CHEP Australia Ltd v Bunnings Group Ltd - [2010] NSWSC 301

No judgment structure available for this case.

CITATION: Chep v Bunnings [2010] NSWSC 301
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 8/03/10, 9/03/10, 10/03/10, 11/03/10, 12/03/10

JUDGMENT DATE :
7 May 2010

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: McDougall J at 1

DECISION: Direct entry of judgment for the plaintiff against the defendant for damages to be assessed.

CATCHWORDS: TORTS – conversion and detinue – where defendant was in possession of a substantial number of the plaintiffs’ pallets – whether demands made on defendant for return of pallets – whether defendant failed to comply – whether defendant is liable for conversion or detinue – whether plaintiffs had a right to immediate possession of pallets – whether the defendant had implied licence to use pallets - whether plaintiffs estopped from contending that any wrong was committed by the defendant by acquiescing in any holding and use of pallets by the defendant. - DAMAGES – whether loss suffered – proper measure of damages for any conversion or detinue – quantum of damages.

LEGISLATION CITED: Trade Practices Act 1974 (Cth)

CATEGORY: Principal judgment

CASES CITED: Armory v Delamirie (1722) 1 Strange 505; 93 ER 664
Baud Corp, NV v Brook (1973) 40 DLR (3d) 418
BIS Cleanaway v Tatale [2007] NSWSC 378
Brambles Australia Ltd t/as Chep Australia v Tatale Pty Ltd (2004) Aust Torts Reports 81-759
Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185
Butler v Hobson [1838] 4 Bing. N.C. 290
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Reports 81-244
Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175
Gould v Vaggelas (1985) 157 CLR 215
Henry Berry & Co Pty Ltd v Rushton [1937] St. R. Qd. 109
Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640
IBL Ltd v Coussens [1991] 2 All ER 133
John F Goulding Pty Limited v The Victorian Railways Commissioners (1932) 48 CLR 157
Kahler v Midland Bank Limited [1950] AC 24
Livingstone v Rawyards Coal Co (1880) 5 App Cas 25
McKenna and Armisterd Pty Ltd v Excavations Pty Ltd [1957] SR (NSW) 515
Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388
Penfolds Wines Pty Limited v Elliott (1946) 74 CLR 204
Screenco Pty Ltd v R L Dew Pty Ltd (2003) 58 NSWLR 720
Smith New Court Securities Limited v Citibank NA [1997] AC 254
Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246

PARTIES: CHEP Australia Limited (First Plaintiff)
CHEP Equipment Australia Pty Ltd (Second Plaintiff)
Transpacific Cleanaway Limited (Third Plaintiff)
Bunnings Group Limited (Defendant)

FILE NUMBER(S): SC 2007/266437

COUNSEL: T F Bathurst QC / N J Kidd (Plaintiffs)
R M Garratt QC / D A Priestley (Defendant)

SOLICITORS: Allens Arthur Robinson (Plaintiffs)
Ligeti Partners (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

7 May 2010

2007/266437 CHEP AUSTRALIA LTD & ORS v BUNNINGS GROUP LTD

JUDGMENT

1 HIS HONOUR: The plaintiffs’ distinctive “Chep” pallets are widely used for the carriage, storage and display of manufactured goods. At all times relevant to these proceedings, one or other of the plaintiffs (to whom it is convenient to refer collectively as “Chep”) carried on the business of making those pallets available to hirers pursuant to a “pooled pallet” system. In its simplest form, a hirer takes a quantity of pallets on hire from Chep and uses them until the immediate purpose of their use is fulfilled. The hirer then returns the pallets (not necessarily in specie, but an equivalent number to those hired) from Chep. The hirer remains liable for hire charges until the pallets are passed onto another hirer who accepts responsibility for that hire, or until the pallets are, in the language of the trade, “de-hired”: returned to Chep or written off on payment of a “loss fee”.

2 The defendant (Bunnings) carries on throughout Australia a retail hardware business. It is not, and (with some irrelevant exceptions) never has been, a hirer from Chep. Nonetheless, for many years up until October 2007, Bunnings was in possession of a substantial number of Chep pallets. After a series of demands made by Chep, Bunnings has returned, either to hirers from whom it obtained them or to Chep, all the Chep pallets that it held. The essential question for decision in these proceedings is whether Bunnings, by such use as it made of Chep pallets in its possession from time to time, is liable for the conversion of those pallets; or alternatively, whether, by reason of its failure to comply (until October 2007) with demands made upon it, it is liable in detinue.

The issues

3 The parties agreed that the real issues for decision were as follows:

Relevant Period

)

(Non Commercial CHEP Pallets)

3. In the Relevant Period, what use did the defendant make of Non-Commercial CHEP pallets?

4. In the Relevant Period, did the defendant receive and keep possession of Non-Commercial CHEP Pallets and refuse to either hire or deliver up Non-Commercial CHEP Pallets?

5. In the Relevant Period, did the defendant convert Non-Commercial CHEP Pallets?

6. If so, approximately what quantities of Non-Commercial CHEP Pallets did the defendant unlawfully convert and over what period?

7. In the Relevant Period, did the defendant unlawfully detain Non-Commercial CHEP Pallets?

8. If so, approximately what quantities of Non-Commercial CHEP Pallets did the defendant unlawfully detain and over what period?

9. Whether the plaintiffs gave their customers an implied licence in respect of pallets contrary to an immediate right to possession?

10. If so, whether that implied licence is an answer to the plaintiffs’ claims relating to Non-Commercial CHEP Pallets.

11. Whether the plaintiffs are estopped from contending that any wrong was committed by the defendant by acquiescing in any holding and use of CHEP pallets by the defendant?

12. If so, whether that estoppel is an answer to the plaintiffs’ claims relating to Non-Commercial CHEP Pallets.

13. What loss, if any, have the plaintiffs suffered by any conversion or detention of pallets by the defendant?

14. If damages are appropriate, what is the proper measure of damages for any conversion and/or detinue of the CHEP pallets?

15. Applying the proper measure, what is the quantum of damages (if any) to which the first and third plaintiffs are entitled?

Note: The defendant contends that the “Relevant Period” for the purpose of this Statement of Issues is 16 May 2002 to October 2007.

Factual background

4 Chep is the market leader in Australia in the pallet hire market, and is a major competitor in the worldwide pallet hire market. Its wooden pallets are painted blue and are branded in white with the “Chep” logo.

5 No Chep pallet is uniquely identifiable. Any Chep pallet is interchangeable for any other. No Chep customer is obliged to return in specie any pallet that has been hired to it; its obligation is to return pallets equal in number to those hired, or to pay daily hire charges until the pallets are returned or otherwise de-hired.

6 Chep does not sell, nor has it ever sold, branded Chep pallets to any user. For many years, Chep pallets have been hired pursuant to the pallet pooling scheme to which I have already referred. Hirers obtain and return pallets according to their needs. Where the pallets are passed from one hirer to another, there is a scheme for documenting the transfer so that each hirer is liable for hire charges only for the time that pallets are in its possession. When pallets are no longer required, they are returned to a Chep depot.

7 As pallets are damaged, Chep repairs them. When pallets are deemed to have reached the end of their useful life, they are broken up and recycled or “defaced” (by removal of the Chep logo and other means) and disposed of.

8 From time to time, hirers sell or ship goods to non-hirers. Chep’s terms of trade permit that to happen, on terms including that the hirer remains liable for hire charges until the pallets are passed on to another hirer, or returned to Chep, or otherwise dehired.

9 As I have said, Bunnings operates a chain of retail hardware stores throughout Australia. Increasingly, those stores are what is known as “warehouse” stores. Those stores, which are usually of substantial size, give the impression of being warehouses. Goods for sale, and goods held in stock, are displayed on steel racking. Some goods are offered for sale from pallets. This is usually done at conspicuous places such as at the ends of aisles, adjacent to registers and entrances, and in the garden section of each store. Further, goods not required for immediate sale may be from time to time stored on pallets placed on top of the steel racking on which other goods are displayed for sale.

10 At least until October 2007, many of Bunnings’ suppliers delivered goods to it loaded on Chep pallets. When a loaded pallet was delivered to a Bunnings store, it might be dealt with in one of three ways:

(1) the pallet might be unpacked shortly after delivery; the goods placed onto racks; and the pallet made available for return to the supplier or its carrier;

(2) the pallet might be placed on the floor of the store so that goods could be offered for sale from it; or

11 Where the suppliers to Bunnings were customers of Chep who had entered into a hire contract with Chep, those customers remained liable for the hire and well-being of Chep pallets whilst those pallets remained in Bunnings’ possession. The suppliers would only cease to be liable when, having regained possession of the pallets, they either transferred them in the course of business to another Chep customer who accepted responsibility for the pallets, or returned them to a Chep distribution centre and thereby de-hired them.

12 Further, Bunnings imports goods directly. Those goods are usually brought in containers, but in some instances on pallets. Once the goods have cleared customs, they are taken (still in their container or on their pallet) to a Bunnings distribution centre. The consignments are then broken down and repackaged for distribution to individual stores.

13 Bunnings has always held a substantial number of its own branded pallets, which it replenishes by purchase from time to time. In addition, it has entered into terms of hire with Loscam, which is Chep’s major competitor in the pallet hire business. When goods are despatched from Bunnings’ distribution centres to stores, they are loaded onto pallets (or, again in the jargon of the trade, “palletised”) and shipped out. Bunnings’ evidence was to the effect that when this was done, the distribution centres sought to use Bunnings’ own pallets or Loscam pallets; but that, from time to time, it was necessary for any Chep pallets that were on hand to be used for this purpose.

14 Bunnings’ evidence was also to the effect that, when goods were delivered to stores on Chep pallets, the supplier either:

(1) took back, in exchange for the loaded pallets, an equivalent number of empty Chep pallets; or

15 Thus, Bunnings said, all Chep pallets in its possession from time to time were pallets on hire to its suppliers who were Chep customers, and Chep was receiving hire charges for those pallets (or, if it were not, that had nothing to do with Bunnings).

16 Bunnings began to make pallets available for collection by Chep, in circumstances to which it will be necessary to return in more detail, on about 1 October 2007. Before then, Bunnings had advised its suppliers to collect any pallets owed to them by way of unredeemed IOUs. Bunnings had also instructed its stores to ensure that all IOUs were honoured. Nonetheless, it is agreed, Chep collected in total 82,216 pallets from Bunnings on and after 1 October 2007.

17 Chep then asked all its customers whom it knew to be suppliers to Bunnings to make a claim for any unrequited IOUs. According to Chep, that process established that, of the 82,216 pallets recovered from Bunnings, some 17,526 were owed to Chep’s customers who were Bunnings’ suppliers.

18 Thus, Chep said, the pallets held by Bunnings that were not the subject of any current hire agreement between Chep and a customer numbered at least 64,690. Chep claims damages for the conversion or detention of that number of pallets, and for lesser numbers (pro-rated in a way that is essentially non-contentious) for previous periods.

Chep’s terms of hire

19 It was common ground that at all relevant times Chep’s standard terms of hire for Chep equipment included provisions to the following effect (to the extent that the terms of hire varied over the period from 2002 to 2007 with which these proceedings are concerned, those variations are immaterial):

1 DEFINITIONS

In these terms:
…

CHEP means CHEP Australia Limited ABN 11 117 266 323 (and its successors and assigns);
…

Equipment means items of property lent or hired out by CHEP from time to time;

…

Hirer means any person, firm or corporation to whom Equipment is lent or hired by CHEP, and its legal personal representatives, successors and permitted assigns;

…

Quantity on Hire means, in respect of any day, the quantity of Equipment lent or hired by CHEP to the Hirer;
…

2. HIRE OF EQUIPMENT

(a) Equipment will be added to and deducted from the Equipment held by the Hirer and the Hirer’s Quantity on Hire when:

(4) there is an adjustment under these terms.

An item of Equipment will not be recorded as returned until the whole of the item is returned or compensation is paid under clause 4.

…

(c) The Hirer must not part with possession of any Equipment unless:

…

4. OWNERSHIP, LOSS, CONDITION AND REPOSSESSION OF EQUIPMENT

The Hirer acknowledges that each item of Equipment has a special value to CHEP in that, as part of CHEP Australia, CHEP repairs, maintains, handles and otherwise administers the circulation of all Equipment. The Hirer expressly agrees to all the following matters as a condition of CHEP agreeing to lend or hire Equipment to the Hirer:

(a) Despite any other clause in these terms, CHEP remains the owner of the Equipment at all times. No person is entitled to use, dispose of or otherwise deal with Equipment in any way that is inconsistent with CHEP’s ownership or these terms. Payment of compensation, or any other circumstance or event, does not constitute or result in any transfer of property or interest in the Equipment from CHEP.

(2) If the Hirer establishes to CHEP’s satisfaction that Equipment on Hire is lost (Lost Equipment), the Hirer must pay CHEP compensation in an amount agreed between the Hirer and CHEP or, if they do not agree, at CHEP’s posted Last Equipment Compensation Rate from time to time. …

(3) If the Hirer subsequently recovers possession of Lost Equipment in respect of which compensation has been paid, or if CHEP retakes possession of Equipment for which CHEP considers that the Hirer has paid compensation, CHEP will refund to the Hirer the amount of compensation paid for the Lost Equipment, after deducting any costs of recovery or retaking possession and an amount equal to the amount of hiring charges not paid by the Hirer and which would otherwise be due and owing if CHEP has not agreed to treat the Equipment as Lost Equipment.

…

(d) CHEP has the right to immediate possession of all CHEP Equipment, whether on hire or not, and may take possession of any Equipment immediately and without notice to any person. The Hirer gives CHEP an irrevocable licence to enter property occupied by the Hirer at any time and take any steps CHEP considers reasonably necessary or appropriate to obtain possession of Equipment. The Hirer must pay CHEP’s actual costs of obtaining possession of Equipment. CHEP may credit the Hirer’s account with Equipment so recovered. If CHEP takes possession of any Equipment which the Hirer demonstrates to CHEP’s satisfaction was then on hire to the Hirer, CHEP will, at the Hirer’s request, make available the same quantity of Equipment to the Hirer, if the Hirer demonstrates to CHEP’s satisfaction that the Hirer would then have no more Equipment than its Quantity on Hire.
…

14. TERMINATION

The witnesses in the case

20 Chep called the following witnesses:

(1) Mr Phillip James Austin, who is Chep’s vice president of business development. Mr Austin gave evidence of: Chep’s business over the years; the lifecycle of a Chep pallet; Chep’s terms of hire and the fees payable for and in respect of hire; Chep’s asset management program (which includes the methods used for tracking Chep equipment as it is used in trade, conducting audits of customers and recovering lost hire equipment); lost pallets (including what happens when a pallet is written off as lost or destroyed); Chep’s competitors; and communications to Bunnings that were said to demonstrate withdrawal of consent for Bunnings to hold Chep pallets. No challenge was made to Mr Austin’s credibility, and I accept his evidence as truthful.

(2) Mr Robert Nies Gerrard, who is the group company secretary of Chep’s holding company and its associated companies, and was formerly a corporate lawyer in the group. Mr Gerrard gave evidence of the transfers of the Chep business, and property in or the right to possession of pallets, between the various plaintiffs over the years as the business of the group was reorganised. He was not required for cross-examination and his evidence was not contentious. I accept it.

(3) Mr Glenn Reginald Hammond, who was first (from 2001 until 2005) Chep’s asset manager for New South Wales and thereafter (from late 2005 until January 2007) Chep’s national asset security manager for major accounts. Mr Hammond gave evidence of: a number of investigations conducted to ascertain how many Chep pallets might be in Bunnings’ possession in its stores across Australia; meetings with representatives of Bunnings in an attempt to persuade Bunnings to become a customer of Chep and thus (as Chep would see it) “legitimising” Bunnings’ possession of Chep pallets; and what were said to be demands made by Chep on Bunnings for Bunnings either to become a Chep customer or to return Chep pallets to Chep. No attack was made on Mr Hammond’s credibility. In my view, he is a truthful and reliable witness and his evidence should be accepted. I note, in particular, that his evidence of various meetings and conversations was supported by contemporaneous records. No attack was made on the authenticity or accuracy of those records; and in some cases, Bunnings’ witnesses who were party to the relevant events agreed with the substantial accuracy of important parts of those records.

(4) Mr Anthony Graham Pearman, Chep’s national security manager. Mr Pearman’s evidence covered what he called a “black market” for Chep pallets. In addition, Mr Pearman was involved in the process of identifying the numbers of Chep pallets held by Bunnings from time to time and in the process of recovering those pallets from Bunnings. There was no challenge to Mr Pearman’s evidence. On the contrary, the only cross-examination of Mr Pearman seemed to have been directed, for reasons that I must say I do not understand, at introducing into evidence a portion of his affidavit that had been rejected on objection taken by Bunnings. I accept Mr Pearman’s evidence.

(5) Mr Kim Dudley Poole. Mr Poole was Chep’s Western Australian state manager, and then Western Australian state sales manager, from 1992 until 2006. He gave evidence of negotiations with Bunnings which were directed to persuading Bunnings to become a Chep hirer, and of a “stocktake” of Chep pallets in Bunnings’ stores in Western Australia. There was no challenge to his evidence, and I accept it.

21 Bunnings called the following witnesses:

(1) Mr Peter John Charles Davis. He was managing director of Bunnings from 2002 to 2004, and has been its chief operating officer since. He has been a director of Bunnings since 1996. Mr Davis gave evidence of: Bunnings’ business model and growth; the way in which pallets were used in Bunnings’ business; and approaches by Chep seeking to persuade Bunnings to become a hirer of pallets from Chep. No attack was made on Mr Davis’ credibility, and I accept him as a witness of truth.

(2) Mr Jeffrey Hugh Doyle, who is, and for some time has been, employed by Bunnings as a project manager in its finance and administration team. Mr Doyle has worked for Bunnings and its predecessors (businesses taken over directly or indirectly by Bunnings) for more than 20 years, including (from 2002 to 2007) as a store support manager. Mr Doyle gave evidence of Bunnings’ operations, including the way that it dealt with pallets and goods delivered on them, and of the exchange system that operated in respect of deliveries on Chep pallets. No attack was made on Mr Doyle’s credibility, and I accept him as a witness of truth.

In general, I accept Mr Gilsenan’s evidence. However, to the extent that it conflicts with the evidence of Mr Hammond, I prefer the evidence of Mr Hammond. I do so for three reasons. The first is that, in crucial respects, Mr Hammonds’ evidence was (as I have said) supported by unchallenged contemporaneous records. The second is that Mr Gilsenan conceded the accuracy of crucial parts of those contemporaneous records. The third is that, in the residual areas of disagreement, Mr Hammond’s evidence impressed me as being given in a forthright and direct manner, whereas Mr Gilsenan from time to time sought to evade the point of simple questions, and to answer in a non-responsive manner. See, for example, Mr Gilsenan’s cross-examination on the last sentence of paragraph 22 of his affidavit (which asserted that “Chep pallets were not used within the Bunnings’ supply chain”) at T159.47-162.36. Mr Gilsenan’s refusal to concede what was, on his own evidence, an obvious error in that sentence did not impress me. See, also, his evidence on “double dipping” (Bunnings’ justification for its stance was that for it to pay hire to Chep for pallets that were already on hire to its suppliers would amount to double dipping) at T168.10-.41.

(4) Mr John William Judd, who was Chep’s South Australian state manager, and then national general manager with responsibility for the automotive and produce industries, from 1984 until about 2000, and Chep’s general manager for New Zealand from 2000 until 2003. Mr Judd gave evidence (initially on the voir dire following objection, but substantially admitted in the proceedings over that objection) dealing with Chep’s attempts to gain new customers so far as he was aware of those procedures. Mr Judd’s knowledge was not detailed, and his evidence was given at a level of generality. Nonetheless, he was not cross-examined. So far as his evidence goes (which is not a great distance), it should be accepted.

(5) Mr Raymond Juhani, who has been a manager of Bunnings’ stores (and stores run by its direct and indirect predecessors) for more than 25 years. Mr Juhani gave evidence of the way in which pallets moved through the Bunnings supply chain and were used in stores. He was not required for cross-examination. I accept his evidence.

(6) Ms Angela Kim McDonald, who is currently the manager of Bunnings’ national invoice processing centre, and was previously a project manager, business improvement. Ms McDonald gave evidence of Bunnings’ operations and, in particular, of the process undertaken by Bunnings to gather and make available to Chep all Chep pallets in Bunnings’ possession, after ensuring so far as possible, that IOUs given to Bunnings’ suppliers were honoured. There was no challenge to Ms McDonald’s credibility, and I accept her as a witness of truth.

(7) Mr Lucas Walker McNiece, who is currently employed by Bunnings as a project manager in Western Australia, and who before that worked as an area manager and national store support manager. Mr McNiece gave evidence of Chep accounts conducted by some BBC Hardware stores (BBC Hardware was a business taken over by Bunnings, or its parent, in 2001). He was responsible for reviewing those accounts and closing them. Mr McNiece was not required for cross-examination and I accept his evidence.

(8) Mr William George Pearce, who is presently the business development manager for Northern Australia employed by Bunnings. Before that, and since 2005, he was Bunnings’ state operations manager for Western Australia. Mr Pearce gave evidence of Bunnings’ operations in Western Australia, of the way in which pallets were used in those operations, and of approaches by Chep representatives seeking to persuade Bunnings to become a Chep customer. No attack was made on Mr Pearce’s credibility, and I accept him as a witness of truth.

(9) Mr Philip Albert Skermer, who is Bunnings’ national distribution centre manager. Mr Skermer gave evidence of the operation of Bunnings’ distribution centres: in particular, of the way in which stock moved into those centres (in containers, or on pallets) and out of those centres (on pallets), and of the various kinds of pallet used by Bunnings from time to time. He gave evidence also of Bunnings’ purchase of new pallets in 2007, which he said was accelerated to enable the Chep pallets to be returned to Chep. There was no challenge to Mr Skermer’s credibility, and I accept him as a witness of truth.

First issue: right to immediate possession

Relevant legal principles

22 I dealt with a very similar question, in relation to Chep pallets, in my judgment in BIS Cleanaway v Tatale [2007] NSWSC 378. In that case, the defendants raised a defence of “ius tertii”: that they had obtained the pallets from sources that had a right to possession of those pallets. I set out the relevant principles, both in relation to an owner’s right to recover bailed goods and in relation to ius tertii, at [38] to [44] and [46] and [47]. Since the parties in this case accepted that what I there said was correct (at the level of principle), I shall take the liberty of incorporating those paragraphs, with very minor amendments, as the following four paragraphs of these reasons.

23 Chep sues in detinue and conversion. Those are possessory remedies. To succeed, Chep must show that it had at the relevant time – the date of demand - the right to immediate possession of the pallets. That right is an incident of ownership, or title; but ownership and possession may be separated.

24 Lord Radcliffe said in Kahler v Midland Bank Limited [1950] AC 24 at 56 that “in the case of a bailment which is terminable at the bailor’s will the law will give the right of action to the bailor as well as to the bailee; but then such a bailor has nothing less than a right to immediate possession.” In other words, where a stranger to a bailment terminable at the bailor’s will is in possession of goods, both the bailor and the bailee could maintain conversion, because each has, as against the stranger, the right to immediate possession. In the bailee’s case, the right flows from the bailment. In the bailor’s case, it flows from the right to terminate the bailment at will: equivalent to the right to immediate possession.

25 It is clear, and was not controversial, that the defence of ius tertii may be set up against an owner (or bailee) who is not in possession of the goods. See Henry Berry & Co Pty Ltd v Rushton [1937] St. R. Qd. 109. It is equally clear that for the defence of ius tertii to succeed, the third party must have a better right to possession than the plaintiff. See, for example, Vaughan J in Butler v Hobson [1838] 4 Bing. N.C. 290 at 300; 132 E R 800 at 804.

26 In Henry Berry, Henchman J (with whom Webb J and, on this point, E A Douglas J agreed) said at 119 that a defendant “may, under a plea of not guilty or not possessed, show that the plaintiff has no right to immediate possession, because that right is in some other person.” I think it follows from what his Honour said, and in any event from the more general proposition that one who asserts must prove, that the defendant bears the onus of identifying the third party and proving that the third party has a right to possession superior to that of the plaintiff.

27 There may be a question as to whether the entrusting of possession of a chattel to another, on terms that what must be returned is not necessarily that particular chattel but an equivalent (i.e., fungible or substitutable) chattel, amounts to a bailment. It is not necessary to pursue, let alone resolve, that question. If, as a matter of strict language, Chep did not bail pallets to its customers, on any view it hired them. And either as bailor or as hirer, the question of whether Chep has the right to immediate possession of those pallets depends, at least in the first instance, on the proper construction of the terms of hire.

The parties’ submissions

28 In BIS Cleanaway, I concluded at [59] that if Chep’s terms of hire (which were not relevantly, if at all, distinguishable from the terms of hire relevant to these proceedings) applied to a contract for hire of Chep pallets then Chep at any given time had the right to immediate possession of pallets thus hired. This followed, I said, from cl 4(d) which made any hiring terminable at the will of the relevant plaintiff (there was some dispute in that case, which is not repeated in this case, as to which “Chep” entity was the relevant plaintiff at any given time).

29 Mr T F Bathurst of Queens Counsel, who appeared with Mr N J Kidd of counsel for Chep, relied on what I had said in BIS Cleanaway at [59]. Mr Garratt submitted that what I had there said paid insufficient attention to the structure of cl 4(d). He submitted that the right to immediate possession given by the first sentence of that sub-clause applied only to chattels in the possession of the hirer. That followed, he said, from the second sentence, which augmented the right to immediate possession given by the first by giving Chep an irrevocable licence to enter property without notice and recover hired chattels.

30 Mr Bathurst submitted, in reply, that in circumstances where the terms of hire expressly contemplated that the hirer could part with possession of pallets in favour of a non-customer (cl 2(c)(3)), cl 4(d) could not be read down in this way.

Decision

31 I remain of the view that I expressed in BIS Cleanaway at [59]. Clause 4(d) operates in the context of a contractual relationship between Chep and its customers, pursuant to which customers take pallets on hire from Chep. However, cl 4(d) is not limited to pallets on hire. The first sentence stipulates that the right to immediate possession for which it provides applies to Chep Equipment “whether on hire or not”. Further, the contractual context includes recognition that (at least, conditionally) hirers may part with possession of equipment in favour of non-hirers.

32 It is correct to say that the irrevocable licence given by the second sentence of cl 4(d) can only operate as between Chep and hirers. It is not easy to imagine real-life factual situations where hirers could authorise Chep to enter upon the property of non-hirers, who are not parties to the contract between Chep and the hirer, for the purpose of recovering pallets. But the balance of cl 4(d) is not limited to the position as between Chep and hirers.

33 In my view, the second and following sentences of cl 4(d) are in aid of the right to immediate possession given by the first sentence, and should not be read as derogating from the width of that right. I do not think that the right to immediate possession given by the first sentence of cl 4(d) is limited to pallets (whether on hire or not) in the possession of a hirer in a contractual relationship with Chep. It is difficult to understand why Chep would stipulate for such a right in the case of hirers, but waive it where (either in a manner contemplated by the terms of hire or otherwise) the hirer has parted with possession of the pallets in favour of a non-hirer.

34 It follows, in my view, that Chep (it is not necessary to distinguish between the particular plaintiffs) did have the right to immediate possession of Chep pallets in the possession of Bunnings during the Relevant Period.

Second issue: Non-Commercial Chep Pallets

35 It was not in issue that, at all times during the Relevant Period, Bunnings did have Chep pallets in its possession. The question was whether Chep had proved that any of those pallets were Non-Commercial Chep Pallets.

The evidence

The Reconciliation Process

36 It is convenient to start with the position between 30 May 2007 (when on any view Chep made demand on Bunnings for return of all Chep pallets) and October 2007 (when Bunnings complied with that demand).

37 As I have said already, it is agreed that, after this Court made orders on 24 August 2007, and on and from 1 October 2007, Bunnings returned to Chep (or made available for collection by Chep) some 82,216 Chep pallets. Ms Welch gave evidence of a process whereby Chep concluded that, of those 82,216 pallets, some 17,526 pallets were owed to Bunnings’ suppliers who were Chep customers. Ms Welch’s evidence should not be examined in isolation.

38 On 19 June 2007, Mr Ward, who was Bunnings’ general manager, operations, at the time (and who was not called to give evidence) sent a memorandum to, among other recipients, “All Stores”. That memorandum referred to Bunnings’ intention to have stock delivered to its stores on pallets other than Chep pallets. It said, among other things, that “[f]rom 1 October 2007 Bunnings will no longer “swap” Chep pallets”. It stated further that, as part of that process, “it is important that Chep pallets currently in stores are returned to suppliers as soon as possible under existing IOU arrangements” and that the aim was “to have returned all IOU Chep pallets by 15 October 2007”.

39 The memorandum stated further (in bold print and underlined) that “[u]nder no circumstances should any Chep pallets be returned to Chep, or transport companies representing Chep”. Although that emphasised warning is particularly relevant to Chep’s case on demand, it seems clear enough that the direction not to return pallets to Chep was given to ensure that Bunnings’ stores had sufficient Chep pallets in their possession to enable them to satisfy IOUs.

40 Finally, for present purposes, the memorandum referred to the “need to manage the return of existing Chep pallets to suppliers”. It said that if a store still held Chep pallets on 1 October 2007, it should contact Ms McDonald “who will direct which supplier the pallets are to be returned to”.

41 Thus, after demand was made but before this Court ordered pallets to be returned, Bunnings put in place a system for ensuring that IOUs were satisfied before any unclaimed pallets were returned to Chep.

42 Also on 19 June 2007, Bunnings sent a letter to the “National Sales Manager” of each of its suppliers. That letter referred to Chep’s demand for the return of its pallets and said that, as a result, “Bunnings would prefer that, should you deliver goods on hired pallets, they are Loscam pallets going forward [sic]”. Further, the letter advised, Chep pallets would not be accepted or swapped from 1 October 2007, and as a result any goods delivered on Chep pallets after that date would have to be unloaded on the spot at a cost of $15.00 per pallet (to be borne by the supplier).

43 On 19 July 2007, Bunnings sent another letter to its suppliers. It confirmed that “Bunnings will cease all swap arrangements relating to Chep pallets from 1 October”. It then stated:

Therefore, please calculate and notify us of the quantity of Chep pallets that you believe Bunnings holds which are on hire from Chep to your organisation.

^th

44 Mr Davis, who “believed” that he had become aware of the letter of 19 July 2007 (T136.10), said that he could not “recall any response whatsoever. Certainly not at a senior level such as myself” (T137.5). It is fair to note that (as one might expect) Mr Davis said that the detail of the return was something handled by “the logistics people” (T137.42).

45 There was no evidence of any response from suppliers to the letter of 19 July 2007, and it appears to be common ground that no such responses (if they existed) were discovered. Nor is there any evidence of complaint by any supplier to Bunnings that it had unredeemed IOUs for Chep pallets.

46 Further, although a number of witnesses (including Mr Juhani, Ms McDonald and Mr Pearce) suggested in their affidavits that Bunnings kept IOU records for Chep pallets received from suppliers, no such records were produced in evidence. There was some suggestion that the IOU records had been destroyed, although why this would have been done when they were required at least up until 1 October 2007 - after these proceedings had been commenced – is difficult to understand. I can understand that, as pallets were returned to suppliers, the IOUs might have been regarded as pointless; but once demand had been made on 30 May 2007, and a fortiori once these proceedings had been commenced, one would expect any such perception to have changed.

47 Mr Wilkinson-Beards said that between June and September 2007, Bunnings’ stores were instructed to return as many Chep pallets to their suppliers as possible. He said that efforts were made to do so in an orderly manner, so as not to disrupt Bunnings’ business. Mr Garratt, submitted that Mr Wilkinson-Beard, in performing the duties of his employment, was not dealing with IOUs. Nonetheless, Mr Wilkinson-Beard had given that evidence without objection. Further, although Ms McDonald (who was dealing with IOUs) gave her oral evidence after Mr Wilkinson-Beard, Mr Garratt did not ask her any questions in chief about the instructions of which Mr Wilkinson-Beard had given evidence. Mr Garratt drew attention to the failure to cross-examine Ms McDonald on this point. In my view, if there is a criticism to be made, it applies equally to the failure to lead evidence in chief from Ms McDonald on the point. See Handley JA, with whom on this point Kirby P agreed, in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 – 419.

48 Ms McDonald sent a memorandum to the “Receiving Team” on 8 August 2007 (after these proceedings were commenced). The memorandum referred to the commencement of proceedings. It stated, among other things, that “[i]t is important that you start to send back to your State Imports Distribution Centre any Chep pallets which you do not need to fulfil IOUs. … Please ensure all Chep pallets are removed from your premises by the end of September 2007. In the meantime, you should continue to swap out pallets and fulfil all IOUs”.

49 Mr Wilkinson-Beards was taken to that memorandum. He said that he read it before it was issued, and was part of the group who approved it. (That evidence, in itself, would seem to be a little inconsistent with the proposition that he was not involved in the IOU process.) He was referred in particular to the instructions to send surplus Chep pallets back to distribution centres by the end of September 2007, and “to swap out pallets and fulfil all IOUs” in the meantime. He said that he understood that those instructions would have been complied with, and that “the 80,000 were those left over after all IOUs had been fulfilled” (T148.50; the reference to “80,000 pallets” is clearly, in context, a reference to the total number of pallets recovered by Chep from Bunnings).

50 Against that background, Ms Welch gave evidence of the following steps. Her evidence was not challenged, although the detail and sufficiency of some of the actions that Ms Welch undertook were.

51 Ms Welch caused Chep’s sales executives to identify, from among the customers of Chep for whom they were responsible, those whom they thought might be Bunnings’ suppliers and who might have outstanding IOUs for Chep pallets from Bunnings. Each of those customers was contacted by letter and asked to contact Chep if it had legitimate IOUs. It was told that any legitimate IOUs would be credited to its account as at 1 October 2007.

52 A number of customers responded. The process was handled by the sales executive who had responsibility for that account. If the IOUs were established to Chep’s satisfaction (and this process involved completion and submission of a claim form, with supporting documentation, and an audit) then the customer was credited with the appropriate number of pallets.

53 Mr Garratt criticised this process on a number of grounds. First, he said, the time allowed by the letter (approximately a month) for customers to respond was too short. Secondly, he said, the requirement that the customer submit to an audit to have its claim verified (this requirement was stated in the letter and confirmed in discussions with the customer) might dissuade customers from submitting claims if they feared that the audit might establish that they were holding more Cheap pallets than those in respect of which they were paying hire. Thirdly, he submitted, the requirement that the claim be supported by documentation in accordance with the terms of hire was excessively onerous.

54 Ms Welch said that some degree of tolerance was applied during the assessment process, both in respect of the time within which a claim should be made and the degree of precision of the documentation supplied. That may be so; but it does not undo the apparent effect of the strict limits and requirements stated in the letter.

55 Nonetheless, when the letter is put into context, I do not think that the steps that were taken were insufficient to flush out any remaining legitimate IOUs. That is because Bunnings itself had taken steps to ensure that all pallets that it owed to its suppliers were returned. The whole point of the process undertaken by Bunnings was to ensure that IOUs were redeemed before the handover deadline (fixed by Bunnings, not by Chep) of 1 October 2007.

56 It was in Bunnings’ interest to ensure that as many pallets as possible were returned to suppliers who had legitimate claims to them. That is because Bunnings well understood that, as Chep had been alleging for the past five years at least, it was Chep’s case that Bunnings held far more Chep pallets than could be accounted for by legitimate IOUs. Further (and I return to this evidence at [86] and following below), Mr Gilsenan seems to have appreciated, since 17 November 2005, that if a national audit were to be performed on Chep pallets held by Bunnings, “it would show that not all pallets [that Bunnings holds] are owed to suppliers”, and that he feared “that Chep would want the surplus back which would leave them short and therefore create a cost to Bunnings”. (The quotation comes from an email sent by Mr Hammond to a colleague, Mr Adam Pfeiffer, on 21 November 2005, in which Mr Hammond reported on his meeting with Mr Gilsenan of 17 November 2005.)

57 Thus, it is reasonable to conclude, as I do, that Bunnings took appropriate steps to ensure that its IOU obligations were satisfied, so as to minimise the number of pallets that would have to be returned to Chep, in circumstances where it could be inferred (as, clearly, Chep would do) that those pallets were, in the language of the Agreed Issues, Non-Commercial Chep Pallets.

58 The matters to which I have referred suggest that, on balance, the Reconciliation Process undertaken by Ms Welch and her colleagues can be accepted as reliable, and as having achieved its purpose of ensuring that any remaining legitimate IOU claims, by Chep’s customers who had used Chep pallets in their dealings with Bunnings, were satisfied.

59 However, Ms Welch undertook a further step. Among the records discovered by Bunnings were lists of its suppliers between 1 July 2002 and 30 November 2007. Ms Welch analysed those lists to identify Chep customers who had been suppliers to Bunnings in the period following this Court’s orders on 24 August 2007, but who had not been contacted as part of the Reconciliation Process. The additional customers thus identified were contacted, told that Chep had received a quantity of Chep pallets from Bunnings, and asked to contact Chep if they had any legitimate outstanding IOUs from Bunnings. They were told that any legitimate IOUs would be credited to their account as at 1 October 2007. No customer contacted Chep as a result of this additional program of notification.

Historical counts

60 There was evidence of attempts made by Chep from time to time to estimate the number of its pallets in Bunnings’ stores; and there was also some evidence from Bunnings’ employees of the number of Chep pallets held from time to time in various locations.

61 In July 2002, Chep undertook an informal count of pallets in four Bunnings stores in Victoria. That count showed that there were 2,374 Chep pallets in the four stores where the count was undertaken. On the basis that there were then 33 Bunnings stores in Victoria, Chep estimated that there would be approximately 20,000 Chep pallets in Bunnings’ stores across Victoria. Chep made inquiries of its customers who were major suppliers to Bunnings, and concluded that, of those pallets, 3,000 to 4,000 would be the subject of IOUs.

62 Mr Skermer said that, in 2002, Bunnings’ distribution centres held about 2800 Chep pallets. Most of those pallets would have been sent from Bunnings stores to a distribution centre because they were not being used at the store, and were not needed for exchanges.

63 Chep undertook preliminary counts of its pallets in Bunnings stores in Western Australia, as a result of which it put a hire proposal to Bunnings in Western Australia for a pool of 5,000 pallets.

64 Chep undertook an informal, although detailed, audit (so far as it was able to do) in November 2005, in an attempt to estimate the number of its pallets that might be held in Bunnings’ stores across Australia. Extrapolating from physical counts that were undertaken at 17 Bunnings’ stores, and allowing for different holdings at warehouse stores and ordinary hardware stores, Chep concluded that there might be some 86,422 pallets held in Bunnings’ stores across Australia.

65 In February 2006, Chep undertook a survey of its customers who were among the major suppliers to Bunnings. The results of that survey indicated that about 8,700 pallets were the subject of IOUs.

66 The figures from the informal audit of November 2005 and analysis of IOUs in February 2006 were discussed at the meeting of 3 March 2006 between representatives of Chep and representatives of Bunnings. Bunnings’ representatives at that meeting did not accept that (in round figures) only about 10% of the Chep pallets held by Bunnings nationally were the subject of legitimate IOUs to Bunnings’ suppliers.

67 Chep undertook a further informal audit in July and August 2006. Based on physical counts at 42 Bunnings’ stores in New South Wales, Chep estimated that there were about 72,000 Chep pallets held in Bunnings’ stores nationally. A further count was undertaken at 162 Bunnings stores across Australia (there were then more than that number of stores), which showed that some 56,000 Chep pallets were held.

The pro-rating process

68 Mr Davis said in his affidavit that there was a “close correlation” between the number of Bunnings’ warehouse stores from time to time, and the number of Chep pallets held by Bunnings during the Relevant Period. Based on the assumption that Bunnings held 64,690 Non-Commercial Chep Pallets during the period 1 April to 1 October 2007, Chep undertook a pro-rating exercise for previous periods. In essence, the number of Non-Commercial Chep Pallets assessed to be held in a particular period was multiplied by a fraction the numerator of which was the number of warehouse stores in that period and the denominator of which was the number of warehouse stores in the subsequent period. A cross-check was undertaken, using Bunnings’ sales data. The results obtained by that cross-check correlated closely to the results obtained by the calculation based on numbers of warehouse stores.

69 Thus, Chep said that:

(1) for the period 1 April 2007 to 1 October 2007, the number of Non-Commercial Chep Pallets held by Bunnings nationally was 64,690 (in other words, the number obtained through Ms Welch’s Reconciliation Process);

(2) for the previous 12 month period, from 1 April 2006 to 31 March 2007, the number was 59,264 (this and all subsequent numbers being obtained by pro-rating back based on warehouse stores numbers);

(3) for the period from 1 April 2005 to 31 March 2006, the number was 54,673;

(4) for the period from 1 April 2004 to 31 March 2005, the figure was 52,169;

(5) for the period from 1 April 2003 to 31 March 2004, the figure was 48,413;

(6) for the period from 1 April 2002 to 31 March 2003, the figure was 46,326; and

The parties’ submissions

70 Mr Bathurst submitted that the results obtained through Ms Welch’s Reconciliation Process should be accepted as accurate. He relied on the preceding steps undertaken by Bunnings to ensure that outstanding IOUs were satisfied, and on what he said was the corroboration provided by historical counts.

71 Mr Bathurst submitted also that, in circumstances where Bunnings had consistently refused to participate in, or permit, any formal audit, then the Court should not be quick to draw inferences in its favour, and should be slow to accept its criticisms of the sufficiency of Chep’s evidence.

72 Finally, and in the alternative, Mr Bathurst submitted that, in so far as Bunnings was relying on the proposition that Chep pallets held by it were the subject of hiring agreements between its suppliers and Chep (and, thus, that it was legitimate for those suppliers to give possession of the pallets to Bunnings – cl 2(d) of the terms of hire), it was Bunnings that bore the onus of proof. Mr Bathurst relied on what I had said in BIS Cleanaway as to the onus of proof in relation to the defence of ius tertii.

73 Mr Garratt submitted, as I have noted, that there were defects in the Reconciliation Process undertaken by Ms Welch. The way in which the process was designed (including the relatively short time frame for submission of claims, the requirement to submit to an audit and the requirement to supporting documentation) were likely, he submitted, to dissuade Chep’s customers from claiming pallets. I note that Bunnings did not adduce evidence from any supplier to the effect that it had been so dissuaded.

74 Mr Garratt submitted further that the stringency of the process meant that legitimate claims might have been disregarded. That may be so in relation to the process as designed; but Ms Welch’s evidence, which in substance was not challenged, was to the effect that a degree of latitude, or tolerance, was applied in establishing whether claims were made out.

75 Mr Garratt did not accept that the further process undertaken by Ms Welch, using Bunnings’ discovery, verified the Reconciliation Process. On the contrary, he submitted, the later process undermined the earlier. He noted that some 12 out of 149 suppliers contacted in the Reconciliation Process made a claim (that low percentage itself suggested, he said, that it was not attractive to suppliers to make a claim). By contrast, as he noted, approximately 300 (different) suppliers were contacted in the follow-up process, but none of those made a claim. It was inherently unlikely, Mr Garratt submitted, that some 12 suppliers had 17,526 unsatisfied IOU claims, and that 430 or more other suppliers had not one claim between them; and that none of the 300 did.

76 Further, Mr Garratt submitted, it was inherently unlikely that Bunnings would have so many Non-Commercial Chep Pallets in its possession, given its evidence that the majority of pallets were exchanged either on delivery of the goods or within a short time thereafter. Mr Garratt did not explain how this submission fitted with Mr Skermer’s evidence, referred to at [62] above; it is an available inference from that evidence that in fact Bunnings stores did hold, from time to time, more Chep pallets then were needed to satisfy their IOU obligations.

77 Mr Garratt submitted that it would be unlikely that a little under 80% of the pallets returned by Bunnings to Chep would be Non-Commercial Chep Pallets, given that earlier estimates had suggested that such pallets might form 10%, not almost 80%, of the total held by Bunnings.

78 Further, Mr Garratt attacked the proposition that an audit, if undertaken, would have determined with some degree of accuracy how many Non-Commercial Chep Pallets were held by Bunnings at any given time. He submitted that Chep had confused pallets not on hire at a particular point of time with its customers’ inability to account for pallets on hire at the same point of time.

Decision

79 I have come to the conclusion that, on balance, the Reconciliation Process undertaken by Ms Welch and her colleagues should be accepted as providing a reliable indication of the number of Non-Commercial Chep Pallets held by Bunnings as at, and returned on and after, 1 October 2006.

80 I do not find it surprising that there is an apparent disparity between the Reconciliation Process and the subsequent check based on Bunnings’ discovery. It is inherently likely that Chep’s sales executives would have had a good understanding of the businesses of the customers for whom they were responsible. The evidence suggested that, in effect, each sales executive had a group of customers whom he or she managed, and was aware of the details of each customer’s business. It is therefore inherently likely that the process undertaken by Chep at the outset, to attempt to establish which of its customers were suppliers to Bunnings, would have identified at least the principal suppliers.

81 Thus, I think, whilst the later exercise was an important one to undertake, as a check on the validity of the Reconciliation Process, the fact that it flushed out no further claimants should not be taken as undermining the Reconciliation Process, or as inconsistent with inferences that might be drawn from that process.

82 Nor do I find it surprising that the number of Non-Commercial Chep Pallets held by Bunnings as at 1 October was so high, compared to the number apparently subject to legitimate IOUs. It was in Bunnings’ interest to ensure that as many IOUs as possible were satisfied before 1 October 2007. No doubt, the steps that it undertook to achieve this were prosecuted efficiently. Thus, one would expect that the majority of the pallets that remained would not be the subject of legitimate IOU claims.

83 Although the sheer number of Non-Commercial Chep Pallets held by Bunnings as at 1 October 2007 (according to the Reconciliation Process) seems high, it is necessary to remember that Bunnings is (and then was) a very large organisation, with some hundreds of retail stores (ordinary and warehouse) across Australia selling a vast array of goods to a multitude of consumers. It is also clear that, regardless of the arrangements for exchange that might have been in place, Bunnings did accumulate surplus Chep pallets from time to time. This is apparent from the evidence of Mr Skermer referred to at [62] above, and also from the evidence to which I refer at [86] to [92] below.

84 I do not accept the proposition that an audit was unlikely to have established, with reasonable accuracy, the real position. An audit carried out with Bunnings’ cooperation would have indicated the total number of Chep pallets held by Bunnings’ stores and distribution centres across Australia. It would also have identified those of Bunnings’ suppliers who were Chep customers. It would have been, at least in methodological terms, a simple exercise for Chep to analyse the records of those customers to ascertain how many outstanding IOU claims could be demonstrated. Although, no doubt, such a process would have been laborious and time consuming, it was something that Chep was equipped to do. Thus, I think, an audit was likely to have produced a reasonable estimate of the true number of Non-Commercial Chep Pallets held by Bunnings at any given time.

85 Further, whilst I accept that Bunnings could not have been forced to undertake or to participate in an audit process, its refusal to do so does not do it much credit. Bunnings’ stated position (to Chep) at all times was that all Chep pallets held by Bunnings from time to time were the subject of legitimate hire arrangements between Bunnings’ suppliers and Chep. However, it is clear from the evidence of Bunnings’ witnesses that Bunnings had never attempted to satisfy itself on this point; it had never undertaken any investigation, or made any inquiry. The statement repeatedly made to Chep seems to have been, if not an article of faith, then in effect an unreasoned statement of position.

86 In this context, it is significant that Mr Gilsenan (who had every reason to know) was concerned, as long ago as November 2005, that an audit of Chep pallets held by Bunnings would show that in fact not all of them were the subject of current hire arrangements between Chep and those of its customers who were Bunnings’ suppliers.

87 Mr Hammond said that his primary objective, in meeting with Mr Gilsenan on 17 November 2005, was to undertake an audit to identify the number of Chep pallets that Bunnings held, and the number of those pallets which were on hire to Chep’s customers. Based on that, Mr Hammond said, he could estimate the number of pallets that Bunnings required to run its business. No doubt, that was of interest to Mr Hammond (and Chep) because Bunnings might be persuaded to open an account with Chep. Certainly, Mr Gilsenan thought that the thrust of the meeting was to persuade Bunnings to open an account with Chep.

88 As I have said, Mr Hammond sent an email to his colleague Mr Pfeiffer on 21 November 2005, in which he reported on the meeting with Mr Gilsenan four days earlier. Mr Hammond said in his affidavit that this email summarised the discussions that took place.

89 Mr Hammond’s account of this aspect of the meeting is corroborated not only by his email but by a handwritten note that he made immediately after the meeting.

90 According to the email, Mr Gilsenan said the following things:

(1) “he and the Bunnings Board are against having a Chep account but … they will always have an ongoing need to use Chep hire pallets in their business”;

(2) “future discussions could be amicable up to a point where Chep insist they have a Chep account or return any pallets not legitimately owed, then …“it could get ugly””;

91 Mr Gilsenan agreed in cross-examination that he did say words to the effect that he and the Bunnings Board were against having a Chep account. He did not agree (nor did he deny) that he said that Bunnings would always have an ongoing need to use Chep pallets, but he appeared to accept that if Mr Hammond had written this in his email, then it was likely to have been said. Mr Gilsenan could not remember, but again did not deny, that he had said “it could get ugly”.

92 The following questions and answers ensued (T170.17-.42):

Q. And did you then say to Mr Hammond, "If we did a national audit it would show that not all pallets Bunnings have are owed to suppliers and CHEP will want the surplus back, which would leave them short and therefore create a cross to Bunnings by forcing it to replace the recovered CHEP's with plain pallets."
A. I don't recall saying that.

Q. You certainly wouldn't deny saying that, would you?
A. I'm not so sure about that.

Q. Because you had to replace CHEP pallets ultimately with plain pallets, didn't you?
A. I'm sorry, I'm just reading the paragraph. The way I read that is what I was saying to Glenn is if CHEP's pallets were withdrawn from the Bunnings business then Bunnings would have a task ahead of them to replace them.

Q. It was important because you would have regarded the withdrawal of the CHEP pallets as causing, at least for a period, difficulties and disruption to the Bunnings business; correct?
A. Not difficulties with disruption, it's change. Change can be managed, as it was when CHEP exited the business. There was no disruption.

93 In circumstances where Mr Gilsenan did not deny the words attributed to him, I accept Mr Hammond’s email according to its terms. Further, given my preference for the evidence of Mr Hammond over that of Mr Gilsenan to the extent that the two are in conflict; that Mr Hammond in his affidavit expressly stated that the email summarised the discussions; and that Mr Gilsenan in his affidavit (sworn later) did not dispute either that assertion or the substantial accuracy of the email, I accept that Mr Gilsenan did use words to the effect of those attributed to him in the email.

94 The significance of this is two-fold. First, it undermines Bunnings’ repeated assertions (both in its discussions and correspondence with Chep and, indeed, in these proceedings) that all Chep pallets in its possession from time to time were on hire to Chep’s customers who were Bunnings’ suppliers. Secondly, and of immediate significance, it suggests that Bunnings, at least in the person of Mr Gilsenan, had good reason to oppose any audit. That reason was of course an audit was likely to give the lie to Bunnings’ stated position, and on the contrary to confirm Chep’s stated position. In short, I think, Mr Gilsenan at least perceived, and understood, that an audit was likely to show that not all Chep pallets in Bunnings’ possession would be shown to be “owed to suppliers”: that is, the subject of legitimate hiring arrangements between Chep and its customers who were Bunnings’ suppliers.

95 In short, I conclude, based on this evidence, that by 17 November 2005 at the latest, Bunnings through at least Mr Gilsenan knew and understood that it had accumulated more Chep pallets than could be accounted for by IOU arrangements with its suppliers. Thus, Bunnings had every reason (at least, in a commercial sense) to be “adamant” that it would not permit Chep to undertake an audit. In my view, it is legitimate to take those matters into account in assessing the reliability of the inferences to be drawn, from such evidence as Chep has been able to marshall, of the number of Non-Commercial Chep Pallets among the 82,216 that were returned by Bunnings to Chep on and from 1 October 2007.

96 I do not accept the proposition (advanced by Bunnings in its written summary of final submissions at para 68) that an audit would have been “not an ascertainment of pallet numbers, but in reality only an investigation into the record keeping and administration of Chep’s customers “(emphasis in original). Whilst it is correct to say (leaving to one side, for the moment, Bunnings’ defences based on implied term/collateral agreement/estoppel) that the express contractual right to part with possession of equipment to a non-hirer was conditional on the keeping of appropriate records, it does not follow that Bunnings should be able to take advantage of any deficiency in its suppliers’ records. Bunnings was aware of the detail of Chep’s terms of hire from at least March 2006. That is because, following the meeting of 3 March 2006, Chep sent a “Hire Equipment Proposal” to Bunnings on 16 March 2006. That proposal included, as Appendix 4, Chep’s Terms and Conditions of Hire as they then stood. Bunnings either knew or had the means of knowledge, at least from March 2006, that the terms of hire regulated (or purported to regulate) the terms on which a Chep customer could give possession of Chep equipment to a non-Chep customer. If Bunnings chose to deal with its suppliers without maintaining adequate records of “exchanges” (which seems to be the industry term for the passing of possession from a Chep customer to a non-Chep customer), it did so at its own risk.

97 Equally, if Bunnings chose not to keep adequate records of exchanges (or IOUs) then, again, it did so at its own risk. In this context, I repeat that although Bunnings claimed that it kept records of IOUs, no such records were discovered or proved. As Latham CJ observed in Penfolds Wines Pty Limited v Elliott (1946) 74 CLR 204 at 210, “any person interferes with the chattels of another person at his risk”. I do not think that the force of his Honour’s observation is diminished by the fact that he dissented in the outcome; the difference between his Honour (and Williams J) on the one part and the majority (Starke, Dixon and McTiernan JJ) on the other was not as to the relevant principles but as to their application to the facts of the case. Indeed, the words of Latham CJ that I have quoted were repeated in substance by Williams J at 239. His Honour said “that persons deal with the property in chattels or exercise acts of ownership over them at their peril”.

98 Bunnings chose, for some years, to deal with Chep’s pallets in circumstances where it knew that Chep maintained that not all those dealings were authorised by Chep’s contracts with its suppliers. Bunnings chose not to investigate the right of its customers to deal as they did, and chose not to keep (at least, so far as the discovery and evidence in these proceedings shows) adequate records of those dealings. For at least the last 18 months or so of the time when Bunnings used Chep pallets, it had actual notice of the terms on which Chep’s customers were entitled to part with possession of the pallets in Bunnings’ favour. In those circumstances, I think, Bunnings dealt with the pallets at its peril; and it is not now open to Bunnings to assert that such means as Chep had available to it to ascertain the true position (in relation to pallets on hire and pallets not on hire) were inadequate to achieve that end.

99 Further, although Chep called a number of witnesses who were or had been involved in the audit process, Bunnings adduced no evidence, either from those witnesses in cross-examination or otherwise, to make good, or even lend some factual support to, the proposition advanced at para 68 of its written summary final submissions.

100 As I have said, I am satisfied that, of the 82,516 pallets returned by Bunnings to Chep, 64,690 were, in the language of the agreed issues, Non-Commercial Chep Pallets. In reaching that conclusion, I take into account not only the matters to which I have referred above but also that, although Bunnings offered criticisms of Chep’s methodology and evidence, it did not support those criticisms by evidence of its own: for example, from suppliers who might have said that they were deterred from responding to the Reconciliation Process because of the constraints on that process imposed by the terms of Chep’s correspondence initiating it.

101 That leaves for decision the position in prior periods. There was no substantial challenge to the methodology used by Chep to derive numbers, working back from the figure ascertained through the Reconciliation Process. The challenge was, rather, to the starting assumption: the number of Non-Commercial Chep Pallets as ascertained by the Reconciliation Process.

102 As I have pointed out, Chep’s methodology is consistent with the evidence of Mr Davis, to the effect that there was a close correlation between the number of warehouse stores from time to time open and the intensity of Bunnings’ use of Chep pallets. Further, and again as I have pointed out, the analysis is supported by a check based on annual sales from year to year. It seems reasonable to think that there would be a close correlation between the volume of sales achieved by a business and the volume of goods (stock in trade) delivered to the business for the purposes of sale. Where substantial quantities of those goods are delivered to the business on pallets, and in the absence of any reason to think that the ratio of deliveries on Chep pallets would have varied over the years (at least, until after 19 June 2007, when Bunnings warned its suppliers that it was proposing to discontinue receiving goods on Chep pallets except on terms that the suppliers pay an unloading fee of $15.00 per pallet), it is reasonable to accept the check as providing acceptable corroboration of the methodology based on number of warehouse stores.

103 There was no dispute as to the application of Chep’s methodology: that is to say, as to its arithmetic accuracy.

104 Accordingly, I conclude that in the periods from 1 April 2006 / 31 March 2007 to 1 January 2002 / 31 March 2002, the number of Non-Commercial Chep Pallets used by Bunnings in each period was as set out at [69(2) – (7)] above. I accept that the specificity of the numbers produced by application of Chep’s methodology gives an appearance of precision to these figures that may not be entirely authentic, but that is simply the consequence of the application of the methodology. It does not mean that the figures should be rejected. Nor does it mean that they should be rounded off, in circumstances where there is no rational basis to suggest how any such rounding process should be effected.

Third issue: Bunnings’ use of Non-Commercial Chep Pallets

105 The evidence on this issue was not controversial.

106 For present purposes, stock delivered into Bunnings’ stores over the relevant period may be divided into four principal categories:

(1) stock required immediately to re-stock the shelves on which goods are exposed for sale;

(2) stock not required for immediate display;

(3) heavy stock, such as bagged cement or potting mix; and

107 When palletised goods were received into a Bunnings store, they were dealt with as follows:

(1) stock in the first category was transferred from the pallet to shelves. Initially, this was done during the day. However, for safety reasons, the practice was adopted of re-stocking the shelves at night, after normal trading had ceased. Either way, as I understand it, loaded pallets would be moved onto the floor of the store and Bunnings’ staff would unpack items of stock from the pallets and place them onto the shelves or racks.

(2) Pallets of stock in the second category were stacked into “high rise”: on top of the steel racking. Again, as I understand it, this was done after hours as it involved the use of machinery to transport the pallets and lift them into position.

(3) Stock in the third category comprised stock that was typically sold direct from pallets. It was apparently undesirable to attempt to unload those pallets and to reload the goods onto other pallets. The individual items were heavy, and difficult to move. The pallets were loaded by special machines, which distributed the weight of the items evenly and guarded against slippage. If attempts were made to move the stock onto other pallets, there was the risk of slippage. Accordingly, the goods were sold direct from the pallets.

108 As pallets were emptied (either in the process of re-stocking or as goods were sold from them), they were taken back to the receiving area of the store, to await exchange. As I have noted already, it was Mr Skermer’s evidence that when individual stores had more Chep pallets than they needed (for the purpose of exchange), they would send those surplus pallets to Bunnings distribution centres.

109 Mr Wilkinson-Beards said that approximately 80% of the goods received on pallets in Bunnings’ stores were unloaded immediately, and 20% were retained on pallet either for sale off the pallet or in high rise.

110 Mr Juhani said that, on occasion, seasonal stock that was left over at the end of its selling season (for example, heaters unsold at the end of winter) might be placed onto a pallet with other goods (not necessarily those delivered on the pallet). The pallet would then be shrink-wrapped and placed in high rise. Mr Juhani said that this was usually done with Bunnings’ own or plain pallets, but I infer that it was also done from time to time with Chep pallets.

111 In addition, from time to time, Bunnings’ distribution centres used Chep pallets for the movement of goods. Most goods were received into distribution centres in containers, and were unpacked from those containers. They were then loaded onto pallets for dispatch to individual stores. Generally, Mr Skermer said, Bunnings’ own pallets or Loscam pallets were used. However, he said, when supplies were low, Chep pallets were used for this purpose. Mr Skermer said that only 1% to 2% of pallets used by the distribution centres for sending stock to stores were Chep pallets; and that this use was against Bunnings’ policy.

112 Mr Wilkinson-Beards gave evidence to the like effect: that distribution centres would use non-Chep pallets where possible to send goods to stores, but that they did on occasion use Chep pallets.

113 There was in evidence an email dated 27 February 2007 from Ms Chris Raftery, the manager of Bunnings’ imports distribution centre in Queensland, copied to what appear to be all Bunnings’ stores in that state. The email, which was said to be of “high” importance, read:

Hi all, Qld D.C is in need of pallets.

In the month of February we paid $22,000.00 for Loscam rental (19,500 plts) for one month. We are unable to de-hire any as they are full of stock. We are reluctant to hire more.

Could all stores please send back to the D.C. ASAP any empty Loscam or Chep that they do NOT owe to any other suppliers.

We also still use all plain/Bunnings standard hardwood pallets that don’t belong to anyone else.

Your prompt action on this matter would be appreciated, thanks.

114 In short, as Chep submitted, Bunnings’ use of Chep pallets over the Relevant Period included the following:

(1) The display of goods for sale in promotional displays and displays at aisle-ends registers etc. As Chep submitted, the display of goods on pallets was an integral part of the warehouse retail concept.

(2) For storing in high rise stock not immediately needed.

(3) For storing heavy goods until needed, so as to avoid the safety and cost issues associated with unloading, handling and restacking those goods.

(4) For swapping with suppliers who delivered goods on Chep pallets, so as to avoid the time, cost and other problems of unloading goods delivered on pallets from those pallets forthwith upon delivery.

(5) For transporting surplus stock (on the pallets on which it was delivered) between stores or between stores and delivery centres.

Second order rules

227 It is important to distinguish between the fundamental principle – that damages should be assessed so as to compensate the injured party, to the extent that money can, for the wrong done – from second order rules as to how that assessment might be carried out. (The phrase “second order rule” comes from the speech of Lord Steyn in Smith New Court Securities Limited v Citibank NA [1997] AC 254 at 284.) Although, in particular kinds of case, damages may generally be assessed on a particular basis, the method of assessment may be disregarded, or departed from, if adherence to it would violate the compensatory rule.

228 Smith New Court was a case of misrepresentation. In seeking damages for the purchase of shares at a price inflated by a misrepresentation, the purchaser had to give credit for the market value of what it had acquired. The general rule, in such cases, was that the market value should be assessed at the date of acquisition. The House of Lords said that this general, or second order, rule should be departed from where to adhere to it would not allow proper compensation for the loss actually suffered. See Lord Browne-Wilkinson at 268, Lord Mustill at 269 and Lord Steyn at 285. Lord Keith of Kinkell and Lord Slynn of Hadley agreed with Lord Browne-Wilkinson and Lord Steyn.

229 Of course, this is a case of conversion or detinue, not a case of misrepresentation. Nonetheless, it has been recognised that the assessment of damages for conversion should be carried out in a flexible manner so as to achieve the true compensatory purpose of damages: IBL Ltd v Coussens [1991] 2 All ER 133.

230 The distinction between the fundamental compensatory rule and second order rules that give effect to it was referred to, with apparent approval, by the High Court of Australia (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ) in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 667 [63]. In that case, the Court was dealing with the assessment of damages under s 82 of the Trade Practices Act 1974 (Cth), but nothing in what their Honours said suggested that Lord Steyn’s approach (which, as I have already said, related to a case of misrepresentation) was incapable of any wider application.

Strand Electric

231 The starting point, on the approach advocated by Chep, is the decision in Strand Electric. In that case, the plaintiff’s business comprised or included the hiring out of electrical switchboards. It hired some switchboards to the occupant of a theatre owned by the defendant. The occupant moved out, and the defendant retook possession of the theatre. It used the switchboards in the theatre for its own purposes. The plaintiff made demand for the return of the switchboards. The defendant refused to comply. The Court of Appeal (Somerville, Denning and Romer LJJ) held that damages should be assessed at the rate of hire that the plaintiff could have obtained for the switchboards had they been available to be hired out in the course of its business. Their Lordships followed somewhat different paths to this conclusion.

232 Somerville LJ said at 252 that, the claim being one in detinue, the plaintiff’s loss was the market value of the defendant’s user of the switchboards. His Lordship said that “[t]he wrong is not the mere deprivation, as in negligence and possibly some detinue cases, but the user”. The value of that user was to be measured by the plaintiff’s usual rate of hire, not by “the actual benefit which the defendants have obtained”. His Lordship said:

The damages could not … be increased by showing that a defendant had made by his use of the chattels much more than the market rate of hire. Equally they can not be diminished by showing that he had made less.

233 His Lordship justified this conclusion by reference to the analogy of a claim for mesne profits. As his Lordship said (again at 252), “[t]he measure there is a reasonable sum in the nature of rent for the user during the period of the defendant’s trespass”.

234 Denning LJ commenced his judgment by referring, at 253, to the compensatory rule. His Lordship said (in my respectful view correctly) that this directed attention to the real question, what is the proper measure of damages, on the facts of that case, for the wrongful detention of goods.

235 His Lordship reasoned at 254 that the defendant was in the position of “a wrongdoer [who] has made use of goods for his own purposes”. Such a wrongdoer, his Lordship said, “must pay a reasonable hire for them even though the owner has in fact suffered no loss … the owner is entitled to a reasonable hire”. As his Lordship made clear later on the same page, that conclusion did not follow from mere detention of the goods, but from the fact that they were detained and used by the wrongdoer.

236 Romer LJ commenced by emphasising “three salient facts”:

(1) the plaintiff’s goods that the defendant had detained were profit earning property;

(2) the plaintiff normally hired those goods out in the course of its business; and

237 His Lordship referred to the compensatory rule and, like Denning LJ, posed the question as being identification of the loss suffered by the wrongful act of detention. His Lordship rejected, as the appropriate measure of quantification, the profit or benefit that the defendant gained by its wrongful act.

238 At 257, Romer LJ rejected the proposition that the assessment of the plaintiff’s loss, on the basis of the value of hire foregone, should take into account the chance that the plaintiffs may not have been able to hire the goods out for the full period of the detention. His Lordship said:

In my judgment, however, a defendant who had wrongfully detained and profited from the property of someone else cannot avail himself of a hypothesis such as this. It does not lie in the mouth of such a defendant to suggest that the owner might not have found a hirer; for in using the property he showed that he wanted it and he cannot complain if it is assumed against him that he himself would have preferred to become the hirer rather than not have had the use of it at all.

239 In this regard, his Lordship appears to have taken the approach advocated by Lord Blackburn, of taking into account, against a wilful wrongdoer, things that might not be allowed against an innocent wrongdoer: preventing the wilful wrongdoer from qualifying his own wrong. In other words, as I understand the approach of Romer LJ, it reflected in substance, if not in terms, the approach in Armory v Delamirie and foreshadowed the approach taken by Handley JA in Houghton.

240 In my view, the approach to be gathered from the decision in Strand Electric is that the assessment for damages for the wrongful detention of a chattel that is normally hired out for reward may be effected by reference to the foregone hire, and the wrongdoer should not be permitted to raise the argument that the chattel might not have been hired out for the whole period of the detention. All three of their Lordships agreed in the first point. The second is explicitly supported by the judgment of Romer LJ and is, I think, implicit in the judgment of Somerville LJ.

Gaba Formwork

241 The decision in Strand Electric was reviewed by Giles J in Gaba Formwork. His Honour’s analysis commences, relevantly for present purposes, at 177, where his Honour identified the principles relating to actions in conversion and actions in detinue. The former, his Honour said, was a claim for damages for the wrong done to the plaintiff by the interference with its goods. The latter, by contrast, was a continuing wrong, and various remedies were open. Those remedies included judgment for the value of the goods and damages for their detention; or judgment for the return of the goods or their value and damages for detention; or judgment for return of the goods and damages for detention.

242 His Honour pointed out at 177 – 178 that the normal measure of damages for conversion is the value of the goods converted at the date of conversion, together with consequential, but not too remote, losses flowing from the conversion.

243 By contrast, his Honour pointed out at 178, the normal measure of damages in detinue is the value of goods at the date of judgment. Where the goods detained were used by the plaintiff in its business, damages could be assessed by reference to the cost of hiring substitute goods. Where the plaintiffs’ business comprised the hiring out of the goods, damages might be assessed by reference to the foregone profits from hiring them out.

244 In addition, his Honour said, a plaintiff in detention was entitled to damages for the detention of the goods. At 179, his Honour said that there was no arbitrary rule, either in conversion or in detinue, that the assessment of damages should not take into account any period after judgment. In conversion and in detinue, damages could take account of a period after the date of judgment if that were necessary, for example, “to compensate for hiring fees to be lost after judgment and before acquisition of replacement materials”. Equally, if by reason of actions in mitigation taken by the plaintiff, its ongoing loss stopped before judgment, that should be reflected in the quantification of damages.

245 Giles J dealt with the decision in StrandElectric at 180 to 183. His Honour then considered the decision of the High Court in Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 (I refer to this case at [250] and following below) and concluded, at 184, that the decision could be distinguished on its facts. His Honour then reviewed the authorities in which the decision in Strand Electric had been considered, noting at 185 that it had been referred to by the Full Court of this Court in McKenna and Armisterd Pty Ltd v Excavations Pty Ltd [1957] SR (NSW) 515, and that the Court was “at pains not to endorse the result in Strand Electric…”.

246 Giles J concluded at 188 that the decision in Strand Electric should be followed so far as it applied to the facts before him. His Honour said of that decision:

It has stood for nearly 40 years and, while confined to where the defendant has used for his own purposes goods which the plaintiff would or might otherwise have hired out for reward, has been generally accepted in that situation. It produces a just result… .

247 His Honour appeared to suggest, both in a passage following what I have just quoted and at 184, that the decision in Strand Electric marked some departure from the compensatory rule. If I may say so with respect, I am not sure if this is the case. As I have noted already, both Denning LJ and Romer LJ referred to the compensatory rule, and asked the question, what was the proper measure of damages to compensate the plaintiff in that case for its loss? In the language of Lord Steyn, it seems that Denning LJ and Romer LJ regarded their task as being to identify the appropriate second order rule that, in the circumstances of that case, would best ensure that the compensatory rule achieved its purpose.

Flowfill

248 Young J dealt with the question in Flowfill at 62,523 – 62,524. He said, at the latter page, that the decision of Giles J in Gaba Formwork “was strongly reasoned after a review of all the applicable authorities in Australia and England and it seems to me that I should follow it”.

249 There was no later case cited to me to suggest that Gaba Formwork was wrongly decided (or, for that matter, that the principle established by Strand Electric is inappropriate in cases of the detention of profit-earning chattels).

Butler

250 I return to the decision in Butler. In that case, a statutory scheme of regulation vested in the respondent board property in all eggs when they came into existence. Producers were paid by participating in a pool into which the proceeds of sale of eggs by the board were paid and from which expenses were deducted. The appellants failed to deliver eggs to the board and instead sold them to a third party. The board sought damages for conversion of the eggs. The High Court held that the measure of damages was not the value of the eggs but the difference between the price for which the board would have sold the eggs, had they been delivered to it for sale, and the amount which in that event it would have been bound to pay to the appellants.

251 Taylor and Owen JJ pointed out at 190 that if the board received the full value of the eggs, it “would be in a better position financially than would have been the case had the appellants complied with the Act”. Their Honours said at 191 that “such a result would not accord with the general principle upon which compensatory damages are assessed, whether in actions of contract or of tort”. Thus, their Honours said, the general rule – that damages in conversion are the value of the goods converted – should give way where necessary to ensure that the plaintiff receives no more than its entitlement under the compensatory principle. To adapt the words of Lord Steyn, the second order rule gave way to ensure a result in conformity with the compensatory rule.

252 In a separate judgment, Menzies J reasoned to similar effect at 192, stating that “[t]he true rule is … that the plaintiff is entitled to recover no more than the real damage he has sustained”. If application of the general rule – value of the goods at the date of conversion – would mean that the plaintiff was over-compensated, then the general rule should give way.

Decision

253 In my view, in principle, it is appropriate to apply in this case what I have called the Strand Electric / Gaba Formwork reasoning. That is because (to adapt the words of Romer LJ at 256) the salient features of this case are that the pallets were profit-earning property of Chep; that Chep normally hired pallets out in the course of its business; and that (contrary to Mr Garratt’s submission) Bunnings, during the period of detention, did use the detained pallets for its own purposes.

254 Those salient facts attract the operation of the principle. As Young J said in Flowfill at 62,524 it is appropriate to follow the reasoning of Giles J in Gaba Formwork, having regard to his Honour’s extensive review of the authorities (and, I add, the absence of any authority, at least cited to the Court, to the contrary). Thus, in principle, I propose to adopt the approach sanctioned by those cases.

255 However, the approach cannot be applied in a mechanical or unthinking manner. It must take account of the particular facts.

256 Although it is correct to say that Chep hires out its pallets for reward, it is necessary to bear in mind that it does so on a pooled basis, and that part of its business strategy seems to be that it will always have pallets on hand sufficient in number to satisfy the requirements of all its customers. There is nothing in the facts of Strand Electric to suggest that the plaintiff had an oversupply of portable switchboards; nor anything in Gaba Formwork to suggest that the plaintiff had an oversupply of formwork. In each case, I suspect, the plaintiff was happy to let out what it had, and more than happy if all its stock in trade was let out on hire. By contrast, Chep, as a matter of choice (or business model) operates on the basis that not all its stock of pallets will be on hire at any given time.

257 In my view, it would be unjust to Bunnings, and would overcompensate Chep, not to recognise the feature of Chep’s business model that I have just identified. Accordingly, I think, the assessment of damages needs to take account of the fact that even if the pallets in question had all been in Chep’s possession at all relevant times, not all of them would have been out on hire at any given time.

258 I have adverted briefly to Mr Austin’s evidence on this topic. What he said, at para 46 of his affidavit sworn 29 October 2008, was that over a period from “at least 1996” until January 2008, between 86% and 92% of Chep’s pallets were on hire at any one time during “non-peak times”. By contrast, at peak times, in excess of 95% of pallets were on hire. Mr Austin did not give detailed identification of peak and non-peak times, but gave, as examples of peak times, “the lead up to Christmas and Easter”.

259 Mr Austin was questioned on this evidence at T52. It was put to him at line 26 that this evidence provided “a fair working basis … for regarding the pallet usage within … the Chep business for each of these years from about 2001 to 2008”. He agreed with that proposition. However, as he made plain in his answer to the following question, that ratio was the percentage of the total pool that was on hire from time to time. The total pool included pallets under repair or awaiting repair, as well as pallets that had been repaired and were ready to be hired out.

260 In my view, substantial justice would be done between Chep and Bunnings if one assessed damages on the basis that, over the years in question and averaging out peak and non-peak times in a rough and ready way, 90% of Chep’s pallets would have been on hire at any given time. On that basis, I think, the assessment of foregone hire for the Non-Commercial Chep Pallets that are the subject of the claim in detinue and conversion should be assessed on the basis that what Chep has lost is the hire of 90% of those pallets at any given time. To ignore the reality of the business model, and to give Chep the benefit of the hire of 100% of the pallets all the time, would amount to over-compensation.

261 In this way, I think, the secondary rule established by Strand Electric and Gaba Formwork must be adapted to ensure that the method of assessment of damages ensures that the aim of the compensatory rule is met.

262 However, I do not think that either the compensatory principle or the secondary rule as to assessment established by Strand Electric and Gaba Formwork, requires the Court to take, as the hire rate applicable, the rate paid by Wesfarmers from time to time. There are at least two reasons why this is so. The first is that the measure of damages is the loss of a market rate of hire (see Somerville LJ in Strand Electric at 252). The market was wider than Wesfarmers. The second is that, to adapt the words of Romer LJ in Strand Electric at 257, it does not lie in the mouth of Bunnings to suggest that the damages that it should pay should be reduced by reason of some benefit that it might have obtained had it bargained for the use of the chattels instead of converting or detaining them.

263 To the extent that it may be said that Chep cannot prove what particular hirers would have paid, then, I think, one should assess damages robustly and against Bunnings, whose wrongful detention and conversion of the pallets has rendered precise quantification impossible.

264 Essentially for the reasons that I have indicated already, I do not think that it is correct to say that Chep has been compensated in full by receiving (if it has done so) compensation from hirers for the loss of the pallets in question. As the figures set out at [204] and [205] above show, that compensation does not cover the capital cost of replacement. It does not compensate at all for the annual cost of repair. Chep claims neither the cost of replacement nor the cost of repair in these proceedings. It has limited its case to loss of use.

265 For effectively similar reasons, I do not think that the decision in Butler has anything to do with the facts of this case. Whilst it might be true, as a matter of theory, to say that Chep has already received compensation in respect of the loss of the pallets, that compensation has been, as it were, soaked up by other losses that are not the subject of the present claim. There is no need for it to be brought to account, against the damages presently claimed, so as to ensure that Chep receives no more than full compensation for its losses.

266 Accordingly, I conclude that the proper measure of damages for conversion and detention (it was not submitted that there was any significant distinction between the alternative claims, in this case) is the daily hire fee foregone, for the Relevant Period as I have found it to be, in respect of 90% of the Non-Commercial Chep Pallets found, by calculation, to have been in the possession of Bunnings for each period.

Issue 15: amount of damages

267 Chep calculated its damages as follows, on the basis that the appropriate way of pro-rating back the number of Non-Commercial Chep Pallets in Bunnings’ possession in periods prior to 1 April 2007 was by reference to the number of warehouse stores:

Period	No. of Non Commercial Pallets	Daily Hire Fee	Number of Days	Hire Fee for Period
1 April 2007 – 1 October 2007	64,690	$0.1090	183	$1,290,371
1 April 2006 – 31 March 2007	59,264	$0.1015	365	$2,195,583
1 April 2005 – 31 March 2006	54,673	$0.1010	365	$2,015,520
1 April 2004 – 31 March 2005	52,169	$0.0980	365	$1866,085
1 April 2003 – 31 March 2004	48,413	$0.0950	365	$1,678,720
1 April 2002 – 31 March 2003	46,326	$0.0925	365	$1,564,081
1 Jan 2002 – 31 March 2002	46,326	$0.0890	90	$371,071
$10,981,431

268 It follows from what I said that the damages should be reduced by 10% for each period; that the very earliest period in that table (1 January 2002 to 31 March 2002) should be excluded from the calculation; and that the second earliest period should commence on 16 May rather than 1 April 2002.

269 Chep also claims interest. Mr Garratt opposed the award of interest. He relied on the decision of the Court of Appeal in Screenco Pty Ltd v R L Dew Pty Ltd (2003) 58 NSWLR 720. In that case, the plaintiff claimed damages for the loss of a profit-earning chattel which it owned but for which it had not paid. The damages included the cost of the chattel. It sought interest on that amount. Handley JA said at 724 that, in those circumstances, although the plaintiff had lost the chattel and its use, “in a real and practical sense [it] had not lost its money because it had not paid for the screen”. His Honour reviewed the authorities, and drew from them the principle that an award of interest on damages was intended to restore the plaintiff to its pre-loss position. In this case, his Honour said at 730, an award of interest would improve the plaintiff’s position, rather than simply restore it.

270 Likewise, Tobias JA said at 748, again after a detailed review of the authorities, that to award interest on the capital value of the lost chattel would over-compensate the plaintiff, because, since it had not paid for the screen, it was not out of pocket for that monetary value.

271 Sheller JA, at 731, accepted the reasoning of Handley and Tobias JJA.

272 The facts of that case are far removed from the facts of this. Their Honours were concerned with the question of interest on that component of the damages that represented the value of the screen. Because the plaintiff had not paid for the screen, it was not out of pocket for the equivalent amount of money, and had not suffered loss in being deprived of the use of that money. In this case, what Chep has lost is the hire that it would have earned on the pallets over the years. In a real and practical sense, it is out of pocket for that hire, because it has not received it. The decision in Screenco is plainly distinguishable on its facts, and the principle on which it decided is not relevant to the damages, representing loss of hire, that in my view should be awarded in this case.

273 Accordingly, I conclude that interest should be allowed, at the rate from time to time applicable, on the damages calculated in the way that I have outlined.

274 Chep brought in a calculation of interest. That calculation did not reflect the adjustments that I have said should be made.

275 It might be possible for me to recalculate the amounts in question to take account of the factors to which I have referred. However, I think, it is safer to leave this to the parties, who will be able to agree on a correct calculation that gives effect to these reasons.

Conclusion and orders

276 It follows that Chep is entitled to damages for detinue or conversion, calculated in accordance with what I have said.

277 I make the following orders:

(1) Direct entry of judgment for the plaintiff against the defendant for damages to be assessed.

(2) Stand proceedings over to 9:30am on 18 May 2010 for the making of final orders.

(3) Direct the parties to bring in short minutes of order to give effect to these reasons;

(4) Draft short minutes to be provided to my Associate by 5:00pm on 14 May 2010.

278 If the parties are unable to agree on the proper costs order to be made, I will hear argument on 18 May 2010.

**********

19/05/2010 - Substituting names - Paragraph(s) 41, 51, 52, 69(1),72, 128, 209

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Citations

CHEP Australia Ltd v Bunnings Group Ltd [2010] NSWSC 301

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Redox v Swan Hill Chemicals Pty Ltd [2018] VCC 531

Cases Citing This Decision

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Hobbs v Petersham Transport Co Pty Ltd [1971] HCA 26

Sydney Corporation v West [1965] HCA 68

Grant v YYH Holdings Pty Ltd [2012] NSWCA 360

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BIS Cleanaway (trading as Chep) v Tatale [2007] NSWSC 378

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CITATION:	Chep v Bunnings [2010] NSWSC 301 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	8/03/10, 9/03/10, 10/03/10, 11/03/10, 12/03/10
JUDGMENT DATE :	7 May 2010
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	McDougall J at 1
DECISION:	Direct entry of judgment for the plaintiff against the defendant for damages to be assessed.
CATCHWORDS:	TORTS – conversion and detinue – where defendant was in possession of a substantial number of the plaintiffs’ pallets – whether demands made on defendant for return of pallets – whether defendant failed to comply – whether defendant is liable for conversion or detinue – whether plaintiffs had a right to immediate possession of pallets – whether the defendant had implied licence to use pallets - whether plaintiffs estopped from contending that any wrong was committed by the defendant by acquiescing in any holding and use of pallets by the defendant. - DAMAGES – whether loss suffered – proper measure of damages for any conversion or detinue – quantum of damages.
LEGISLATION CITED:	Trade Practices Act 1974 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Armory v Delamirie (1722) 1 Strange 505; 93 ER 664 Baud Corp, NV v Brook (1973) 40 DLR (3d) 418 BIS Cleanaway v Tatale [2007] NSWSC 378 Brambles Australia Ltd t/as Chep Australia v Tatale Pty Ltd (2004) Aust Torts Reports 81-759 Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 Butler v Hobson [1838] 4 Bing. N.C. 290 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Reports 81-244 Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 Gould v Vaggelas (1985) 157 CLR 215 Henry Berry & Co Pty Ltd v Rushton [1937] St. R. Qd. 109 Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 IBL Ltd v Coussens [1991] 2 All ER 133 John F Goulding Pty Limited v The Victorian Railways Commissioners (1932) 48 CLR 157 Kahler v Midland Bank Limited [1950] AC 24 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 McKenna and Armisterd Pty Ltd v Excavations Pty Ltd [1957] SR (NSW) 515 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 Penfolds Wines Pty Limited v Elliott (1946) 74 CLR 204 Screenco Pty Ltd v R L Dew Pty Ltd (2003) 58 NSWLR 720 Smith New Court Securities Limited v Citibank NA [1997] AC 254 Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246
PARTIES:	CHEP Australia Limited (First Plaintiff) CHEP Equipment Australia Pty Ltd (Second Plaintiff) Transpacific Cleanaway Limited (Third Plaintiff) Bunnings Group Limited (Defendant)
FILE NUMBER(S):	SC 2007/266437
COUNSEL:	T F Bathurst QC / N J Kidd (Plaintiffs) R M Garratt QC / D A Priestley (Defendant)
SOLICITORS:	Allens Arthur Robinson (Plaintiffs) Ligeti Partners (Defendant)