Burnett v Randwick City Council

[2006] NSWCA 196

New South Wales

Court of Appeal

CITATION:	Burnett & Anor v Randwick City Council [2006] NSWCA 196
HEARING DATE(S):	5 July 2006
JUDGMENT DATE:	20 July 2006
JUDGMENT OF:	Giles JA at 1; Hodgson JA at 2; Tobias JA at 9
DECISION:	Appeal dismissed with costs
CATCHWORDS:	PERSONAL PROPERTY – ownership and possession – right to immediate possession – property owned by a corporation – rights of directors, managers and sole shareholders in respect of corporate property – bailment – possessory title – de facto possession – TORTS – TROVER AND DETINUE – possession or right to possession – what constitutes conversion
LEGISLATION CITED:	Corporations Act 2001 Impounding Act 1993
CASES CITED:	Gollan v Nugent (1988) 166 CLR 18 James v Oxley (1939) 61 CLR 433 Moore v Robinson (1831) 2 B & Ald 817; 109 ER 1346 Pitts v Gaince (1700) 1 Salk 10 Richard v Nowlan (1959) 19 DLR (2d) 229 Russell v Wilson (1923) 33 CLR 538 The Jupiter (No 3) [1927] P 122 Vincent v State Bank of New South Wales (Unreported, Supreme Court of New South Wales, 30 July 1993)
PARTIES:	John Robert Burnett Carmel Burnett Randwick City Council
FILE NUMBER(S):	CA 40525/05
COUNSEL:	A: G Inatey SC / M Luitingh R: C T Barry QC / R Wilson
SOLICITORS:	A: Lincoln Smith & Co, Chatswood R: Bowen & Gerathy, Sydney
LOWER COURT JURISDICTION:	Supreme Court - Common Law Division
LOWER COURT FILE NUMBER(S):	SC 20947/97
LOWER COURT JUDICIAL OFFICER:	Cooper AJ
LOWER COURT DATE OF DECISION:	31 May 2005
LOWER COURT MEDIUM NEUTRAL CITATION:	Randwick City Council v Burnett & Anor [2005] NSWSC 508

CA 40525/05
SC 20947/97

GILES JA
HODGSON JA
TOBIAS JA

Thursday 20 July 2006

JOHN ROBERT BURNETT and CARMEL BURNETT v RANDWICK CITY COUNCIL

Facts:

The appellants ran a gymnasium business in premises that were owned by the respondent. Certain chattels that had been used in connection with the gymnasium business were owned by one or more companies, which the appellants were employed to manage and of which they were the sole directors and shareholders.

The chattels were left behind when the appellants were lawfully evicted from the premises. The appellants argued that they had a personal right to immediate possession of the chattels. They also sought to sue the respondent in conversion, which allegedly arose out of the respondent’s refusal to hand the chattels over to them.

Held, dismissing the appeal with costs:

1. Although an officer of a company may control the manner in which a company’s property is held, used, acquired or disposed of, this does not vest that officer with a right of immediate possession in his or her personal capacity entitling him or her to sue for trespass or conversion in his or her own name, unless there is some overt act on the part of the corporate owner to affect a change in the status of the officer’s possession: [95], [96]; Vincent v State Bank of New South Wales (Unreported, Supreme Court of New South Wales, 30 July 1993) referred to.

2. Even if the officer of a company does have some right to the physical custody of the company’s chattels, that is not a legal right that is superior to the legal right of another actual possessor. Accordingly, there will be no obligation on the third possessor to yield its possessory title to the officer who has no superior right. On the contrary, the third possessor could only yield its possessory title to the corporate owner of the chattel who has the right to immediate possession of the chattels: [115]; Russell v Wilson (1923) 33 CLR 538, Gollan v Nugent (1988) 166 CLR 18 discussed.

CA 40525/05
SC 20947/97

GILES JA
HODGSON JA
TOBIAS JA

Thursday 20 July 2006

JOHN ROBERT BURNETT and CARMEL BURNETT v RANDWICK CITY COUNCIL

Judgment

1 GILES JA: I agree with Tobias JA.

2 HODGSON JA: I agree with the orders proposed by Tobias JA, and substantially with his reasons. I would add the following comments.

3 In the current edition of Clerk & Lindsell on Torts (19th Edition, 2006) at pp 1032-3, it is asserted that an employee can sue for conversion of the employer’s goods where the employee is a bailee of those goods; that “the practical result now seems to be that in most cases the servant will be able to sue”; and that “this is no bad thing”, because “a plea of the converter that he has been sued by the wrong claimant is normally an unmeritorious one”.

4 Such a plea may be unmeritorious in some cases, but it may not be in others, particularly where the employer is a company which has contractual obligations to the alleged converter. For example, suppose the company had a debt to the alleged converter, who takes property of the company in an honest but mistaken belief that it is included in a security given for the debt. If the company sues for conversion, the converter can have the debt taken into account in arriving at a balance to be paid one way or the other. But if the directors of the company could sue for conversion, the converter would be liable in full to the directors, and would have to look to the company, which may be insolvent, for its debt. It may be unfair if directors can hide behind the corporate veil in relation to liabilities, but ignore it in relation to rights.

5 In my opinion, therefore, it is reasonable in cases of alleged conversion to continue to apply established principles concerning custody and possession as between employee and employer; although of course this does not exclude an employee’s establishing possession as bailee, if the circumstances justify this conclusion. In the present case, for reasons given by Tobias JA, the appellants did not establish possession as bailees.

6 In my opinion also, when the Council obtained possession of the premises, it obtained possession of the goods left on the premises, in circumstances that did not amount to a conversion. As an involuntary bailee, the Council owed a duty to the true owner of the goods to exercise reasonable care in their disposition, a duty not necessarily discharged by the return of the goods to the person last in possession of them: James v Oxley (1939) 61 CLR 433 at 447. Thus, even if the appellants had been in possession of the goods before the Council obtained possession of the premises, the Council’s refusal to return the goods to them did not constitute conversion, since they were not the true owners of the goods.

7 As regards costs, although the issues in the claim and cross-claim were different, all issues depended on underlying facts concerning the relation between the appellants and their various companies in the conduct of the business on the premises. In my opinion, it is unrealistic in the extreme to suggest that 23 of the 24 hearing days were concerned with the Council’s claim and not with the appellant’s cross-claim. Where both a claim and a cross-claim depend on a common underlying factual matrix, separate orders as to the costs of the claim and the cross-claim should be avoided if possible: the trial judge is in by far the best position to determine an appropriate apportionment.

8 If in this case the cross-claim had been purely defensive, an order more favourable to the appellants may have been appropriate. However, it was not suggested below that the cross-claim was purely defensive, and the bringing of this appeal is a powerful indication that it was not.

9 TOBIAS JA: The appellants were the sole directors and shareholders, and were employed in the management, of a company or companies which owned certain chattels that had been left behind when the appellants were lawfully evicted by the respondent (the Council) from the premises where they had conducted a business in which the chattels were utilised. The primary issue in this appeal is whether the appellants personally had the right to immediate possession of those chattels so as to entitle them to sue the Council in conversion, which right allegedly arose out of its refusal to hand over those chattels to the appellants. The primary judge, Cooper AJ, determined that issue in favour of the Council and it is from that decision that the appellants appeal to this Court.

The relevant facts

10 Since 1959 the Council has been the trustee of Crown Land known as “the Heffron Park Reserve Trust” which had been dedicated as a public reserve (the Park). A sporting complex was located within the Park which, relevantly , included a free-standing steel framed building that had been used as a fitness centre over the years.

11 In 1979 the Council granted a lease of the sporting complex to Maccabi Sports Centre Ltd (Maccabi) for a term of 20 years commencing on 1 January 1980. Thereafter the complex was known as the Maccabi Sports Centre (the Centre) and was used for that purpose. During 1985 and 1986, representatives of Maccabi had discussions with various organisations with a view to sub-letting part of the Centre for the purpose of a gymnasium (the premises).

12 As a consequence of those negotiations, the details of which are not presently relevant, either the appellants or a corporation with which they were associated entered into occupation of the premises for the purpose of a gymnasium or fitness centre then known as the “Tarzan & Jane Fitness Centre” on 15 August 1986. The name of the business conducted upon the premises was changed in September 1988 to “Pace Fitness Club” (Pace). Towards the end of 1994 its name was changed to “Gold’s Gym”.

13 In December 1995 Maccabi informed the Council that it wished to surrender its lease. On 16 January 1996 the Council resolved to accept a surrender from 31 December 1995.

14 Correspondence then ensued between the Council and what the primary judge referred to as “the entity occupying” the premises, which was variously described in that correspondence and otherwise as “Huron Holdings Pty Ltd” (Huron) or “Henagrow Pty Ltd t/as Pace Fitness Centre” (Henagrow) or Gold’s Gym. The appellants were the sole directors and shareholders of Huron from 9 July 1992 and of Henagrow from 1 May 1996.

15 In early July 1997 the Council issued a Notice to Quit expiring on 30 October 1997 directed to “The Occupant or Occupants, Gold’s Gym, Fitzgerald Avenue, Heffron Park, Maroubra” and which was served on Henagrow, Huron, and each of the appellants. The Council also claimed outstanding rent or occupation fees in the sum of $122,549.97 jointly or severally from the parties upon whom the Notice to Quit had been served.

16 Although the Council received some payments from Pace Fitness Centre/Gold’s Gym for the occupation of the premises, it commenced proceedings in the District Court against the appellants by statement of claim filed on 28 November 1997 (the proceedings). On or about 28 April 1998, the Council filed a notice of motion in the proceedings seeking, amongst other things, judgment against the appellants for possession of the premises and an order for the payment of arrears of rent .

17 Ultimately, the notice of motion was fixed for hearing on 30 July 1998 on which date the parties reached an agreement (the 1998 agreement) pursuant to which judgment by consent was entered for the Council for possession of the premises and leave was given for it to issue a writ of possession. However, it was agreed that the appellants would be permitted to occupy the premises from 30 July 1998 until midnight on 30 October 1998, provided they paid the Council certain monies as consideration for such occupation. Those monies were duly paid. The agreement also provided that the appellants’ right to occupation of the premises would terminate at midnight on 30 October 1998 and that upon such termination the Council would be entitled to immediate possession of the premises. Furthermore, it was relevantly agreed that the writ of possession to be issued pursuant to the consent orders which were then filed was not to be executed by the Council before midnight on 30 October 1998.

18 That date came and went and the appellants did not vacate the premises, and the gymnasium or fitness centre business continued to be conducted there. Accordingly, on 27 November 1998 the writ of possession which had been issued on 30 July 1998 was executed by the Sheriff, the occupants of the premises were evicted and the Council resumed possession. As the appellants were residing in Queensland at that time, the occupants who were evicted were, in practical terms, employees of one or more of the companies of which the appellants were the sole directors and shareholders.

19 At the time of the eviction, a considerable amount of equipment and other items that had been used in connection with the gymnasium business were left in the premises (the equipment). On 1 December 1998 or shortly thereafter, the first appellant informed the Council’s solicitor that he wished to remove the equipment and other personal items from the premises. The solicitor responded by advising the first appellant that she had been instructed by the Council that it would not permit the appellants to remove the equipment unless and until they could prove their ownership of it.

20 The solicitors for the respective parties then engaged in a string of correspondence, which included the assertion by the appellants’ solicitors that the appellants were entitled to remove the equipment as they had been in possession of the premises pursuant to the 1998 agreement and that they were, therefore, also in possession of the equipment from that date to 27 November 1998 when the writ of possession was executed. On the other hand, the Council’s solicitors indicated that their enquiries suggested that a corporate entity by the name of Northbow Pty Ltd (Northbow) could be either the owner or the entity entitled to immediate possession of the equipment. Those solicitors also asserted that the mere fact that the appellants were, as against the Council, entitled to occupy the premises up until 30 October 1998, did not prove that they were in actual possession of the equipment during that period of occupation. The appellants’ solicitor replied that the Council was not entitled to demand proof of ownership but was legally obliged to hand over the equipment to the appellants who were last in possession of the equipment and who had claimed it as their own.

21 In the meantime, the Council continued to pursue a reduced claim in the proceedings against the appellants in the sum of $99,661.66. The appellants denied liability for that amount and the Council continued to deny that it was required to hand over the equipment to the appellants unless and until they had established their ownership thereof. In this respect, the first appellant swore an affidavit on 21 July 1999 in which he deposed that most of the equipment was owned by Pace Fitness Corporation Pty Ltd (Pace), which was a non-trading family trust. Both Pace and Northbow were companies in which the appellants were the sole directors and shareholders.

22 Because of the ongoing disputes as to these issues, an order was ultimately made in the proceedings that the appellants file and serve a defence and cross-claim. Those documents were filed on 17 July 2002. I will refer to these pleadings in more detail below.

23 The equipment itself remained in the premises until early 2003. From 27 November 1998 until December 2002, the Council engaged a security patrol to ensure that the premises were kept secure at night. However, vandals were attracted to the premises because of its isolated location, and it was difficult to ensure their security. The premises were broken into on a number of occasions and some of the equipment was stolen. On other occasions the premises were vandalised and a number of fires occurred during 2002.

24 The Council ultimately conducted an audit of the equipment and prepared a list of items to be removed for disposal due to disrepair and a further list of items to be retained and stored. The first listed items were duly disposed of, and the remainder were stored at a cost of $3,300 per month until about February 2004. The Council then determined to dispose of them at auction, which occurred in March and April 2004.

25 The primary judge was critical of the circumstances under which the equipment came to be auctioned to the extent that the Council relied upon its alleged rights under the provisions of the Impounding Act 1993. However, no issue arises with respect to this manner of disposal except insofar as it bears upon the question of the costs of the proceedings, which I discuss below.

The pleadings

26 In its amended statement of claim dated 9 November 2000, the Council alleged that on 15 August 1986 the appellants went into possession of the premises; that Maccabi surrendered its lease to the Council on 1 January 1996; and that on that date the Council re-entered and took possession of the centre except for that part constituted by the premises and occupied by the appellants. It was then alleged that, by operation of law, the Council and the appellants became landlord and tenant with respect to the premises when the Council effected re-entry.

27 The amended statement of claim then pleaded the Notice to Quit, the fact that the appellants continued to remain in possession of the premises and their failure to pay rent since 1 January 1996 to the extent of $99,661.66. It was then alleged that the Council forfeited its lease to the appellants when it served the statement of claim upon them. Alternatively, if there was no lease to begin with, the Council alleged that the appellants were no longer entitled to remain in possession of the premises but were liable to pay the Council the same amount that it claimed for rent, but as consideration for their occupation of the premises.

28 The amended statement of claim alleged in the alternative that the appellants had been in possession of the premises from 1 January 1996 to 31 October 1997, and that they were liable to pay $202,695.99 for their use and occupation of the premises during that period.

29 The appellants denied each of the allegations contained in the amended statement of claim. In particular, they denied any relationship of landlord and tenant between themselves and the Council, and contended they were therefore not liable to pay rent. In para 21 of their defence, and in answer to the Council’s alternative allegation that, if there was no relationship of landlord and tenant between them, the appellants had nevertheless been in possession of the premises until 31 October 1997 and were liable to pay rent for their use and occupation, the appellants pleaded as follows:

“In further answer to paragraph 18A of the Amended Statement of Claim, the [appellants] say that when they occupied the premises, at all relevant times they did so on behalf of one or more of Tarzan & Jane Fitness Centre Pty Ltd, Northbow Pty Ltd and Huron Holdings Pty Ltd and that the [appellants] had no personal liability to the [Council] for any monies owing to the [Council] by those companies.”

30 In their amended cross-claim (the cross-claim) the appellants asserted (in para 1) that in or about November 1998 they managed and operated a gymnasium known as “Pace Fitness Club” in the premises for and on behalf of Northbow. After reciting that the Council entered into possession of the premises on 27 November 1998 and thereafter had locked out and excluded the appellants, the latter alleged (in para 3) that at the time the Council entered into possession of the premises, and at all prior times that were material, the appellants

“were the owners of and/or alternatively, had in their actual possession within the [premises], the equipment …”

It was then alleged that the Council had converted the equipment to its own use and wrongly deprived the appellants of its possession. This allegation in para 3 of the cross-claim is to be contrasted with para 21 of the defence (set out in [29] above) in which the appellants asserted that they occupied the premises only on behalf of one or more of their companies.

31 As an alternative claim, the appellants alleged (in para 9 of the cross-claim) that the Council became a bailee of the equipment for the appellants when it entered into possession of the premises, and took possession of and exercised control and domain over the equipment. As such, the appellants contended that the Council owed them a duty to use reasonable care and skill in keeping and taking care of the equipment, and that they had suffered damage as a result of the Council’s failure to do so.

32 Finally, the cross-claim set out facts (in para 11A) which, so it was alleged, justified an award of exemplary damages against the Council. The matters relied upon related to the manner in which it had used the Impounding Act for the purpose of disposing of the equipment.

33 In its amended defence to the cross-claim, the Council did not admit that the appellants were at any material time the owners of the equipment or had possession of it. In further answer to the cross-claim it alleged (in para 8) that Northbow had not requested the Council to deliver up the equipment left on the premises when the Council had taken possession.

The decision of the primary judge

34 The primary judge stated that he had two issues to determine. These were set out in the following terms (at [16]):

“1. Has the [Council] established on the probabilities that it is entitled to remuneration from the [appellants] in respect of rent or use and occupation for the period from 1 January 1996 up to the time the Agreement was made on 30 July 1998.
2. Have the [appellants] satisfied the Court on the probabilities that they were wrongfully deprived of the gymnasium’s equipment and other goods remaining within the premises at the time of execution of the Writ of Possession.”

35 His Honour answered each of the questions so posed in the negative and therefore dismissed both the Council’s claim and the appellants’ cross-claim.

36 So far as the Council’s claim was concerned, his Honour concluded (at [148]) that, on the probabilities, the entity which entered into the arrangements with the Council for occupation of the premises pending the execution of a formal licence was Huron or possibly Henagrow. He concluded that the Council had

“failed to satisfy me on the probabilities that the arrangements or agreement for payment of any fees for that occupation was made with the [appellants] personally.”

The Council does not challenge this decision.

37 His Honour’s decision on the cross-claim is the primary subject of the appeal. Notwithstanding that the appellants asserted (in para 3 of the cross-claim) that they were the owners of the equipment, and/or had the equipment in their actual possession within the premises, it would appear that at trial their evidence was that most of the equipment was owned by Pace, with some belonging to Northbow. In other words, it was not in issue that the appellants were not the owners of the equipment but that the equipment was owned by one or other of the companies of which they were sole directors and shareholders.

38 The primary judge dealt with the cross-claim at [218]–[291] of his judgment. He stated the relevant issue in these terms:

“Are the [appellants] entitled to immediate possession of the equipment?”

39 His Honour noted at [225] and [226] that the appellants had alleged (in para 1 of the cross-claim) that they operated the gymnasium for and on behalf of Northbow, and not in their own right. Northbow was incorporated on 18 December 1995 and the appellants had been its sole directors and shareholders since 22 December 1996. His Honour found (at [262]) that the ownership of the business name “Pace Fitness Centre” had been transferred to Northbow and Paristen Pty Ltd (Paristen) on 28 June 1997. The latter was incorporated on 1 May 1996 from which date the appellants were also its sole directors and shareholders.

40 His Honour stated the position of each of the parties in the following terms:

“228. In effect the [appellants] allege that it was they personally who exercised control and dominion over the subject equipment and goods. Accordingly, at the time of the demands, whether in December 1998 or May of 1999, they were the persons who had the immediate right to possession.
229. On the other hand, the [Council] submits that whatever dealings were performed with the equipment and goods by the [appellants] was performed by them in their capacity as servants and/or agents and/or directors of corporations and that the immediate right to possession was vested, not in the [appellants], but in the corporations on behalf of which they acted.”

41 The primary judge then referred to a number of authorities and, in particular, to a passage from Clerk & Lindsell on Torts(11th ed) at 454 to the effect that a

“mere servant who has custody or charge of goods on behalf of his master has not a possession in the sense now under consideration. The master has not only the right of possession, but constructively the possession itself.”

His Honour then noted (at [23]) that in McDowell v Ulster Bank (1899) 33 Irish Law Times Journal 233 Palles CB had pointed out (at 218) that, in cases of master and servant, it was necessary to examine the scope of the servant’s duties in order to determine whether the right to possession is in the master or the servant. The primary judge then continued in these terms (at [238]):

“More relevant to the present case is whether the use of the gymnasium equipment and goods within the subject premises by the [appellants] was in their own right or in right of the corporations of which they were at the relevant times sole directors and shareholders and by which they were employed as managers and were paid a fortnightly wage.”

42 His Honour then analysed the evidence, noting that the appellants had moved from Maroubra to the Gold Coast in Queensland in or about January 1996. The appellants then remained at the Gold Coast and employed operations co-ordinators to run the day-to-day affairs of the gymnasium at the premises as well as at another location in Bondi Junction. The primary judge noted that the first appellant frequently came to Sydney to supervise operations and was in almost daily contact by telephone, while the second appellant came to Sydney less frequently.

43 At [263] and [264] of his judgment, his Honour referred to the first appellant’s affidavit in which he had deposed that that he and his wife were paid a wage or salary by the company that operated the gymnasium during the whole of the time he managed the business, and that all expenses relating to the operation were paid by the company. In other words, while he worked in and managed the business in conjunction with his wife during the time the gymnasium was conducted from the premises, he only did so for and on behalf of one or more companies. During the whole of that time he neither personally employed any of the persons who worked in the business nor personally assumed or regarded himself as being responsible for the debts of the business including rent or occupation fees.

44 At [274] his Honour referred to the first appellant’s evidence that from 1996 until 1998 the customer’s fees at the Maroubra gymnasium were paid into Northbow’s bank account and that all the day-to-day expenses were paid out of that company’s cheque account. The only amount paid by the appellants personally was the occupation fee for the premises pursuant to the 1998 agreement. His Honour observed (at [275]) that the first appellant had given the following evidence:

“Even in that time Northbow paid all the wages, and cleaning, buying any of the stock and all the money was banked into that account as it had been in 1997. All the money went into Northbow’s account and it paid all the running day-to-day expenses.”

45 At [280] his Honour made the following findings based on his examination of the evidence:

“1 At the material times most of the goods and equipment were owned by Pace Fitness Corporation Pty Ltd of which the [appellants] were sole directors and shareholders.
2 Some of the goods were owned by Northbow Pty Ltd of which the [appellants] were sole directors and shareholders and employed as managers at a fortnightly wage.
3 Northbow Pty Ltd was granted the right to use the subject goods pursuant to a licence arrangement between it and Pace Fitness Corporation Pty Ltd.
4 The use and control of the equipment by the [appellants] was by virtue, either of their employment by Northbow Pty Ltd or by the exercise of their rights as directors of that company, or both.
5 The immediate right to possession of the goods at the time of the execution of the Writ of Possession on 27 November 1998 was vested in Northbow Pty Ltd. It was not vested in the [appellants] personally. This situation has not changed since that date even though this company was deregistered in February 2002 (see s 601 AD of the Corporations Act 2001).”

46 At [282] his Honour determined that in exercising control over the equipment the appellants were answerable to the respective companies of which they were directors and by whom they were employed. Their capacity and right to make decisions regarding the equipment and its purchase disposal and use was not, his Honour held, a right vested in them personally. It was a right which accrued to them by virtue of their position as directors of the relevant company and/or their employment as managers of the business conducted by that company at the premises.

47 The primary judge then referred (at [286]–[288]) to the statutory obligations of directors under the Corporations Act 2001 (Cth), including the obligation to make business judgments in good faith and for a proper purpose and to discharge their duties in the best interests of the corporation. His Honour then concluded in these terms:

“289 The [appellants] were under these duties to the respective corporations in respect of all of their acts in controlling the equipment and goods used in the course of the gymnasium business. In making a claim for the subject equipment and goods in their own right instead of in the right of the corporation they are not acting in good faith in the best interests of the corporation.
290 Under these circumstances the [appellants] have failed to satisfy the Court on the balance of probabilities that at the time the [Council] entered into possession of the gymnasium and at all material times prior thereto and at all material times thereafter they (the [appellants]) were, in their personal right, entitled to possession of the subject equipment and goods.

The submissions of the parties on the appeal

48 The appellants submitted that although it was common ground that the equipment was owned by Pace and/or Northbow, they were nevertheless vested with the management and control of the equipment at all material times. This was because the appellants could decide by which corporate entity and at which premises the equipment was to be held and/or used, to where and when it was to be removed and what equipment was to be acquired, sold or replaced. Accordingly, they argued that the primary judge had erred in finding that the they were, in effect, “mere servants” of the corporate owner so that even if they had actual physical custody of the equipment, the right to its possession remained with that owner. This error arose, they contended, because his Honour failed to consider their position from the point of view that they were the sole directors and shareholders of the corporate owner, and were thus the controlling mind of the corporation. By virtue of this position, it was submitted, they had the power and right to control the equipment in all respects, and were therefore not only in de facto possession of the equipment but also had the right to its immediate possession.

49 Alternatively, the appellants submitted that although the primary judge had found that they did not have the necessary intention to possess the equipment because they only exercised any such intention on behalf of its corporate owner, their possession vis-à-vis the corporate owner was such that there was, at the very least, an implied bailment by that owner to the appellants of the equipment, with the result that they had the right to its immediate possession.

50 In support of this contention, the appellants argued that the cases relied upon by the primary judge were distinguishable from the present case. This is because it was within the rights of the appellants as the directors of the corporate owner of the equipment to sell, dispose of or alienate that equipment “as they saw fit”. Although the appellants were obliged to act in good faith when accounting to the corporation for management of its affairs, their position was more closely comparable to that of an employee who manages the business of his or her master and who, in the course of that business, is free to dispose of the master’s chattels.

51 It was thus submitted that the appellants’ position as sole directors and shareholders, and in control of the management, of the corporate owner of the equipment constituted an arrangement that would suggest that there had been a transfer of exclusive possession as opposed to ownership, by the corporate owner to the corporate controller (the appellants) resulting in their being bailees of the equipment.

52 Accordingly, it was contended that the evidence was indisputable that the ownership of the equipment by Northbow or Pace was subsumed by the possession of the appellants in circumstances where the appellants alone had the power to make decisions in relation to the equipment and its custody and car. Even the ownership rights were, in a sense, those of the appellants which they could exercise without fear of contradiction as they were the only stakeholders in the corporate owner.

53 Essentially, therefore, the appellants’ contention was that because they were the sole directors and shareholders of the corporate owner of the equipment, they were entitled to deal with that equipment as if it was their own. That possession of the equipment was not as mere servants but, on the contrary, they had dominion over the equipment in respect of which they had total control to deal with it as they saw fit. The corporate veil could not deny these facts.

54 In what was referred to as a fallback position, the appellants further submitted that the effect of the 1998 agreement was that the corporate owner of the equipment was excluded from the premises and, as a consequence, had given up custody and possession of the equipment to the appellants who had the sole right to occupy the premises until 30 October 1998. Accordingly, , even if the appellants were not relevantly in possession of the equipment prior to 30 July 1998, its possession changed on that date with the result that the appellants were thenceforth in de facto possession of both the premises and the equipment.

55 It was therefore submitted that as they had the right to immediate possession of the equipment prior to midnight on 30 October 1998, the mere fact that they lost that possession upon their eviction did not mean that they had lost their entitlement to be restored to their rightful possession of the equipment by the Council even if, upon lawfully retaking occupation of the premises, the Council had obtained its de facto possession. Rather, it was argued that even if one accepted that the appellants only had physical custody as distinct from possession of the equipment prior to 30 July 1998, because they had the sole right to possession or occupation of the premises after that date, the corporate owner had thereby become separated from the equipment. As a result, the appellants’ relationship to the equipment could be characterised as one of possession as distinct from mere custody. As they were responsible for paying the fees in respect of their occupation of the premises, their prior custody of the equipment ripened into possession and they therefore obtained sufficient title to sue the Council for conversion.

56 The Council submitted that the appellants could only succeed in their action for conversion against it if they could establish that, at the time of conversion, they had the right to immediate possession of the equipment. It argued that his Honour was correct in finding that this was not so, and that the right to immediate possession remained at all times in the corporate owner of the equipment, either Pace or Northbow or both.

57 By a foreshadowed Notice of Contention, the Council sought to support the primary judge’s decision by submitting that upon execution of the writ of possession relating to the premises, it lawfully acquired possession of the equipment. Such possessory title, the Council submitted, was good as against every person except the true owner. Furthermore, the Council argued that its position was akin to that of a finder of goods left by another in premises. Being lawfully in de facto possession of the goods, that person does not have an unfettered discretion to deliver them to any person who makes a claim for their delivery but is required to return them only to the person who has the right to immediate possession which, relevantly, was the true owner. Reliance in this respect was placed upon the decision of the High Court of Australia in Russell v Wilson (1923) 33 CLR 538 at 546.

58 Absent any bailment, it was therefore submitted that the Council, which had lawfully obtained possession of the premises and thereby taken de facto possession of the equipment therein, had the right to its immediate possession. This right would stand against the appellants, as the prior possessor of the equipment, though not against the true owner. In the present case, it was submitted that the appellants, even if they had de facto possession prior to 30 October 1998, lost the right to immediate possession when they were evicted from the premises and when there was a change in de facto possession as a consequence of the Council regaining occupation .

59 In other words, the Council argued that the appellants as the prior de facto possessors of the equipment had no better right to its immediate possession, having lawfully lost de facto possession to the Council, than the Council as the present de facto possessor of the equipment. The appellants thus had no prior right to possession and the Council was required only to deliver up the equipment to the true owner.

60 Accordingly, the Council contended that it could not have committed any act of conversion by refusing to deliver up the equipment upon the appellants’ demand. This was because there was no conduct on the part of the Council which amounted to an intention to deprive the true owner of its right to immediate possession of the equipment.

61 It was thus argued, that the right to immediate possession was not determined by simply identifying a person who had lawful possession of the equipment at a time prior to the possession of the person who was the subject of the claim. Rather, it was necessary to examine the consequences of the fact that the prior possessor had parted with possession. Where the possessor subject to the claim had lawful possession, it necessarily followed that the right to immediate possession must always be with the true owner, unless that owner has lost that right by transferring it to another (as in the case of an ongoing bailment) or otherwise by operation of law (as where there is a seizure pursuant to a lawful warrant or common law power).

62 It was therefore submitted by the Council that irrespective of who was in actual possession of the equipment immediately prior to the action of the Sheriff in executing the writ of possession with respect to the premises, that action terminated the actual or de facto possession of the appellants and did so lawfully. The consequence was that the right to immediate possession was thereby vested in the Council, which was entitled to refuse to return the goods to anyone save the true owner. Only the true owner’s title was superior to the possessory title of the Council whose title was, in turn, superior to that of a prior de facto possessor (the appellants) whose possession had been lost.

63 The appellants responded to the foregoing submissions by contending that the decision in Russell v Wilson was distinguishable from the present case. They submitted that execution of the writ of possession conferred no right to the equipment upon the Council so that its de facto possession thereof was, in fact, unlawful or wrongful. The Council never acquired lawful possession of the requisite character of the equipment and was, therefore, required to deliver up the equipment to the appellants. Their prior lawful possession, it was argued, was not changed by the execution of the writ of possession, which related only to the right to occupy the premises and not to possess their contents.

The relevant authorities

64 The appellants referred the Court to a number of passages in relevant texts as well as to a number of authorities. The Court was first referred to Fleming, The Law of Torts (9th ed, 1998) at 73 where the following statement appears:

“A servant who has mere custody of goods on behalf of his master is not treated as being in possession: the master has not only the right to possession but ‘constructively’ the possession itself. … [Y]et a servant may become a bailee and sue for trespass or conversion, if an intent can be inferred to invest him with exclusive possession , as when the plaintiff was employed at weekly wages to navigate a ship and himself engaged and paid an assistant.” (Emphasis added.)

65 According to a footnote, the first of the above propositions drew its authority from the decision of the Appeal Division of the New Brunswick Supreme Court in Richard v Nowlan (1959) 19 DLR (2d) 229. This decision was also referred to by the primary judge at [230] of his judgment.

66 Authority for the second part of the above statement from Fleming was stated (in a footnote) to derive from Moore v Robinson (1831) 2 B & Ald 817; 109 ER 1346. That case related to whether the master of a vessel, who was hired by a canal company on weekly wages, was entitled to maintain an action in trespass, notwithstanding that the trespass had been against the property of the canal company. Reference was made to the case of Pitts v Gaince (1700) 1 Salk 10 where Lord Holt had said that the master of a ship might maintain trespass as might the bailiff of goods. On the other hand it was submitted that the master was but a mere servant with no possessory interest in the vessel in question. The Court held that the master was entrusted with the management of the vessel and its crew, and that the case was therefore indistinguishable from Pitts v Gaince.

67 The footnote in Fleming also refers to the decision of Hill J in The Jupiter (No 3) [1927] P 122. In that case his Lordship (at 131) referred to Moore v Robinson but considered that “at the present day” it was impossible to regard the master of a ship as its bailee. Conditions of modern commerce were quite different than those which applied in 1700 when Pitts v Gaince was decided. After referring to a passage in Pollock and Wright’s Essay on Possession in the Common Law, his Lordship said:

“After stating the rule that where an owner delivers a thing to a servant to be by him kept, used, carried or applied in the course of his employment as a servant … the master’s possession continues, they add, ‘it may be that it will sometimes as against strangers be treated as a possession in cases where the servants charge is to be executed at a distance from the master and where the manner of the execution is necessarily left in a great degree to the discretion of the servant’. In my judgment, Captain LePine never was in possession of the Jupiter nor had he at any time the right to possession. He was a custodian merely.”

68 Nevertheless, the appellants relied on the second part of the passage from Fleming and, in particular, that part which I have emphasised. They asserted that their situation was, in terms of the statement from Pollock and Wright cited by Hill J in The Jupiter, one in which “the manner of the execution is necessarily left in a great degree to the discretion of the servant”. It was submitted that, by virtue of their control of the corporate owner of the equipment, that owner had necessarily left in the hands of the directors “a great degree of discretion” with respect to the equipment which entitled them to its possession. Alternatively, the appellants became bailees as it could be inferred that the corporate owner intended to invest them with exclusive possession of the equipment.

69 In my opinion, these submissions should be rejected. However, before giving my reasons for this conclusion, it is necessary to refer to some further authorities relied upon by the appellants.

70 The Court was next referred to the current edition of Clerk & Lindsell on Torts (19th ed, 2006) at [17]–[55] (pp 1032–1033) where the following passages appear under the heading “Goods in the Custody of Employees”:

“It should be noted, however, that an employee who has custody or charge of goods on behalf of his employer does not as such have possession in the sense now under consideration. The employer has not only the right of possession, but constructively the possession itself: from which it follows that, if the goods are interfered with, the employee cannot sue in conversion.
This is the traditional rule, which seems generally accepted. However, an important caveat must be added. While an employee does not as such possess his employer’s goods, the case is different where the employer evinces an intent to make the employee a bailee of those goods in addition. This is likely to be the case where the employee is allowed to use the goods for his own purposes (as with a company car); and possibly in other cases where he is given considerable discretion how to employ them. …
In short, the practical result now seems to be that in most cases the servant will be able to sue. Moreover, it is submitted that this is no bad thing. A plea by a convertor that he has been sued by the wrong claimant is normally an unmeritorious one …”

71 The same authorities are relied upon in the footnote to the above passage as those referred to in the footnotes to the passage from Fleming to which I have referred above. Again, the appellants rely upon the above statements and submit that the corporate owner of the equipment had evinced an intention to make them bailees of the equipment, particularly given the considerable discretion vested in them as directors of the company as to its deployment.

72 Reference was also made to Palmer on Bailment (2nd ed, 1999) where, at 108, the following is stated:

“As a general rule, a servant does not obtain possession of her or his master’s chattels. This rule is subject to wide exceptions and it may be questioned whether it retains any practical value.”

73 At 103 the learned authors state that for possession to amount to bailment, there must be a high degree of physical control over the chattel in question to the exclusion (at least) of the bailor. At 106 it is stated that this is a question of fact and degree, although the question of control and the distance between the owner and his chattel are clearly relevant factors. The Council relied on the factor of distance as supporting its position, given that, at all material times, the appellants were in Queensland and the equipment in Maroubra, New South Wales. As such, there was a significant distance between the appellants who were claiming to be bailees and the relevant equipment. However, I do not consider that this factor is in any way determinative.

74 The Court was next referred to Pollock and Wright where (at 139) the following passage appears:

“In any view for the language of this decision [ Oliver’s case] is a strong authority against holding that a servant’s custody is in general sufficient to support an action or prosecution as for a taking of the thing from his possession, even as against a mere wrongdoer; though it may be that it will sometimes as against strangers be treated as a possession in cases where the servant’s charge is to be executed at a distance from the master and where the manner of the execution is necessarily left in a great degree to the discretion of the servant.”

75 The appellants submitted that this passage could be transposed to the directors of a company who are sole directors and shareholders, as in the present case. They argued that because they controlled the corporate owner of the equipment, they were vested with both an exclusive and complete discretion as to its deployment with the consequence in law that they were to be treated as having the immediate right to possession.

76 On the other hand, the following further passages from Pollock and Wright are of some significance. Thus, at 17, the authors state:

“Possession in law is most easily understood as associated with possession in fact. This is the normal aspect of the right. It exists, broadly speaking, for the benefit of possessors in fact and in good faith, even if we hold the ulterior object is the benefit of those who, as being or claiming through true onus, are really entitled to possess. The law would be much simpler than it is if it were held that actual control or custody invariably gives actual legal possession, whether the custodian exercises control on his own account or is the servant or otherwise on behalf of another. But no system of law, so far as we know, has gone to that length. A manifest intent, not merely to exclude the world at large from interfering with the thing in question, but to do so on one’s own account and in one’s own name, is required in different degrees both by the Roman law and Common Law.”

77 Again, at 18 the authors observe:

“It may be observed however that a servant’s custody is often so manifestly exercised not on his own account but on his master’s, that it has no colour of apparent ownership. If we regard acts according to their apparent intent and effect, as measured by the common knowledge of mankind, we can hardly say that a groom exercising his master’s horse is even in de facto possession of the horse. He is in appearance as much in fact, in fact as much as in law, the master’s instrument for exercise the master’s power. There is no appearance of acting on his own behalf which could mislead a man of ordinary judgment.”

78 Further, at 19:

“It is not merely that things continue in a man’s possession though they be out of his immediate control, so long as his active control is, as some say, capable of being reproduced, or, as others say, his relation to them is consistent with the usual dealing of an owner of such things.”

79 Under the heading “The Transfer of Possession”, the following appears at 58:

“The simplest case is the handing over of a moveable object with intent to transfer ownership or a more limited right, including the right to use or have control of that object. Such a delivery, whether the transaction be gift, sale, or bailment, always transfer possession to the deliveree.
…
On the other hand, a servant in charge of his master’s property, or a person having the use of anything by the mere licence of the owner, as a guest has the use of the furniture and plate at an inn, generally has not possession.”

and at 59:

“We have pointed out in the Introduction that in the great number of common cases the servant may be said not even to have possession in fact, for he would not be supposed to by any ordinary observer to have the physical custody of the thing otherwise than on his master’s behalf and at his master’s disposal.”

80 Finally, at 60 the authors opine that:

“the rule is settled in our modern law that a servant does not possess by virtue of his custody, except in one case, namely when he receives a thing from the possession of a third person to hold for the master: and then he is held to possess as a bailee until he has done some act by which the thing is appropriated to the master’s use. …
We do not know of any case in which a delivery by the master to the servant with intent to deliver possession besides custody has been proved as a matter of fact. The holder of goods may make his servant a bailee if he thinks fit, and the holder of land may make his bailee a tenant at will; but the law does not regard this as a normal state of things, and probably rather strict proof would be required . There is no reason however to doubt that such an intent, if sufficiently proved in a particular case , would be effectual in law.” (Emphasis added.)

81 Finally, reference was made to the decision of Young J (as he then was) in Vincent v State Bank of New South Wales (Unreported, Supreme Court of New South Wales, 30 July 1993). The case concerned a company which was at all material times prior to June 1986 the beneficial and registered owner of a Porsche motor vehicle. The vehicle had been in the physical possession of the plaintiff, who was a director of the company. The company records revealed that the vehicle had been disposed of as at 30 June 1986 and had not appeared in those records since. However, the company had paid accounts in respect of the vehicle including registration, insurance and NRMA fees, some of which were debited from the plaintiff’s loan account.

82 The company’s journal in 1986 showed that the recorded value of the vehicle was paid by the plaintiff, who had the appropriate sums debited from his loan account. There was no record of any resolution of the company or written agreement between the plaintiff and the company agreeing to sell him the vehicle.

83 In 1993 the bank claimed the vehicle alleging that it was property of the company over which it had a charge. The plaintiff’s solicitor informed the bank that the car was not company property but the bank’s agent seized the vehicle from outside the plaintiff’s premises. The plaintiff demanded return of the vehicle which was refused. His Honour ordered that it be returned on the basis that the evidence was sufficient to establish that the company had either sold the car or otherwise given it to the plaintiff, or had abandoned its property in it. Accordingly, the plaintiff had ceased to hold the vehicle as an agent for the company and his possession was good as against the whole world.

84 In the course of his judgment, his Honour made the following observation:

“When goods are in the care of a servant, even the highly exalted servant such as a managing director, they are not in his possession as a matter of law, but in the possession of his master. If there is a transaction in which the goods are said to have passed from the possession of the master to the servant, then it is almost impossible to show delivery unless there has been some overt act by which the status of the possession has demonstrably changed.”

85 After referring to Pollock and Wright at 58–59, his Honour continued:

“They [Pollock and Wright] also point out that even last century there were cases where a servant has been allowed to sue in his own name for trespass to the goods of which he was in charge; eg Moore v Robinson (1831) 109 ER 1346. However, this is a special type of situation and in general the proposition is true that if a car is in the care and control of an employee, that employee does not have possession of the car in the ordinary legal sense of the word.”

86 Young J then referred to a number of decisions involving the transfer of chattels after which he observed:

“It seems to me that when one looks at the whole of these cases, the question is one of fact as to whether the circumstances show that the former servant … who has remained in care and control of the chattel at all material times has changed his or her possession from that of an agent of the employer to personal possession.”

87 His Honour then considered that there were three possibilities, namely a contract for sale, a transfer of possession or an abandonment by the company and acquisition of the vehicle by the plaintiff. With respect to the second of these possibilities, which is relevant to the present case, his Honour made the following observations:

“If there was a sale, then one does not need to look at delivery. They have already dealt with the concept of the delivery when there is a transaction which means that a person who physically holds a motor vehicle on behalf of another is thereafter to hold it for himself. As I have already said, this raises a question of fact as to whether there has been a delivery in all the circumstances. Of course, there need not necessarily be a physical transfer, if, for instance, a person is told that if he can find something he can keep it, that would appear to be sufficient delivery … The only factor which indicates a change in the nature of the possession of the car is the fact that Mr Vincent paid some of the expenses. Whilst that is weakened by the fact that some were ‘expensed to the company’, it seems to me that the more probable explanation is that the latter was more likely to be the error than the former. Accordingly, on the balance of probabilities I think there is just enough evidence to show that there was a delivery of the motor vehicle. Thus it would not matter whether there was a contract for sale or even a gift because the transfer would have taken place by physical delivery.”

88 The appellants relied upon this passage as supporting the proposition that, as a consequence of the 1998 agreement, there was a change in the character of the appellants’ custody of the equipment. That is, from 30 July 1998, the appellants’ were no longer mere custodians of the equipment on behalf of its corporate owner, and instead took possession in law. This, they contended, gave them title to sue for conversion when the Council refused to permit the appellants to remove the equipment from the premises.

Do the appellants’ contentions have merit?

89 In my opinion there is no merit in this last contention of the appellants. Equally, in my view, there is no substance in their contention that, irrespective of the 1998 agreement, they at all times before and after 30 July 1998 had possessory title to, or the right to immediate possession of, the equipment in their personal capacities because, as sole directors and shareholders of its corporate owner, they had complete and exclusive control over the manner in which the equipment was used, the location where it was used and over its disposal or other deployment.

90 In rejecting the appellants’ submissions I rely upon the following matters, which were established by the evidence and the primary judge’s findings. First, there was never any resolution of the directors of the corporate owner of the equipment meeting as the board of the company whereby it entered into a contract of bailment of the equipment to the appellants. Second, there was no overt act on the part of the corporate owner that, in my view, evinced an intention on its part to transfer possessory title of the equipment to the appellants for them to deal with as they saw fit for their own purposes.

91 Third, as directors of the corporate owner of the equipment, the appellants were bound in law by virtue of the Corporations Act 2001 to exercise their powers and to discharge their duties as directors in good faith in the best interests of the corporation and for a proper purpose. Fourth, on their own evidence, the appellants worked in and managed the business for and on behalf of the company or companies who, from time to time, traded under the business names under which the business was carried on at the premises. Fifth, all costs associated with the acquisition, repair, maintenance and disposal of the equipment was on account of its corporate owner, or the corporate owner of the business to the extent to which at any time they may have been different.

92 Sixth, the business carried on by the appellants in the premises between 30 July 1998 and 30 October 1998 was at all times the business of Huron or Henagrow and the equipment used in that business was at all such times owned by Pace and/or Northbow.

93 Seventh, as asserted in para 1 of their cross-claim, the appellants acknowledged that at the time the writ of possession was executed on 27 November 1998, they did not operate the gymnasium known as “Pace Fitness Club” at the premises in their own right but managed that business before and on behalf of Northbow which, at the same time, was also the owner or part-owner of the equipment.

94 Eighth, to adopt and adapt the passage of Pollock and Wright (at 18), recorded in [77] above, in managing and conducting the gymnasium business for and on behalf of Northbow, the appellants manifestly did so not on their own account but on Northbow’s account and in circumstances which gave no indication of their apparent ownership of the business. In appearance as much as in fact, in fact as much as in law, the appellants were Northbow’s instrument for operating that company’s business. The circumstances did not give the appearance that the appellants were acting on their own behalf rather than that of Northbow which could “mislead a man of ordinary judgment” to consider otherwise.

95 Again, to adopt and adapt the passage from Pollock and Wright (at 58) referred to in [79] above, although a person may be in charge of a company’s equipment and business (as the appellants were in the present case), like a person having the use of anything by the mere licence of the owner, such a person will generally not have possession. Just as Young J had observed in Vincent, in this case there was no evidence of any overt act of the corporate owner of the equipment by which the status of its possession or custody in the hands of the appellants changed from mere physical custody to a right to immediate possession in their personal capacities.

96 To hold otherwise would, in my view, pierce the corporate veil in a way that is impermissible. It is a truism to say that a company can only act through its officers and agents. An officer may well carry on the company’s business and his or her decisions may control the manner in which the company’s property is held, used, acquired or disposed of. However, this does not vest in that officer (including, as Young J observed in Vincent, even a managing director), with such control and dominion over the property of the company as to change the physical custody of that property from the possession of the company to the possession of the officer in the sense that that officer then has the immediate right to possession of, or the possessory title to, the company’s property entitling him or her to sue for trespass or conversion in his or her own name.

97 In this case, the appellants were the sole directors and shareholders of the corporate owner of the gymnasium business and the equipment, and they performed their duties as directors and employees of the relevant corporate entities in utilising the equipment in the course of the business. It follows from the discussion above that this alone cannot, in my view, justify the conclusion that not only the equipment but the other assets of those companies (to the extent to which they may have been different) was possessed by the appellants in their own right rather than on behalf of their corporate owner.

98 Clearly, it was not open to the appellants to deal with the equipment otherwise than in accordance with law. As the primary judge also found, the appellants were bound by the relevant provisions of the Corporations Act, which imposed duties of good faith upon the officers of the corporation and required them to exercise their business judgment for a proper purpose.

99 In accordance with their role as directors of the relevant companies, which carried on the business at different locations, and consistent with their duties to the corporate owner of the equipment, the appellants deployed the equipment at those different locations. But it could not be said that they did so for their own purposes as distinct from the purposes of the companies that owned the businesses. Even if those companies were different from the corporate owner of the equipment, it would appear that it was the business of the latter to provide the equipment to the former for the purpose of their respective businesses. If this is so, then the equipment was bailed to those companies but not to the appellants.

100 Accordingly, it may be accepted that Northbow or Pace, as the corporate owner or owners of the equipment, through their directors, the appellants, deployed their equipment in the gymnasium businesses that their associated companies were carrying on at different locations. But the appellants were acting as agents of Northbow or Pace which, as owner or owners of the equipment, retained the legal right to regain possession of the equipment from the companies that operated the gymnasiums.

101 For the foregoing reasons, therefore, in my opinion the primary judge was correct in holding that the appellants were not at any relevant time entitled to possession of the equipment in their personal capacity.

102 Turning then to the appellants’ “fallback” position, essential to it was that by the 1998 agreement under which they were permitted to occupy the premises, that occupation carried with it possession of the equipment so that they had de facto possession in their own right and an immediate right to possession giving title to sue for conversion. There are, in my view, a number of reasons why that submission should not be accepted.

103 First, and as I have already observed, the appellants admit that they continued to carry on the gymnasium business on behalf of its owner, Henagrow, Huron or Northbow (probably the latter as the owner of the business name “Pace Fitness Centre” as and from 28 June 1997) from the premises after 30 July 1998. The equipment remained in the ownership of Pace or Northbow, who may be taken to have authorised its use as and for the purposes of that business. In these circumstances it does not seem to me that the possession of the premises under the 1998 agreement carried with it possession of the equipment in the right of the appellants. Rather, the continued presence of the equipment on the premises was equipment of Pace or Northbow the use of which in the gymnasium business they had authorised through their directors, the appellants. The possession of that equipment remained that of the company or companies operating the gymnasium and the right to regain possession was that of Pace or Northbow. The appellants may have had possession of the premises, but that did not carry with it possession in their own right of the equipment.

104 Secondly, even if the possession of the premises by the appellants carried with it possession in their own right of the equipment, that position enured only so long as the appellants lawfully held possession of the premises. Their lawful possession ceased no later than 27 November 1998. Any de facto possession of the equipment which accompanied possession of the premises then also ceased, and the appellants in their own right no longer had whatever right to possession they might previously have enjoyed. As was made clear in the course of the appeal, the appellants relied for their cause of action on the Council’s refusal to return the equipment when requested to do so some time later; and at that time if the appellants had ever had a right to immediate possession of the equipment, they no longer had it. In this regard, see the discussion of Russell v Wilson later in these reasons.

Did the Council have possessory title that was no worse than that of the appellants?

105 In its notice of contention, the Council raised an alternative argument that, upon the execution of the writ of possession on 27 November 1998, the appellants’ physical custody of the equipment ceased and became vested in the Council. As noted in [57] above, the Council’s title to possession of the equipment was no worse than that of the appellants or, more accurately, the appellants did not have a better possessory title to the equipment than the Council with the consequence that the latter was entitled to retain the equipment against the whole world other than the true owner. As I am of the opinion that no error has been demonstrated in the primary judge’s conclusion that the appellants did not have an immediate right to possession of the equipment which entitled them to sue the Council for conversion, it is not strictly necessary to deal with this argument. However, in my view the appellants must also fail on this point, and I will provide my reasons for the sake of completeness.

106 In Russell v Wilson, the appellant Russell, a police officer, purporting to act under authority conferred on him by a search warrant issued under the Gaming & Betting Act 1912, entered Wilson’s premises and seized certain money and valuable securities which had been received by him in connection with a business carried on by him in the premises which promoted sweeps on horse racing. Wilson was subsequently prosecuted and convicted on a charge under s42 of the Gaming & Betting Act. An appeal by him against that conviction was dismissed. No order for forfeiture of the money and securities was made under s44 of that Act. After the appeal was dismissed, Wilson made a demand upon Russell for the return of the money and securities, which was refused. In an action by Wilson against Russell, the High Court held that assuming the seizure of the money and securities by Russell was lawful, Wilson was entitled to recover both the money and the securities.

107 In their joint judgment, Isaacs and Rich JJ at [545] observed that Russell had submitted that Wilson’s claim must fail because, inter alia, Wilson’s actual possession of the money and securities was lawfully terminated when they were seized by Russell pursuant to the search warrant on 6 May and was never in fact renewed. As a result, he could not succeed by reason of possession only. In other words, Russell having once obtained possession rightfully could never be considered a wrongdoer.

108 Their Honours considered that this submission could not be sustained. At 546 they said:

“Immediately before the seizure on 6 May 1921, Wilson was in actual possession of the all the property seized, which comprised the proceeds of the forbidden transaction. But he was possessed of that property as for himself by actual consent of the original, and, we shall for this purpose assume, the continuing, absolute owners of the property. That is to say, he had possession of the property, not as servant or agent of another, but as in his own right subject to any right of the absolute owners to recover it whenever they so desired. Had there been no intervention of the police, his possession would have continued unless the absolute owners had recovered the property from him, either upon simple demand or by action. They have not intervened, and the matter is left to a contest between Wilson and the police. … [Wilson] starts with actual possession as being the owner of the property. It is true his possession was broken. But it is of the essence of the matter to enquire first what right his possession in the circumstances conferred and next what the breaking of it involved with regard to that right. Possession, in the relevant sense, is not merely evidence of absolute title: it confers a title of its own, which is sometimes called a ‘possessory title’. This possessory title is as good as the absolute title as against, it is usually said, every person except the absolute owner.”

109 At 547, after referring to a number of authorities, their Honours continued in these terms:

“It is therefore clear that Wilson had by that possession a real ‘title’ to the property, just as lawful and just as powerful as if it were the absolute title, except as against the absolute owner, or any person claiming to hold by virtue of the absolute owner’s authority. And it is also clear that a wrongdoer is, according to Lord Campbell, ‘ one who takes them ’ (the goods) ‘ from him ’ (the possessor) ‘‘ having no title in himself ’. The expression ‘ having no title in himself ’ must, we think, mean no legal right superior to the title of the possessor. If the person taking the goods has a superior right, then to the extent of that superior right , and to that extent only must the possessory title yield. The absolute owner, his rights being unqualified by any circumstance, would of course be justified in taking and keeping or demanding the goods, because his title is superior.” (Emphasis in original.)

110 The question in that case was, therefore, whether the police’s right and duty was to finally terminate Wilson’s actual possession, in which case his possessory title would vanish and he would fail as against the police. Accordingly, the question was whether the police had a superior right to Wilson’s.

111 At 548 their Honours noted that the powers of the police could not be extended beyond the limits imposed by the Gaming & Betting Act. Section 40 permitted the issue of the warrant and authorised its form and the action under it. There was nothing in the Act that imposed a duty on the police to permanently deprive Russell (as the betting house keeper) of the relevant property and to hold that property henceforth from the true owners. In the circumstance that no order of forfeiture was sought or made, it followed that the instant the proceedings authorised by the Gaming & Betting Act were finally terminated by the dismissal of Wilson’s appeal against his conviction, the power of seizure and retention by the police was exhausted. The police’s statutory right had expired and their superior right no longer existed. Accordingly, their refusal to return the money and securities was that of a person who was depriving Wilson of the property. Such a person had, in Lord Campbell’s words, “no title in himself”, and was, in other words, a wrongdoer. Wilson’s position reverted to that which he had held immediately before the seizure as to both the money and the securities and he therefore had an instant right to possession as against Russell.

112 The decision in Russell v Wilson was referred to in the joint judgment of Deane, Dawson, Toohey and Gaudron JJ in Gollan v Nugent (1988) 166 CLR 18 at 47. Of that decision their Honours said:

“The possessory title of the plaintiff to the money was held to be good against all but a superior title such as that of the true owners. Once the proceedings against the plaintiff had terminated, no order for forfeiture having been made, the power of seizure and retention by the police was exhausted.”

113 It is to be noted that in Russell v Wilson, the latter had possession of the relevant property not as servant or agent of the true owners but in his own right due to the fact that he was possessed of that property with the actual consent of the true owners, until such time as those owners demanded its return. I do not regard the position of the appellants in the present case as in any way analogous to that of Wilson. As I have indicated, in my view at all times the possession of the appellants was not in their own right but in the right of the corporate owner or owners of the equipment.

114 The Council submitted that, when it lawfully obtained possession of the premises by reason of the execution of the writ of possession, it also obtained lawful possession of the equipment which had been left in the premises. It is true that the writ of possession itself conferred no right to the equipment upon the Council, but it does not follow that when it took possession of the premises it did not lawfully enter into possession of its contents including the equipment. The Council’s possession, like that of the appellants, was subject to the rights of the corporate owner of the equipment. To put the matter another way, up until 27 November 1998 the appellants had physical custody of the equipment but the right to immediate possession remained in the corporate owner of the equipment. The appellants ceased to have that physical custody when they were evicted from the premises and at which point physical custody vested in the Council.

115 Like the appellants, that custody was held on behalf of the corporate owner of the equipment who still had the right to immediate possession. It followed that the appellants not only did not have the right to immediate possession of the equipment, but had simply been deprived of physical custody. In any event, it is clear that even if they did have some right to the physical custody of the equipment, that was not a legal right which was superior to the legal right of the actual possessor, the Council. Accordingly, there was no obligation on the Council to yield its possessory title to the appellants who had no right to the equipment superior to that of the Council. On the contrary, the Council could only yield its possessory title to the corporate owner of the equipment who had the right to possession of the equipment. For these additional reasons, in my opinion, the appellants did not have any relevant possessory title entitling them to sue the Council for conversion.

116 Accordingly, the appellants’ challenge to the primary judge’s decision should be rejected.

The question of costs

117 As the Council failed in its claim and the appellants failed in their cross-claim, a question arose as to the appropriate order with respect to the costs of the proceedings. The primary judge dealt with this question in a supplementary judgment on 31 May 2005.

118 After reciting what he referred to as “a long and unfortunate history” of the matter, which had occupied eight days of hearing before Justice Shaw in July 2004 and, after his Honour’s retirement, a further 13 days before the primary judge, each party had failed to establish its or their claims.

119 The appellants submitted to the primary judge that costs should follow the event with the result that the Council should pay the costs of the claim and the appellants should pay the costs of the cross-claim. The Council on the other hand submitted that there should be no order for costs on either the claim or cross-claim other than that made by Justice Shaw on 12 October 2004 when his Honour granted leave to the Council to file an amended defence to the appellants’ amended cross-claim based upon the Impounding Act 1993.

120 His Honour then noted that on the Council’s claim there were two primary issues. The first was the question of which entity was liable to pay the rent or occupation fee, and the second was whether that entity was the appellants personally or one or more of their companies. On the cross-claim, the issue identified by his Honour was who had the immediate right to possession of the equipment. Was it the appellants personally or one of their companies? In relation to the claim, his Honour had held that the entity occupying the premises and operating the gymnasium business was not the appellants personally, whereas with respect to the cross-claim he had held that the immediate right to possession of the equipment was vested in one or more of the companies and, again, not in the appellants personally.

121 His Honour then said this:

“So, the primary issue on both the action and the cross claim was the identity of the entity operating the gymnasium business. I, therefore, reject the submission on behalf of the [appellants’] that the issue in the [Council’s] claim and on the [appellants’] cross-claim was separate and distinct.”

122 Accordingly, his Honour considered it appropriate to order each party to bear and pay its or their own costs subject to a number of exceptions which are not in issue. The first was Justice Shaw’s order of 12 October 2004 that the Council pay the appellants’ costs of the application for leave to amend its defence to the cross-claim. The second was that the Council should pay the appellants’ costs of 22 and 23 July 2004, which had been thrown away by reason of the adjournment of the hearing due to the failure of the Council to make full discovery of documents which were of significance in the case. The third was that the Council should pay the appellants’ costs of 11 and 12 May 2005 being the days taken up by evidence relating to the conduct of its officers purporting to apply the provisions of the Impounding Act which his Honour found to be “totally unmeritorious, improper and verging upon the dishonest”.

123 The appellants submitted that his Honour erred in finding that the issues in the claim and the cross-claim were not separate and distinct. The issue in the claim by the Council was whether the appellants were in occupation of the premises personally or whether the occupant was one or more of their companies. The issue in the cross-claim had nothing to do with occupation of the premises but related to whether the appellants had an immediate right to possession of the equipment as at 27 November 1998. These were said to be distinct issues although there was a degree of overlap in the evidentiary material.

124 The appellants further submitted that in the Council’s claim some 11 affidavits were filed to which the appellants were required to respond. Furthermore, of the 24 days of the hearing, approximately 23 days were concerned with the Council’s case. No doubt, to a degree, this was due to the fact that the evidence given with respect to the claim also covered the evidentiary material relevant to the cross-claim.

125 So far as the special orders made by the primary judge in favour of the appellants were concerned, these would be subsumed in any order that the Council pay the appellants’ costs of the claim.

126 The question of costs is, of course, discretionary. Before there will be appellate intervention in the exercise of that discretion, it is therefore necessary for the party challenging the orders to demonstrate that the primary judge’s discretion has miscarried in the relevant House v The King sense: see House v King (1936) 55 CLR 499. Such a miscarriage may include a misunderstanding by the primary judge of the issues and/or a failure to take a relevant consideration into account.

127 I am not satisfied that demonstrable error in the relevant sense has been established. It is true that the issues in the claim and cross-claim were, at least to a degree, separate and distinct. However, there are also overlapping considerations and, in particular, overlapping evidence whereby the evidence in relation to the claim was, at least in part, relevant to the issue raised in the cross-claim. In my opinion when the primary judge said that “the primary issue on both the action and the cross-claim was the identity of the entity operating the gymnasium business” he was generally correct insofar as it was contended that that entity had immediate right to possession of the equipment utilised in that business.

128 Although the appellants accepted that the gymnasium business was owned by a corporate entity, they nevertheless asserted that their unconditional operation of that business, albeit on behalf of its corporate owner, carried with it the right to possession of the equipment utilised in that business.

129 Thus, in the claim and cross-claim, the issues concerned, respectively, the identity of the entity operating the gymnasium business, and the question of who had the right to immediate possession of the equipment used in the business. It was necessary to distinguish, for the purposes of each question, whether this was the appellants personally or whether it was a corporate entity of which the appellants were the sole directors and shareholders. I think it is this significant overlap that prompted his Honour to reject the appellants’ submission that the issues in the claim and cross claim were separate and distinct. In my opinion there was no error in his expression of that view.

130 As to the submission that his Honour failed to take into account the assertion that some 23 out of the 24 days of hearing were concerned with the claim of the Council as distinct from the cross-claim of the appellants, in my view his Honour was well aware of the nature of the evidence that was given both before Justice Shaw and himself. As appears from his principal judgment, which was handed down on the same day as his Honour’s ex tempore costs judgment, this included the fact that the evidence as to the relationship between the parties in terms of the occupation of the premises extended from 1986 to 1998. He must also have been perfectly aware that the relationship between the appellants and their companies was relevant with respect to both the claim and the cross-claim.

131 In my opinion, it was open to his Honour to determine that in all the circumstances, and subject to the special orders that he made in favour of the appellants, each party should pay its or their own costs of the claim and cross-claim.

132 However, even if error were established so that this Court would be required to exercise for itself the discretion with respect to the costs of the hearing at first instance, it seems to me that there are good grounds for making an order no different to that made by the primary judge. To order that costs should follow the event, leaving it to the costs assessor to work out which costs were applicable to the claim and which to the cross-claim, would not only involve the expenditure by the parties of further unnecessary costs but would also pose a most difficult and complex task for the costs assessor. In the circumstances of this case, it is understandable that such an outcome should be avoided. Accordingly, if I was required to exercise the discretion myself, I would have come to the same view as the primary judge and made identical orders.

133 Accordingly, in my opinion the appellants’ challenge to the orders for costs made by his Honour should be rejected.

Conclusion

134 In my opinion each of the challenges by the appellants to the findings of the primary judge have failed. It follows that the appeal should be dismissed with costs.

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