter makes that quite clear. This in my view acts as a contemporaneous request to deal with Palermo’s property on the premises, which was refused by the lockout and which continued to be unlawful.
Moreover, the only offer of access to remove the goods on 8 May 2013 was, as Young AJA has already held, unreasonably short. With the additional evidence that this Court now has on the rehearing, this Court independently reaches the same conclusion as Young AJA’s conclusion that the time given until 5pm the following day, 9 May 2013 for Palermo to remove its goods was unreasonably short. It would be surprising if alternative storage for approximately $60,000 worth of stock could be organised within 24 hours. Even the defendants could not gather and attempt to deliver the equipment until 12 May 2013, four days later. Moreover, the disassembling of the plant as described in the Knight Report (which report is discussed later in these reasons) would in my view have taken many days to plan and accomplish. The Court would not be surprised if the whole exercise took something like a full working week, if not slightly more.
The issue about chattels was subsumed beneath the greater issues about a denial of access to the premises. But in my view that makes no difference: what the defendants did amounted to a conversion. It may have been different if the defendants had indisputably moved the goods to other premises and the case may have become more like Upton where some further oral demand on the tenants’ part may have been necessary in order to make a conversion. But this was not such a case.
As to the plant, conversion is readily established. The defendants did not move the plant but continued to use it in the restaurant business conducted on site with Mr Menniti’s assent. This was a clear act of dominion over the plant inconsistent with Palermo’s title.
Finally, as to the equipment, the analysis above with respect to the stock also applies. In my view, Palermo was entitled to refuse delivery of the equipment. I accept the evidence of Messrs Palermo that they believed that what was being delivered to them was not only equipment but perishable stock. They were entitled to infer that because no prior arrangement for the delivery was made and their solicitor’s correspondence of 8 May 2013 had refused an offer on behalf of defendants to purchase the stock, that some perishable stock would probably be delivered. The truck, visible in the video of the delivery (Exhibit TE) is clearly a non-refrigerated hire truck, and no list of what was in the truck was provided. At the hearing Mr Crompton gave a general description of what was loaded on board the truck but the defendants were not able to definitively establish what was in the truck. I accept that there was some furniture and like items.
When the attempted delivery was made on 12 May 2013, the videos record that some mention was made of the goods being put in storage. But where the storage was is unclear and was not clarified in subsequent correspondence.
On 12 May 2013, through their agents, Messrs Palermo still had a lawful right to enter the premises. By using such right of access they could make decisions about the disposition of the goods in a calm and rational way, assorting the equipment, plant and stock into various categories for organised disposal. That is the kind of dominion that they were entitled to have over their goods. They were denied it by the form in which the defendants went about the delivery.
The defendants’ attempts at redelivery of the goods were disorganised, chaotic and unreasonable.
Mr Menniti - a tortfeasor? The directors of a company, who act personally on behalf of the company in the commission of the torts of conversion or detinue, may also be personally liable for the tortious act: Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171 (at 196 – 197); [2003] VSC 291 at [85] – [91] and Allen Manufacturing Co Pty Ltd v McCallum Pty Ltd [2001] FCA 1838; (2001) 53 IPR 400 at [43]. Should the Court find Mr Menniti procured or was otherwise directly involved in the commission of the torts of conversion or detinue by Lunapas, he could be personally liable for his actions done on behalf of Lunapas.
Mr Menniti was the principal party acting on behalf of Lunapas in directing not only the re-entry on 8 May 2013 by which Palermo was deprived of the goods, but Mr Menniti was personally involved in dealing with the goods thereafter. Close involvement on his part is to be expected. He controlled Lunapas. He made the decisions following the re-entry, as to how the goods would be dealt with by Lunapas. He was the author on behalf of Lunapas of the act of re-entry and of all that followed the re-entry with respect to the goods. His involvement as a tortfeasor in my view is clear.

(2) Specific Defences Raised

The defendants advanced specific matters by way of defence to the plaintiff’s claim. These were all in the nature of challenges to the elements of the torts upon which Palermo relied.

The Uncollected Goods Act

The defendants submit that under the terms of the Uncollected Goods Act 1995 (“Uncollected Goods Act”), they were entitled to dispose of the plaintiff’s perishable and other goods. Palermo’s stock was perishable. The plant and equipment was not.

Palermo only had an entitlement to trade from the premises for another two weeks after the re-entry on 8 May 2013. Palermo realistically had almost no business to sell. Why would a potential restaurant business operator planning to trade from the premises pay Palermo for goodwill when it could wait a few weeks and negotiate directly with Lunapas for a new lease?
(5) Stock on hand. Palermo advanced limited but sufficient evidence as to the value of the stock left on the premises. The Court concludes that the value of the lost stock was approximately $50,000. This value can be reached first by explaining what is not in evidence, what is in evidence and what adjustments need to be made to give a fair value of the stock.
As these reasons have explained, Palermo sought to rely upon the affidavit of Mr Joe Gurciullo sworn on 9 December 2013. Mr Gurciullo gave evidence at the hearing in May 2014 before Young AJA. His affidavit of 9 December 2013 attempts to value the fixed assets, goodwill, stock and value of the business. The exercise undertaken is basically grounded in inferences drawn from Palermo’s financial statements for past years and management accounts from more recent years. The figures which Mr Gurciullo reached were for fixed assets of $285,000, goodwill of $698,284.49 and stock of $60,000, making a total business valuation of Palermo Seafoods of $1,043,284.49. But the exclusion of Mr Gurciullo’s report from evidence did not entirely deprive Palermo of evidence about the financial position of Palermo Seafoods.
Mr Murphy cross-examined Mr Frank Palermo about Palermo’s profit and loss statements and balance sheet covering the period from 1 July 2012 to 8 May 2013. The financial statements were then formally tendered at the supplementary hearing when what was actually admitted into evidence was clarified. Those financial statements show the trading position as at 30 June 2011 and 30 June 2012 and show stock movements in the months of July, August, September, October, November 2012 and a balance sheet as at 8 March 2013.
There is ample contemporaneous evidence of the value of the contents of Palermo’s stock leading up to and as at May 2013. The prime source of this evidence is Palermo’s management accounts for the period July 2012 to May 2013, together with evidence from Mr Crompton of how the stock in the business was managed. These management accounts were maintained on a generally contemporaneous basis on behalf of Palermo. They appear in evidence both in Exhibit TA and in the portion of the Lunapas Court Book which has been admitted into evidence. Palermo’s stock holdings as at July 2012 are recorded (presumably at cost price) at a total of $54,523. The management accounts break this down into classes of stock, which for July 2012 were frozen food ($36,013), fresh food ($8,122), packaging ($3,498), suppliers ($1,618) and drinks ($5,272). These overall figures and ratios of these different classes of stock are largely replicated in the following months. For example, in August 2012 the stock is shown as being in total $52,792 with frozen foods ($34,819), fresh food ($8,852), packaging ($2,899), suppliers ($1,259) and drinks ($4,963). Without breaking the totals down any further into these sub-classes of stock for subsequent months, the totals for subsequent months may be summarised. The total for September 2012 was $57,753. The total for October was $58,509. The total for November was $55,843. The management accounts contain a balance sheet as at 8 May 2013. Although that balance sheet values plant and equipment at $384,263.64 as one of the assets, it does not separately identify stock. The Court infers that because stock is a significant item greater than all the other amounts in the balance sheet, that it is unlikely to have been forgotten and has probably been included in the figure of $384,263.64. But because it has not been broken down, the final balance sheet is not a good determinant of the final stock levels.
But in my view, there is quite sufficient evidence from the management accounts from July to November to show that the wholesale value of stock held by the business was commonly in the range of between $55,000 and $60,000. Mr Crompton was of the view that May was a less busy time than leading up to the summer holidays for the business and the stock levels would have been lower. The Court should infer that the stock levels at the time of the lockout in the business which was continuing to trade were of the order of about $50,000, representing an adjustment of about 10 to 20 per cent to represent the lower stock levels of the late Autumn period. That is the figure which the Court will use to infer the stock which was on hand at the time of the conversion. It also takes account of incidental spoilage of fresh and thawed out stock that would have occurred in the ordinary course of business, whether or not the lockout had occurred. The Knight Report does not take stock into account. It only values plant and equipment.
(6) Use of Assets Hire Agreement. Palermo seeks some compensation for its inability to hire out the goods after the conversion. Whilst consequential loss can be an available head of damage for the tort of conversion, a plaintiff must adduce sufficient evidence to justify an award of damages under that head.
Palermo has failed to do that in this case. Palermo claims $312,615.54. It reaches this figure by using as a starting point the replacement value of the assets of the plant and equipment of $521,025.90 divided by five, representing what it calls a “five year repayment term”. Palermo seems to be indicating that the goods could have been hired out on the basis that they could have returned their market value within five years. But Palermo only claimed for three years of such use, which amounts to $312,615.54.
But Palermo has not advanced any evidence to justify the conclusion that it would have hired this equipment out. Palermo had no track record in the business of hiring out plant and equipment. Its sole expertise was in the retailing of seafood. A capacity to adapt its skills in this new direction at short notice should not readily be inferred. Neither of Messrs Palermo identified any potential opportunities for hiring out the plant and equipment other than leaving it in situ and trying to negotiate with an incoming owner. Moreover, the Court had an opportunity to assess Mr Frank and Mr Joe Palermo’s business capacities by observing them and examining Palermos’s management accounts, which reveal only a modestly profitable business. The Court is not persuaded that Messrs Palermo would have quickly turned a assets like this plant and equipment to account. But overall there is no evidence that they would have hired these goods out or that they had any realistic prospect of doing so from the local area.
(7) Opportunity costs of lost interest received from investment of assets. This claim for $279,789.54 is calculated by the application of 14 per cent interest compounded over three years to the replacement value of assets and stock of $521,025.90. In limited circumstances the Court is entitled to award damages by way of compound interest on proven losses: Hungerfords v Walker (1989) 171 CLR 125. But to establish such an entitlement a plaintiff ordinarily needs to prove that it has suffered a loss for which it is liable for compound interest, for example a loss associated with the payment of compound bank interest on borrowing from a financial institution to run a business.
But Palermo has not established any such obligation for the payment of financial interest here. The Court will make an allowance for interest in this case from 8 May 2013 up to the date of judgment pursuant to CPA Act, s 100, and in accordance with the Supreme Court Practice Note SC Gen 16. The parties should endeavour to make and bring in such a calculation. But the present claim for compound interest is disallowed.
(8) Opportunity costs of lost revenue streams-Pontoon Boat. Palermo has not made out this claim for $534,000. The claim involves a pontoon boat which was moored at a wharf close to the premises which the plaintiff claims was part of the assets available to it to conduct the business from the premises, or at least modelled on that business. The defendants’ contention is that the plaintiffs never owned the boat and were not entitled to operate a business from it. There is evidence that the boat was unseaworthy and the Court is not satisfied that it was capable of sustaining a revenue earning business.
But the claim is also couched in terms of the acquisition of three other pontoon boats which could earn $2,000 a week for three years, which leads to the figure of $534,000. But like the failed claim for loss of goodwill and loss of profits after the lockout this claim depends upon the plaintiffs’ security of tenure at the premises after May 2013. Palermo has not established this and this claim must also fail as a result.
(9) Opportunity lost on sale of business. Palermo’s claim for $1.4 million for lost opportunity to sell the business must also fail because of Palermo’s failure to establish any security of tenure at the premises.
(10) Dismiss NAB proceedings and recovery from Lunapas Pty Ltd and Luciano Menniti. It is understood that the NAB has brought proceedings against Palermo and Messrs Palermo in respect of borrowings associated with the conduct of the business. It is not clear how the figure of $760,594.30 is claimed as resulting from the conversion of the goods. It is presumably borrowed principal and interest and other fees and charges which are probably associated with paying out the bank upon the closing down of the business. But as these reasons have already explained the closure of the business is not a consequence of the conversion. The closure of the business is the result of Palermo only having two weeks to run on a month to month lease. Moreover, Palermo has not demonstrated how these financial costs were incurred or should be quantified. This claim also fails.
(11) Directors’ pain and suffering Frank and Joseph Palermo as directors. Messrs Frank and Joseph Palermo claim $10 million for pain and suffering. The only plaintiff in this case is the company, Palermo, which is incapable of claiming pain and suffering as it is an artificial incorporated entity. Moreover, pain and suffering is not a recognised head of damage for conversion. There was no medical evidence to sustain this claim. The Court can see from the way that Messrs Palermo gave evidence that this litigation has been stressful and distressing for them. But even if they had sued personally and were propounding a cause of action in their own name, it would be almost impossible to isolate the distress associated with the conversion of the goods from the overwhelming effects of Lunapas’ re-entry and the expiry of Palermo’s month to month lease. This claim fails.
(12) Accounting and insurance brokerage fees. Palermo’s claim for accounting and insurance brokerage fees of $150,000 has not been substantiated and does not appear to be directly related to the conversion of the goods. This claim can also be dismissed.

Mitigation of Loss

The Amended Defence to the Further Amended Statement of Claim does not expressly raise the issue of whether or not the plaintiff has mitigated its loss. But some of the defendants’ arguments at the rehearing appeared to address issues of not only whether or not a tort had been committed, but also whether Palermo had mitigated its loss. For example, the defendants contended that it was always open to Messrs Palermo to take the goods back into their possession after arranging for storage of the goods and this could have been done at any time after 8 May 2013.
Although mitigation was not expressly pleaded, as the issue was at least indirectly raised, the Court will consider the issue.
All the defendants’ mitigation of loss arguments run up against obstacles. It is convenient to analyse the mitigation issues by reference to the three categories of goods, stock, plant and equipment
As to the stock, no mitigation argument is available. Some thawed perishable stock spoiled and was disposed of quickly on and after 8 May 2013. None of stock was readily available to be re-delivered, sold and re-used. Palermo could have used it in an ongoing business had it remained in the premises. Other stock must have been kept in storage. The defendants plead that Mr Menniti caused all the perishable goods to be taken to a cold store owned by Brisbane Wholesale Foods at Murarrie in Brisbane. But the lack of hard objective evidence from the defendants about the storage this stock causes the Court not to accept any of the defendants’ oral account that it was dealt with by being put into storage. Precisely what was done with it remains unexplained.
But the stock in storage was not delivered to the Palermo’s house on 12 May 2013 and was not offered again to Palermo. Lunapas’ dealing with the stock left in its possession remains opaque. Whatever it did with the stock was not clearly communicated to the plaintiff. No statement or list of what stock was held, for example, was transmitted from the defendants to the plaintiff, stating where the stock was being kept so Palermo could make decisions or give directions about how it would mitigate its loss by authorising the re-sale or other disposal of the stock. Mitigation of loss in relation to the stock was unrealistic.
As to the equipment, mitigation was thwarted by a different problem. The Court accepts Messrs Palermo’s evidence that they had been warned off by Mr Menetti from going to the premises on 8 or 9 May 2013 and that they did not think that this warning off was ever lifted. There is substance to their belief they were barred from going to the premises. The 8 May letter was couched in sufficiently strong terms that had Messrs Palermo come around to the premises after 8 May, they may have risked provoking an application for an apprehended violence order. Staying away was keeping the peace.
The defendants wrote no letter making clear that any warning off had been lifted or could be circumvented by through the use of third parties to allow the equipment to be collected from storage. Even the attempted truck delivery of some equipment to Messrs Palermo a few days later is consistent with the warning off remaining in place. Such a formal communication would be a basic precondition to Palermo undertaking acts of mitigation. The defendants plead that Mr Menniti sent a letter to Mr Joe Palermo for the plaintiff requesting Palermo send people to the leased premises to collect the property. But apart from the letter of 8 May, which gave an unreasonably short period for compliance, no such letter is in evidence. Mr Menniti’s evidence is that he no longer has a copy.
Moreover, Palermo was not invited to inspect the contents of the container in which the equipment was stored. Once the equipment had been stored in the container for more than a few weeks, it is likely that it would have begun to deteriorate. It was being stored outside exposed to daily temperature changes on the mid-north coast of this State, so after a few months there would probably not be much value to be gained from acts of mitigation.
As to the plant, the defendants immediately began using it in a restaurant operating from the premises in place of Palermo’s shop/restaurant business. The new business was actively making use of the plant in place. This is not consistent with the willingness on the part of Lunapas to give it up. It is highly unlikely the plant was ever offered to the plaintiff. Moreover, I infer that had Messrs Palermo asked for it, given its continued profitable use at the premises, there would have been resistance on Mr Menetti’s part to giving it up. Any acts of attempted mitigation for the plant in my view were likely to have been frustrated.
Any suggestion that the plaintiff’s loss should be reduced because it failed to mitigate damage can be dismissed.

(4) The Quantum of the Plaintiff’s Loss

The damages available to Palermo fall into two potential categories, loss of the value of the goods and consequential losses. But these reasons have already found that Palermo’s claims for consequential losses for the conversion fail.

The Damages Evidence

Both Palermo and the defendants advanced evidence on the value of Palermo’s plant, equipment and stock. The Court has dealt with the value of the stock and concluded that it was $50,000 at the time of the lockout. The relevant evidence about the plant and equipment will first be shortly outlined.
The Court has determined earlier in these reasons that the market value of the plant and equipment not the replacement value, is the appropriate measure of Palermo’s loss. Thus there is no need to look further at FP10 for evidence of value.
Apart from Mr Gurcuillo’s rejected evidence, some values for the plant and equipment can also be sourced from Palermo’s own evidence. Palermo’s management accounts give a balance sheet figure for “Plant and Equipment” as at 8 May 2013 of $384,263.54. But this may possibly include stock of about $60,000 and should therefore be reduced to about $325,000. But exactly what is included in this figure is unclear. It is not a reliable basis to infer the value of the plant and equipment in this case.
The defendants rely upon an affidavit of Mr John Murray Rossiter dated 19 July 2016. Mr Rossiter is the accountant for Mr Menniti and arranged a valuation of the Palermo fixtures, fittings and chattels in October 2013. His 19 July 2016 affidavit annexed the resulting expert valuation of Palermo’s plant and equipment. This was a summary appraisal report by Terry Knight, a certified valuer from Lloyd Asset Services (“the Knight Report”). The Knight Report provided an effective date of valuation of the plant and equipment as at 5 October 2013 on two alternative bases: fair market value in continued use; and forced liquidation value.
Mr Knight attended the premises to inspect the plant and equipment. He stated that his conclusion, “is arrived at from many years of experience in the sale and appraisal of machinery and equipment”. Mr Knight’s curriculum vitae was not made available to the Court. But no issue was taken that he had the expertise to value the goods.
The Knight Report did not consider the replacement value of the goods. But concluded that the fair market value of the plant and equipment in continued use was $184,732.00 (inclusive of GST). The Knight Report valued the assets at $44,558.00 (inclusive of GST) on a forced liquidation value.
The Court admitted the Knight Report over Palermo’s objection. Messrs Palermo conceded they had not placed the defendants on notice of any objection to the Knight Report in advance of the hearing. Nor had they specifically required Mr Knight for cross-examination.
The assets dealt with in the Knight Report differed slightly from those in Palermo’s FP10. So as a result of the Court’s directions to elucidate these differences, Mr Joe Palermo tendered a document at the hearing which highlighted the differences between the Knight Report and FP10, which document was marked Exhibit TF in these proceedings.
The Court is not persuaded that the Knight Report does not represent the assets that were at the premises on 8 May 2013, even though the Knight Report valuation was in October 2013, some 5 months later. There was some disturbances of the equipment after the lockout when it was loaded onto a truck and then placed in a shipping container. But the Court is not sufficiently confident of the Palermo’s recollection of any additional items that any allowance should be made in Palermo’s favour on this account.

Going Concern Value or Liquidation Value

The plant and equipment should be assessed at the Knight Report’s higher assessment of the fair market value and continued use of $184,732 as distinct from the forced liquidation value of $44,558. The former is the appropriate measure of assessment because in my view Palermo was in a realistic position to negotiate with an incoming purchaser, and indeed with the defendants, to sell the equipment to a new lessee who was taking over the premises. That opportunity existed for at least two weeks and possibly longer than after the re-entry on the 8 May 2013.

On 8 May 2013, the date of the conversion, Palermo had an operating business and would have had one for a further two weeks. Although it was in a weak position to sell the business as a going concern, it was nevertheless in quite a strong position to sell the assets of the business to a potential incoming purchaser or to make them available to such a purchaser by arrangement with the defendants. The advantage which Palermo had to offer an incoming lessee who was not going to purchase the business was nevertheless unique. It was likely to have been convenient for the incoming lessee to take over the assets of the outgoing lessee, which had proven themselves at the site rather than to acquire new ones. Such an acquisition would have made the set up arrangements for the new lessee far easier. This would have presented a real negotiating opportunity for Palermo at a time when its business would still have been operating and was likely to have lifted the stock prices well above forced liquidation value. The Court will adopt the fair market value in continuous use as the starting valuation.
The date of the valuation. But the Knight Report effectively values the stock as at 5 October 2013, some 5 months after the conversion. Some allowance needs to be made to the Knight Report’s valuation for that lapse of time.
The manner of storage of some of the equipment in a shipping container and the further use of the plant and equipment is a basis to infer some loss of value probably incurred between May and October 2013. But the Court will only allow for a marginal loss of value and will assess the plant and equipment value as at 8 May 2013 at $200,000.

Making Good

The defendants also argue that if Palermo had retrieved its goods it would have been obliged to make good any damage it caused to the previously demised premises in removing the goods. Mr Menniti who was a builder has estimated the costs of making good at $74,800 plus GST being a total of $82,000. But Mr Menniti was not an independent expert. There was no opportunity given to Messrs Palermo to verify the correctness of this. They have always been excluded from the premises. There were no photographs available. Mr Menniti is not independent. He was so conscious of self-interest that the Court is not prepared to have any regard to this figure.

Conclusion and Orders

In the result the Court has concluded that both Lunapas and Mr Menniti tortiously converted Palermo’s plant, equipment and stock when it re-entered the premises it leased to Palermo on 8 May 2013. But the tort of detinue is not established against the defendants, because Palermo did not make a formal demand for the return of the goods.
The plaintiff is entitled to the market value of the goods at the time of the conversion. The value of each of the plant, equipment and stock needed to be addressed separately. The valuation of the plant and equipment should be concluded on the basis that Palermo’s leased business “Palermo’s Seafoods” was a going concern, not on a liquidation basis.
Palermo is not entitled to any damages for loss of use of the goods, as it has not established that it could have turned them to profitable account had they been returned into its possession after 8 May 2013 . Palermo is entitled to the market value of the plant and equipment portion of the goods at $200,000. As to the stock, Palermo is entitled to a further $50,000 representing its value.
Palermo has claimed and would ordinarily be entitled to interest on its damages at the rates applicable under CPA, s 100. The Court will require the parties to bring in calculations of interest by 12 noon on Thursday, 14 December 2017, after which the Court will publish an interest calculation to be added to the principal sum of the judgment recorded here.
Costs would ordinarily follow the event. But one or other party may seek a special costs order. As the parties are all situated either interstate or in regional New South Wales, the Court will hold a short hearing to deal with any costs issues and will grant leave to the parties to appear at that hearing by telephone. The parties should provide to my Associate if they have not already done so, telephone numbers where they can be reached for this hearing which will be appointed for 9.30am on Friday, 15 December 2017.
The Court’s orders therefore will be as follows:

Judgment for the plaintiff against both defendants, in the sum of $250,000, representing the market value of the plaintiff’s plant, equipment and stock that the defendants converted on or about 8 May 2013 but excluding interest up to judgment.

Direct the parties to bring in calculations of the applicable interest from 8 May 2013 up to today under Civil Procedure Act 2005, s 100, on the said judgment sum of $250,000 by 12 noon on 14 December 2017.

Appoint 9.30am on 15 December 2017 for a further directions hearing to deal with any outstanding costs issues and any interest calculations, noting that the parties may appear by audio link at that hearing and are excused from personal attendance in Court.

Grant liberty to apply.

The Court will publish its reasons for these orders and forward them to the parties.

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Amendments

19 December 2017 - [222] "representing it value" to "its value"

18 December 2017 - Catchwords – hyphen between “Consequences of” and “new trial”
Cover sheet – parties – “First” before Defendant: Lunapas Pty Ltd
[1] – 4th line- “April” to “May”
[2] – sixth line, comma after (“the June 2014 judgment”)
[4] hyphen for “reregistration”
[37] commas – third line, after “evidence”, fourth line, after “objected”, fifth line after “Gurcuillo”, tenth line deletion of “of”
[48] fifth line apostrophe for “plaintiffs”
[56] second line, full title of legislation added, sixth line apostrophe for “plaintiffs
[57] first line full legislation of title removed as previously defined.
[58] seventh line apostrophe for “plaintiffs”, thirteenth line “would that” reversed to “that would”
[59] comma added after “Area Command”
[61] third last line “as to” added between “advanced why”
[62] second line comma added after “that”, third line coma added after “case”, fourth line “that” deleted before “there”
[63], [64], [65], [159] “retrial” changed to “re-trial”
[64] fourth line “June 2014” added after Young AJA’s”
[66] second line “defendant’s” changed to “defendants’”, second last line comma added after “year”
[71] second line comma added after “defendants”
[77] second line deletion of “wrongful” and “of” inserted after “use”
[79] “and” deleted after “tort;”
[80] third line and fifth line add “June 2014” before “findings”, add last sentence “But first the credibility of the parties is assessed.”
[83] fourth line delete “the” before “Mr Menniti” and delete “Pty Ltd” after “Lunapas”
[84] and [87] delete “Pty Limited” after “Lunapas”
[88], [89], [94], [114] – [119], [174], [183], [190], [206] and [214], “lock-out” changed to “lockout”
[90] added space within quote
[94] and [98] “Mother’s day” to “Mother’s Day”
[95] fourth line delete “the” and add “on” before “Palermo’s part”
[97] fifth line delete “Nick” before “Crompton”
[102] second line comma added after “homes” and fifth line apostrophe deleted from “Palermo’s”
[103] third line delete “the” and add “Mr Joe” before “Palermo’s”, delete “s” in “homes”
[111] fourth line delete “r” in “user”, second last line add comm after “them”, last line italicise “Upton” and delete extra bracket
[113] fifth line, delete “were” before “for return”
[117] second last line add “s” after “examine”, last line add “es” after “class”
[118] first line add “the” before “lockout”, last line change “attended” to “altered”
[119] third line, add comma after “with” and “to”
[121] fourth line add “was made” after “it”
[122] fourth last line add semi colon after “time”, third last line add “d” after “comprise”
[123] second last line, add comma after “view”
[125] second last line add comma after “way”
[127] first line add comma after “Moreover”, third line add comma after “rehearing” and “this Court independently reaches the same conclusion as”, fifth line delete comma after “if”, third last line after “Report” add “(which report is discussed later in these reasons)”
[128] second line add colon after “difference”
[129] second line delete “on the site”
[130] fifth last line add “and” after comma
[131] first line add comma after “2013”
[132] first line, add comma “2013” and “agents”
[138] third last line change “landlord” to “bailee” and second last line change “tenant” to “bailor”
[140] third line add “bailor and” after “the”
[141] last line change “plaintiff” to “defendants”
[143] last line delete “briefly” after “given”
[144] second last line add comma after “material”
[147] first line add “even if that” after “But” and delete “that”, second line add “on the evidence now before it” after “Young AJA”
[165] first line add “ordinarily” after “is”, second line add “if able to do so” after “loss”

Decision last updated: 19 December 2017

Medium Neutral Citation:	ACN 116 746 859 (formerly known as Palermo Seafoods Pty Ltd) v Lunapas Pty Ltd & Anor [2017] NSWSC 1583
Hearing dates:	4, 5, 6 September and 7 December 2017
Date of orders:	11 December 2017
Decision date:	14 December 2017
Jurisdiction:	Equity
Before:	Slattery J
Decision:	Defendants liable for conversion of plaintiff’s stock, plant and equipment. Damages assessed at $250,000 plus interest up to judgment. Costs to be argued.
Catchwords:	TORTS – Conversion and detinue – plaintiff/retail tenant wrongfully evicted by landlord/defendant – upon eviction landlord takes possession of tenant’s stock, plant and equipment – earlier hearings decide the tenant’s eviction was in breach of lease but neither determined whether the landlord converted the tenant’s plant and equipment, nor assessed damages for conversion – new trial ordered on these issues – whether the landlord converted the tenant’s plant and equipment – whether the director of the corporate landlord was involved in the commission of the tort - whether the tenant abandoned its plant and equipment – whether the plant and equipment should be valued on a going concern basis or on a liquidation sale basis – whether there is sufficient evidence of the market value of the plant and equipment - quantification of the market value of the plant and equipment. CIVIL PROCEDURE – Separate determination of questions – Consequences of - new trial ordered by Court of Appeal – new trial limited to the plaintiff’s claim for damages by reason of the defendants’ use of and failure to return the appellant’s plant and equipment
Legislation Cited:	Civil Procedure Act 2005, s 14 Legal Profession Uniform Law Application Act 2014 Supreme Court Act 1970, s 75A(10) Uncollected Goods Act 1995, ss 9, 18 Uniform Civil Procedure Rules 2005, rr 7.1, 7.36, 51.53
Cases Cited:	Allen Manufacturing Co Pty Ltd v McCallum Pty Ltd (2001) 53 IPR 400 Bellinger v Autoland Pty Ltd [1962] VR 514 Bellos v AMP [1999] NSWCA 385 Bunnings Group Ltd v Chep Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 Butler v The Egg and Pulp Marketing Board (1966) 114 CLR 185 Clayton v Le Roy [1911] 2 KB 1031 Craig v Marsh (1935) 35 SR (NSW) 323 Egan v State Transport Authority (1982) 31 SASR 481 Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Reports 81-244 Furness v Adrium Industries Pty Ltd [1996] 1 VR 668 JSBG Developments Pty Ltd v Kozlowski (2009) 75 NSWLR 745 General & Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 1 WLR 644 J & E Hall Ltd v Barclay [1937] 3 All ER 620 Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171 Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19; [2002] 2 AC 883 Malouf v Malouf (2006) 65 NSWLR 449 Palermo Seafoods Pty Ltd v Lunapas Pty Ltd (No 2) [2014] NSWSC 1323 Palermo Seafoods Pty Ltd v Lunapas Pty Ltd [2014] NSWSC 792 Palermo Seafoods Pty Ltd v Lunapas Pty Ltd [2016] NSWCA 82 Penfolds Wines v Elliot (1946) 74 CLR 204 Petre v Heneage (1701) 12 Mod Rep 519 Re Jigrose Pty Ltd [1994] 1 Qd R 382 Reglon Pty Ltd v Hill [2006] NSWSC 1360 Sadcas Pty Ltd v Business & Professional Finance Pty Ltd [2011] NSWCA 267 Semenov v Pirvu [2011] VSC 605 Sinclair v Haynes [2000] NSWSC 642 Tanks & Vessels Industries Ltd v Devon Cider Co Ltd [2009] EWHC 1360 (Cth) Upton & Anor v TVW Enterprises (1985) ATPR 40-611 Wollongong City Council v Fregnan [1982] 1 NSWLR 244
Texts Cited:	N Palmer, Palmer on Bailment, (3rd ed, 2009)
Category:	Principal judgment
Parties:	Plaintiff: ACN 116 746 859 (formerly Palermo Seafoods Pty Ltd) First Defendant: Lunapas Pty Ltd Second Defendant: Luciano Menniti
Representation:	Counsel: Defendant: J Murphy Solicitors: Plaintiff: in person Defendants: John Gregg, Gregg Lawyers
File Number(s):	2013/206954
Publication restriction:	No