Cash Logistics Pty Ltd v Nelson - [2015] SASC 117

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
CASH LOGISTICS PTY LTD & ANOR v NELSON
[2015] SASC 117
Judgment of The Honourable Justice Stanley
17 August 2015
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT
BAILMENTS - IN GENERAL - SUB-BAILMENT
Appeal from a judgment of a magistrate who dismissed a claim by the appellants against the respondent for the sum of $95,343.69.
The appellants conducted a business collecting cash from businesses and transporting it securely to banks or other financial institutions. It subcontracted some of its work to the respondent. The magistrate found that this was pursuant to a written contract described as an Independent Contractor’s Agreement. Clause 8.2 of the contract made the respondent liable to compensate the appellant, Cash Logistics Pty Ltd, for any loss or damage arising from a breach of the agreement. One of the clients of the appellants’ was a Sydney-based business, Chambers Cellars. Part of the work performed by the respondent pursuant to this contract with the appellants was the conveyance of cash from the premises of Chambers Cellars to its bank. On two occasions in 2014 employees of the respondent were robbed. As a result, cash belonging to Chambers Cellars in the sum of $120,573 was stolen. The cash was stolen while in transit to the bank after being collected by employees of the respondent from the Chambers Cellars premises. The appellants reimbursed this sum to its client. It sought to be indemnified in respect of this amount from the respondent. The respondent paid the appellants $15,000. A further sum of $11,103.89 owed by the appellants to the respondent was retained by the appellants to satisfy part of its claim against him. The respondent did not seek recovery of this amount. The appellants sued for the balance.
At trial in the Magistrates Court the appellants conducted the action on the basis that the respondent was liable as a bailee for reward. They submitted that as a bailee for reward the respondent was under a duty to take such care of the bailed goods as was reasonable in the circumstances and in the event of the loss of the goods during the period of bailment the onus was upon the respondent to disprove that the loss resulted from any negligence on his part. The respondent denied liability principally on the basis that he had no contractual relationship with the appellants. The magistrate rejected this defence, finding that Cash Logistics contracted personally with the respondent. Further, the magistrate found the existence of an oral agreement between the appellants and Chambers Cellars. However, the magistrate dismissed the claim on the basis that the appellants failed to establish any contractual agreement with Chambers Cellars obliging them to indemnify it for all or any of the losses sustained by reason of the two robberies and, accordingly, the magistrate held that the appellants had not proved they suffered any loss. In these circumstances there was no liability on the part of the respondent to indemnify the appellants for any loss as no loss had been suffered.
The appellants submit that there was an oral contract between the appellants and Chambers Cellars which gave rise to a bailment relationship. By reason of the contract the appellants were the bailees of Chambers Cellars’ property. As bailees they were under an obligation to take proper care of the cash the property of Chambers Cellars. They were not relieved of that obligation by subcontracting their duty to the respondent. As a consequence they were liable to their client for the loss of its property unless they were able to discharge the onus of proving that the loss of property did not result from the negligence of themselves or their subcontractor, the respondent. They contend that, as their subcontractor, the respondent was a sub-bailee and bore the onus of negating an inference of negligence in performance of the contract that arises from the fact of the thefts. In the absence of evidence on the question of negligence, the respondent was liable for failing to discharge the onus he bore as a sub-bailee for the loss of the property of Chambers Cellars.
Held (per Stanley J) allowing the appeal:
1. The contractual relationship between the appellants and Chambers Cellars established a bailment relationship (at [19]).
2. While the appellants never obtained the actual possession of the cash, they are properly to be characterised as quasi-bailees pursuant to the contract with Chambers Cellars. Although they were entitled to delegate the performance of their obligations as bailees they could not delegate their responsibilities. They were liable for any loss of, or damage, to the property of Chambers Cellars resulting from a breach of its duty as bailee notwithstanding that the loss or damage may have been caused by the respondent (at [19]).
3. The appellants were liable to Chambers Cellars for the loss of Chambers Cellars’ property as a result of the thefts unless they proved that the thefts occurred without any negligent act or omission on the part of the respondent. No attempt was made to do this. Accordingly, the appellants were liable to Chambers Cellars as quasi-bailees for the loss suffered by Chambers Cellars resulting from the robberies (at [20]).
4. The respondent was liable to indemnify the appellants for the loss they suffered as a result of having to reimburse Chambers Cellars. The respondent was liable to the appellants on two bases: first, pursuant to clause 8.2 of the Independent Contractor’s Agreement and, secondly, as a sub-bailee (at [21]).
5. Appeal allowed. Judgment entered for the appellants in the sum of $95,345.69 together with interest (at [23]).
Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd (1994) Aust Torts Rep 81-292; Gerrard & Anor v Slamar [2004] WASCA 253; Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220; Metaalhandel JA Magnus BV v Ardfields Transport Ltd and Eastfell Ltd (T/A Jones Transport) [1988] 1 Lloyd’s R 197 (QB).; Westrac Equipment Pty Ltd v Owners of the “Assets Venture” & Ors (2002) 192 ALR 277; York Products v Gilchrist, Watt and Sanderson Pty Ltd [1968] 3 NSWR 551, considered.

CASH LOGISTICS PTY LTD & ANOR v NELSON
[2015] SASC 117
Magistrates Appeal
STANLEY J:
Introduction

This is an appeal from a judgment of a magistrate who dismissed a claim by the appellants against the respondent for the sum of $95,343.69.
The appellants conducted a business collecting cash from businesses and transporting it securely to banks or other financial institutions. It subcontracted some of its work to the respondent. The learned magistrate found that this was pursuant to a written contract described as an Independent Contractor’s Agreement. Clause 8.2 of the contract between the parties made the respondent liable to compensate the appellant, Cash Logistics Pty Ltd (Cash Logistics), for any loss or damage arising from a breach of the agreement. One of the clients of the appellants’ was a Sydney-based business, Chambers Cellars. Part of the work performed by the respondent pursuant to this contract with the appellants was the conveyance of cash from the premises of Chambers Cellars to its bank. On two occasions in 2014 employees of the respondent were robbed. As a result, cash belonging to Chambers Cellars in the sum of $120,573 was stolen. The cash was stolen while in transit to the bank after being collected by employees of the respondent from the Chambers Cellars premises. The appellants reimbursed this sum to its client. It sought to be indemnified in respect of this amount from the respondent. The respondent paid the appellants $15,000. A further sum of $11,103.89 owed by the appellants to the respondent was retained by the appellants to satisfy part of its claim against him. The respondent did not seek recovery of this amount. The appellants sued for the balance.
The trial
At trial in the Magistrates Court the appellants conducted the action on the basis that the respondent was liable as a bailee for reward. They submitted that as a bailee for reward the respondent was under a duty to take such care of the bailed goods as was reasonable in the circumstances and in the event of the loss of the goods during the period of bailment the onus was upon the respondent to disprove that the loss resulted from any negligence on his part.
The respondent denied liability principally on the basis that he had no contractual relationship with the appellants. He alleged that the appellants contracted with a company he controlled, namely, Nelclan Pty Ltd. The magistrate rejected this defence, finding that Cash Logistics contracted personally with the respondent. Further, the magistrate found the existence of an oral agreement between the appellants and Chambers Cellars. However, the magistrate dismissed the claim on the basis that the appellants failed to establish any contractual agreement with Chambers Cellars obliging them to indemnify it for all or any of the losses sustained by reason of the two robberies and, accordingly, the magistrate held that the appellants had not proved they suffered any loss. In these circumstances there was no liability on the part of the respondent to indemnify the appellants for any loss as no loss had been suffered.
In dismissing the appellants’ claim the learned magistrate said:[1]
It was for the plaintiffs to show in this action that they were liable to the owner of the cash stolen because there was something the defendant could have done to prevent the robberies that occurred or to increase the likelihood of the recovery of the money.
No evidence at all was adduced concerning these issues and accordingly one is left with the legal principle that a bailee for reward is not an insurer of the goods in his custody and will not be liable for their loss if without negligence on his part the goods are lost.
[1] Cash Logistics v Nelson, judgment of Mr S Milazzo, 4 June 2015 at [21] – [22].
The magistrate proceeded to reason that even if there had been a breach of the contract the respondent was not liable to the appellants pursuant to clause 8.2 because the appellants had not suffered any loss.
The appeal
On appeal, Dr Churches appeared for the appellants. There was no appearance for the respondent. The respondent had communicated directly with my chambers in the period prior to the hearing of the appeal. He indicated that he was unable to attend court in Adelaide as he resided in New South Wales and was unwell. He forwarded a copy of a medical certificate to my chambers which indicated that he was unable to travel to Adelaide for a period of three months due to surgery for a knee replacement. Nonetheless, he declined to apply for an adjournment and indicated that he did not intend to appear at the hearing of the appeal.
In the circumstances I proceeded with the hearing of the appeal in the absence of the respondent, being satisfied that he was aware of the hearing date and had deliberately decided against appearing and being heard on the appeal.
On the appeal Dr Churches submits that there was an oral contract between the appellants and Chambers Cellars which gave rise to a bailment relationship. By reason of the contract the appellants were the bailees of Chambers Cellars’ property. As bailee they were under an obligation to take proper care of the cash the property of Chambers Cellars. They were not relieved of that obligation by subcontracting their duty to the respondent. As a consequence they were liable to their client for the loss of its property unless they were able to discharge the onus of proving that the loss of property did not result from the negligence of themselves or their subcontractor, the respondent. They contend that, as their subcontractor, the respondent was a sub-bailee and bore the onus of negating an inference of negligence in performance of the contract that arises from the fact of the thefts. In the absence of evidence on the question of negligence, the respondent was liable for failing to discharge the onus he bore as a sub-bailee for the loss of the property of Chambers Cellars.
Bailment and the duties and liabilities of a bailee and sub-bailee
The duties and liabilities of a bailee were explained in Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd[2] where Kirby P (as he then was), with Gleeson CJ (as he then was) agreeing, said:[3]
A bailee for reward, such as a bailee for work and labour of the kind performed by the respondent, assumes a duty to take such care of the bailed goods as is reasonable in the circumstances. See Halsbury’s Laws of England 4^th ed (Bailment) Vol 2, para. 1562 at 727. It is essential to bailment that, unless forgiven by the law, the bailee should restore the property bailed to its lawful owner. See G W Paton, Bailment in the Common Law, cited by Clarke JA in Brambles Securities Services Ltd v Bi-Low Pty Ltd, Court of Appeal (NSW), unreported, 19 June 1992, [1992] NSW JB 60.
In the event of loss of goods during the bailment, the onus is on the bailee to disprove that the loss is the result of any negligence on its part. This exceptional shifting of the onus of proof to the defendant derives from the essential obligation of the bailee to restore the property to the bailor and from the obligation imposed by the reward which the bailor pays to the bailee for the work and labour done and the safekeeping of the goods. See British Road Services Ltd v Arthur v Crutchley & Co Ltd (Factory Guards Ltd, Third Parties) [1968] 1 All ER 811 (CA), 822; John F Goulding Pty Ltd v The Victorian Railway Commissioners (1937) 48 CLR 157, 166.
The duty of the bailee is not that of an insurer. Thus, the bailee is not obliged to take every conceivable or possible precaution to prevent loss of the goods. Its duty is simply to act reasonably. It is to take reasonable care such as a person would take in respect of that person’s own goods. The duty is stringent so that the responsibility assumed by the bailee cannot, at least without consent, be delegated to another. See Brooke’s Wharf and Bull Wharf Ltd v Goodman Brothers [1937] 1 KB 534 (CA), 544; Metaalhandel JA Magnus BV v Ardfields Transport Ltd and Eastfell Ltd (T/A Jones Transport) [1988] 1 Lloyds R 197 (QB), 203.[4]
[2] (1994) Aust Torts Rep 81-292.
[3] (1994) Aust Torts Rep 81-292 at 61553-61554.
[4] Cited with approval by the Full Court of the Supreme Court of Western Australia in Gerrard & Anor v Slamar [2004] WASCA 253 at [18].
This statement of principle follows what was said by the High Court in Hobbs v Petersham Transport Co Pty Ltd.[5] Menzies J, with whom McTiernan J agreed, said:[6]
It is common ground that the defendant was a bailee for reward of the equipment being carried. It was not under an absolute duty to deliver. It was a qualified duty and, to use the language of Starke, Dixon and McTiernan JJ in John F Goulding Pty Ltd v Victorian Railways Commissioners, “It would not be broken if the defendants were disabled from delivery through destruction or loss of the goods which reasonable care and skill on their part could not avoid”. To escape liability for non-delivery the onus of proving that the non-delivery, however caused, was without fault on its part, rested upon it. A modern statement of the position is to be found in the judgment of Lord Denning MR in Morris v C W Martin & Sons Ltd, as follows:
“Once a man has taken charge of goods as a bailee for reward, it is his duty to take reasonable care to keep them safe: and he cannot escape that duty by delegating it to his servant. If the goods are lost or damaged, whilst they are in his possession, he is liable unless he can show – and the burden is on him to show – that the loss or damage occurred without any neglect or default or misconduct of himself or of any of the servants to whom he delegated his duty.”
These well established rules, which I think should be accepted without qualification or gloss, do not constitute a carrier, such as the defendant, an insurer; he escapes liability if he can show that non-delivery of goods entrusted to him for carriage was not due to his fault, notwithstanding that he does not show how the loss actually occurred.
(Citations omitted).
[5] [1971] HCA 26, (1971) 124 CLR 220.
[6] [1971] HCA 26, (1971) 124 CLR 220 at 233 – 234.
Windeyer J said:[7]
The obligation of a carrier as bailee is to exercise due care, skill and diligence for the safety of chattels entrusted to him. If he fails to deliver them safely at the end of the bailment, that is evidence of a failure to perform his duty to exercise due care of them. He can rebut this by shewing that their loss or damage was not the result of any default on his part. But to escape liability he must establish that. The burden lies on him.
[7] [1971] HCA 26, (1971) 124 CLR 220 at 240.
His Honour went on to explain that an inference of negligence arises if the loss is not explained by the bailee. The burden of adducing exculpatory evidence is imposed on the bailee because the facts are peculiarly within the bailee’s knowledge and not within the knowledge of the bailor. He said:[8]
The question would be whether anything which would have avoided the [loss], and which ought reasonably to have been done, was not done. If that was left in doubt the bailee would be liable.
[8] [1971] HCA 26, (1971) 124 CLR 220 at 242.
This appeal, however, concerns the liability as bailee of both the appellants and the respondent, the appellants having sub-contracted to the respondent the contractual obligation they assumed to Chambers Cellars. These circumstances were considered by the Court of Queen’s Bench in Metaalhandel JA Magnus BV v Ardfields Transport Ltd and Eastfell Ltd (T/A Jones Transport)[9] where the court referred to the text of Palmer on Bailment as stating the view that a bailee is liable for the negligence of a sub-bailee.[10] Gatehouse J said:[11]
Palmer then goes on to deal with the case of the “quasi-bailment” where the intermediate party is not a bailee because he never obtains the actual possession of the goods. This was in fact the position in Edwards v Newland & Co [1950] 2 KB 534, where the intermediate party was nevertheless treated as a bailee because he had made an unauthorised subcontract for the storage of the goods… Palmer turns to the position where the quasi-bailee enters into a subcontract which he is authorised to do. That, it seems to me, is the position in the present case. Palmer concludes that the position of the quasi-bailee is the same as that of a true bailee, namely, that he is answerable for the faults of his sub-contractor because, although he is entitled to delegate performance, he cannot delegate his responsibility.
[9] [1988] 1 Lloyd’s R 197 (QB).
[10] [1988] 1 Lloyd’s R 197 (QB) at 202.
[11] [1988] 1 Lloyd’s R 197 (QB) at 203.
The court cited as authority the judgment of the High Court in Hobbs v Petersham Transport.
The principle set out in Metaalhandel v Ardfields has been applied in Australia by the Federal Court in Westrac Equipment Pty Ltd v Owners of the “Assets Venture” & Ors.[12]In Westrac the plaintiff carried on business as an importer of earthmoving equipment. It entered into a contract with the Commonwealth Government to supply a bulldozer to the Cocos Islands. The plaintiff (the bailor) and the second defendant (the quasi-bailee) entered into a contract under which the second defendant agreed to arrange for the transport of the bulldozer from the plaintiff’s premises in Western Australia to the Cocos Islands. The second defendant entered into a subcontract with the first defendant (the sub-bailee) for the trans-shipment of the bulldozer to the Cocos Islands. During the course of that journey the bulldozer was lost overboard. The plaintiff claimed against the first defendant in bailment and in negligence. The plaintiff claimed against the second defendant in bailment, negligence and for breach of contract. The second defendant, by cross-claim, sought damages from the first defendant by way of indemnity or contribution, in the event that the second defendant was held liable to the plaintiff. Lee J had to consider a submission that a quasi-bailee was liable for any loss of, or damage to, goods resulting from a breach of its duty as bailee, notwithstanding that the loss or damage may have been caused by a third party to whom the quasi-bailee had authorised the delivery of the goods by a further sub-bailment. The court accepted that a quasi-bailee is under the same duty to the bailor as the sub-bailee whose failure to deliver the bailor’s property constituted a breach of that duty. Lee J said:[13]
If there is a relationship in contract that is concurrent with a bailment relationship and the quasi-bailee as intermediate bailor has sub-bailed the goods to an independent contractor, the quasi-bailee cannot avoid breach of an implied term of a contract with the bailor to take reasonable care of the goods, by asserting that the failure to take such care was the act or omission of the independent contractor.
It would seem that, by analogy, the same principle should apply in bailment and that the failure of the independent contractor, as sub-bailee, to exercise reasonable care in respect of the goods would constitute default by the sub-bailor in the bailment (or quasi-bailment) relationship between the bailor and sub-bailor, unless, of course, those parties have varied that position by the terms of a concurrent contract. The independent contractor/sub-bailee will owe a duty to the sub-bailor, and the same duty as the sub-bailor to the bailor. Therefore, the sub-bailor should not be able to say that default by the sub-bailee excuses the sub-bailor’s duty to the bailor. (See: York Products Pty Ltd v Gilchrist Watt & Sanderson Pty Ltd [1968] 3 NSWR 551 (Court of Appeal.))
If, however, the circumstances show that the act of sub-bailment is contemplated by the parties to the bailment to be a termination of the bailment and the sub-bailee becomes the bailee directly of the original bailor, the liability of the intermediate bailee to the bailor may not depend on the conduct of the sub-bailee. (See: York Products v Gilchrist; E A Marr (Contracting) Pty Ltd v Broken Hill Pty Ltd [1970] 3 NSWR 306.)
[12] [2002] FCA 440, (2002) 192 ALR 777.
[13] [2002] FCA 440 at [44] – [46], (2002) 192 ALR 277 at 286.

The court went on to consider the liability of the sub-bailee to the quasi-bailee. Lee J held that a sub-bailee owed a similar duty to both the bailor and the quasi-bailee in respect of the obligation to deliver the bailor’s property and exercise reasonable care of that property while in its possession, citing the judgment of the Court of Appeal of New South Wales in York Products v Gilchrist, Watt and Sanderson Pty Ltd.[14]He concluded that it followed that the sub-bailee, having breached its duty in bailment to the bailor, also breached a like duty to the quasi-bailee, and the quasi-bailee was entitled to recover from the sub-bailee damages in the sum that it was required to pay to discharge its liability to the bailor.
[14] [1968] 3 NSWLR 551.
In accordance with these principles I turn to consider the outcome of this appeal.
Consideration
In my view, the learned magistrate fell into error in the approach he took to this action. The contractual relationship between the appellants and Chambers Cellars established a bailment relationship. That contract authorised the appellants to subcontract their contractual obligations to Chambers Cellars. They did so with the respondent pursuant to the Independent Contractor Agreement. That contract made the respondent liable to compensate Cash Logistics for any loss or damage arising from a breach of the subcontract. While the appellants never obtained the actual possession of the cash, they are properly to be characterised as quasi-bailees pursuant to the contract with Chambers Cellars. Although they were entitled to delegate the performance of their obligations as bailees they could not delegate their responsibilities. In accordance with the approach taken in Westrac they were liable for any loss of, or damage to, the property of Chambers Cellars resulting from a breach of its duty as bailee notwithstanding that the loss or damage may have been caused by the respondent as the party to whom the appellants had authorised the delivery of the goods pursuant to a sub-bailment.
Accordingly, contrary to the reasoning of the learned magistrate the appellants were liable to Chambers Cellars for the loss of Chambers Cellars’ property as a result of the thefts unless they proved that the thefts occurred without any negligent act or omission on the part of the respondent. No attempt was made to do this. Accordingly, the appellants were liable to Chambers Cellars as quasi-bailees for the loss suffered by Chambers Cellars resulting from the robberies. The learned magistrate erred in concluding otherwise.
It follows that the respondent was liable to indemnify the appellants for the loss they suffered as a result of having to reimburse Chambers Cellars. The respondent was liable to the appellants on two bases: first, pursuant to clause 8.2 of the Independent Contractor’s Agreement and, secondly, as a sub-bailee.
Pursuant to the Independent Contractor’s Agreement the respondent agreed to provide the secure transport of cash from clients of Cash Logistics to financial institutions. It breached that term of the agreement by reason of the thefts. Accordingly, it became liable pursuant to clause 8.2 to compensate Cash Logistics for the loss it suffered arising from the breach by reason of its obligation as a quasi-bailee to reimburse its client, Chambers Cellars, for the resulting loss. As the sub-bailee, having failed to discharge the onus he bore of proving that the thefts occurred without negligence on his part, the respondent was liable in damages to the appellant in the sum that the appellants were required to pay to discharge their liability to Chambers Cellars as bailor, in accordance with the application of the relevant principles in Westrac.
Conclusion
I would allow the appeal. I would enter judgment for the appellant in the sum of $95,345.69 together with interest. I will hear the parties further as to the quantum of interest and the question of costs.