Fertinova Australia Pty Ltd and Fertinova International Ltd v FJ and WJ Transport Pty Ltd

[1995] QCA 499

IN THE COURT OF APPEAL

[1995] QCA 499

SUPREME COURT OF QUEENSLAND

Appeal No. 16 of 1995

Brisbane
[Fertinova Australia Pty Ltd & Anor v. F.J. & W.J. Transport Pty Ltd & Anor]

BETWEEN:

FERTINOVA AUSTRALIA PTY LTD

ACN 052 355 530 (First Plaintiff) Appellant

AND:

FERTINOVA INTERNATIONAL (FAR EAST) LIMITED

(Second Plaintiff) Appellant

AND:

JACK MIROSLAV SAMARDZIJA

(First Defendant)

AND:

JACKSON CORPORATION PTY LTD

(Second Defendant)

AND:

F.J. & W.J. TRANSPORT PTY LTD

ACN 010 205 802 (Third Defendant) Respondent

AND:

DAVID OUSTON and CO PTY LTD

ACN 010 258 527 (Third Party) Respondent

Davies J.A. Ambrose J. Helman J.

Judgment delivered 10/11/1995
Judgment of the Court

THE FIRST PLAINTIFF'S APPEAL IS ALLOWED AND JUDGMENT IS ENTERED FOR IT AGAINST THE THIRD DEFENDANT FOR $74,393.00. THE SECOND PLAINTIFF'S APPEAL IS DISMISSED. THE THIRD DEFENDANT MUST PAY TO THE FIRST PLAINTIFF ITS COSTS OF AND INCIDENTAL TO THE ACTION AND OF THE APPEAL TO BE TAXED. THE SECOND PLAINTIFF MUST PAY TO THE THIRD DEFENDANT ITS COSTS OF AND INCIDENTAL TO THE APPEAL TO BE TAXED.

CATCHWORDS: BAILMENT - Conversion - whether bailor acquiesced in disposal by bailee of warehousing rights in goods.

Counsel:	Mr. J. Sweeney for the (first and second plaintiffs) appellants Mr. P. A. Keane Q.C., with him Mr. S. R. D. Blaxland for the (third defendant) respondent Mr. G. J. Cross for the (third party) respondent
Solicitors:	Thompson King Connolly for the (first and second plaintiffs) appellants Barbeler & Cooke for the (third defendant) respondent Paul F. James & Co. for the (third party) respondent
Hearing date:	10 July 1995

IN THE COURT OF APPEAL

In this action judgment was given for the first plaintiff against the first and second

SUPREME COURT OF QUEENSLAND

Appeal No. 16 of 1995

Brisbane

Before Davies J.A. Ambrose J. Helman J.

[Fertinova Australia Pty Ltd & Anor v. F.J. & W.J. Transport Pty Ltd & Anor]

BETWEEN:

FERTINOVA AUSTRALIA PTY LTD

ACN 052 355 530 (First Plaintiff) Appellant

AND:

FERTINOVA INTERNATIONAL (FAR EAST) LIMITED

(Second Plaintiff) Appellant

AND:

JACK MIROSLAV SAMARDZIJA

(First Defendant)

AND:

JACKSON CORPORATION PTY LTD

(Second Defendant)

AND:

F.J. & W.J. TRANSPORT PTY LTD

ACN 010 205 802 (Third Defendant) Respondent

AND:

DAVID OUSTON and CO PTY LTD

ACN 010 258 527 (Third Party) Respondent

REASONS FOR JUDGMENT - THE COURT

Judgment delivered the 10th day of November 1995

defendants for $74,793.00 as damages for the conversion of a quantity of liquid fertiliser. damages for conversion of the fertiliser. The plaintiffs sought the same sums as damages against the third defendant but the learned trial Judge refused that relief. The plaintiffs now appeal against that refusal asserting that the first plaintiff should have judgment against the third defendant for $74,393.00 and the second plaintiff should have judgment against it for $4,630.00.

We should mention that the third party was made a respondent to the appeal, but at the beginning of the hearing the appeal against it was dismissed without objection, no relief being sought against it.

In 1990 the second plaintiff owned 23,200 ten litre drums of liquid fertiliser which had been manufactured in Austria. The second plaintiff sent it first to Singapore and then to Australia in the hope of selling it chiefly in Queensland. The second plaintiff engaged the third party, of which Mr David Ouston was the managing director, as its forwarding agent in Queensland to arrange for storage of the fertiliser.

In mid-1991 the second plaintiff appointed the first plaintiff, of which Mr Ouston was a director and the chief executive officer, as its Australian distributor, with the right to take possession of and market the fertiliser.

In May 1992 Mr Ouston entered into an oral agreement for the storage of the fertiliser with the third defendant, of which Mr Frederick Ellis was the managing director. Under the agreement the fertiliser was to be stored in the third defendant's warehouse at Rocklea at a weekly rate of $1.20 per pallet. It was stored there from May to December 1992.

The storage charges owing to the third defendant were soon in arrears. The third party was unable to obtain the necessary funds from the plaintiffs to pay the charges. By the beginning of November 1992 approximately $9,000.00 was owing. At Mr Ouston's suggestion the third defendant then began dealing with a Mr Herbert Berghaeuser, the representative of the plaintiffs in Hong Kong, in an effort to secure payment of the arrears. Mr Ellis gave Mr Paul Hass, the distribution manager of the third defendant, the task of dealing with Mr Berghaeuser.

On December 1, 1992 Mr Hass on behalf of the third defendant sent a letter marked for Mr Berghaeuser's attention to the second plaintiff notifying it that unless payment of the outstanding sum were made on or before December 15, 1992 the third defendant would without further reference to the second plaintiff sell the goods to recover the arrears. Expecting that that notice would not be complied with Mr Hass entered into negotiations with the first defendant, who was a director of the second defendant, about the fertiliser. Before the events which gave rise to the action Mr Hass had been an employee of the first defendant and had known him for about ten years.

The December 15 deadline passed without the payment of the arrears and, as his Honour found, soon afterwards an agreement was made by Mr Hass on behalf of the third defendant and the first defendant on behalf of the second defendant. Under that agreement the third defendant sold the warehousing rights to the fertiliser to the second defendant for $32,000.00. On December 18, 1992 the $32,000.00 was paid to the third defendant and most of the fertiliser was moved from the third defendant's warehouse to the second defendant's warehouse. Mr Ellis arrived at the sum of $32,000.00 by adding to the arrears in the storage charges sums to cover repackaging and other work necessary because fertiliser had leaked from the containers, and other miscellaneous expenses.

An invoice dated December 18, 1992 from the third defendant to the second defendant (exhibit 55) was prepared by the third defendant. It showed the goods in question as 23,200 ten litre containers of fertiliser. The full price payable by bank cheque in favour of the third defendant was shown as $32,000.00. His Honour found that the invoice when first shown to the first defendant by Mr Hass did not include the following words which now appear on it: "Supplier warrants that he or they have full power to sell the above product as per this Invoice". The first defendant requested that those words be added to it. Mr Hass agreed and the words were typed on the invoice at the third defendant's office. After the invoice was altered it was shown to Mr Ellis and returned to the first defendant who then handed Mr Hass the cheque for the $32,000.00. The signatures of Messrs. Ellis and Hass and the first defendant all appear on exhibit 55, one as a witness.

The first defendant did not give evidence at the trial, so his Honour was left chiefly with Mr Hass's evidence, aspects of which were unsatisfactory, in determining what the agreement between the second and third defendants was. He found that in spite of the words of exhibit 55 it was not a sale of the fertiliser but rather an agreement that the second defendant would store the goods and purchase from the third defendant its rights against the second plaintiff for $32,000.00.

His Honour found that Mr Ouston, by reason of the positions he held in the first plaintiff and the third party, had authority with respect to matters concerning the storage of the fertiliser. His Honour also found that Mr Ouston did not, before about December 22 or 23, 1992 authorize the sale of the warehousing rights, because until then, although he had authorized the transfer of the fertiliser from the third defendant's to another warehouse, the nature of the transaction between the third defendant and the first and second defendants had not been revealed to him. His Honour was satisfied that at some time about December 22 or 23, 1992 Mr Ouston became aware that the warehousing rights had been sold, that by his conduct he acquiesced in what had occurred and that it was within the scope of his authority to do so. But his Honour also found that Mr Ouston did not give approval, by acquiescence or otherwise, to the creation of a document in the form of exhibit 55. All of those findings were clearly open to his Honour on the evidence.

On or about December 24, 1992 the second plaintiff sent $5,000.00 to the third defendant in part payment of the outstanding storage charges, but the money was returned by the third defendant because it had been paid the $32,000.00.

On or about January 15, 1993 Mr Berghaeuser met the first defendant and unsuccessfully attempted to retrieve the fertiliser. During the meeting Mr Berghaeuser rejected the first defendant's offer to return the goods on payment of $45,000.00. The difference between the $32,000.00 and the $45,000.00 far exceeded the reasonable storage costs which could have accrued in the time between the placing of the goods in the second defendant's warehouse and the meeting. After the meeting the second defendant purported to sell some of the fertiliser. In particular 1,670 ten litre containers of it found their way into the possession of a company called My-Life Corporation Pty Ltd which on February 11, 1993 sold them to an associated company, My-Life International Incorporated, for $US167,000.00.

On February 18, 1993 the second plaintiff sold 239,000 litres of the fertiliser, the quantity that had originally been sent to Australia, to the first plaintiff for 2,350,000 Swiss francs.

The writ was issued in this action on March 4, 1993. By the time the case came on for trial much of the fertiliser had been recovered although the 16,700 litres which had been acquired by My-Life Corporation Pty Ltd had not. His Honour's awards of damages for conversion were based on an assessment of the value of the fertiliser not recovered and of consequential losses. His assessment of the first plaintiff's damages was based upon an assessment of the value of the fertiliser which had gone to My-Life Corporation Pty Ltd at $50,000.00 and an assessment of consequential losses at $24,793.00. The latter were travelling expenses incurred by Mr Berghaeuser, the cost of investigation by a chemist and other incidental expenses, travelling expenses incurred by a Mr Peter Corfield, and certain storage and transport costs. According to our calculation the total of the sums in question - $5,008.00, $4,504.00, $5,512.00, $2,000.00, $1,342.00, $2,016.00, $3,312.00, $25.00, $774.00 and $1,000.00 - is $25,493.00. (It is not clear to us how, in view of that calculation, the sum awarded in favour of the first plaintiff against the first and second defendants was arrived at, or for that matter how the sum now sought by the first plaintiff against the third defendant was arrived at.) The consequential losses suffered by the first plaintiff were expenses incurred by the second plaintiff on behalf of the first plaintiff after February 18, 1993. His Honour concluded that the first plaintiff was liable to the second plaintiff for those expenses.

The damages awarded to the second plaintiff were arrived at from travelling expenses found to have been incurred by Mr Berghaeuser before February 18, 1993.

The case against the third defendant rested on an allegation that it, in entering into the agreement with the second defendant and in giving effect to it without the authority of the bailor or the bailor's agent, had been guilty of a breach of the contract of bailment and of conversion of the goods. Where goods are lodged for safe keeping for reward, locatio custodiae, the bailee may not part with possession of the goods without the permission of the bailor:

Edwards v. Newland & Co [1950] 2 K.B. 534. If the bailee parts with possession of the goods to someone other than the bailor without the bailor's permission the bailee will be in breach of the contract of bailment and will be liable for loss or damage resulting from the dealing with the goods bailed in a manner not authorized by the bailor: Lilley v. Doubleday (1881) 7 Q.B.D. 510, Edwards v. Newland & Co, supra, and Jackson v. Cochrane [1989] 2 Qd.R. 23 at p.26.

The defendant in Lilley v. Doubleday contracted to warehouse goods for the plaintiff at a particular place but he warehoused a part of them at another place where, without any negligence on his part, they were destroyed. It was held that the damage was not too remote and that the defendant, by his breach of contract, had rendered himself liable for the loss of the goods. As Grove J. put it:-

"I think the plaintiff is entitled to judgment. It seems to me impossible to get over this point, that by the finding of the jury there has been a breach of contract. The defendant was entrusted with the goods for a particular purpose and to keep them in a particular place. He took them to another, and must be responsible for what took place there. The only exception I see to this general rule is where the destruction of the goods must take place as inevitably at one place as at the other. If a bailee elects to deal with the property entrusted to him in a way not authorised by the bailor, he takes upon himself the risks of so doing, except where the risk is independent of his acts and inherent in the property itself." (p.511)

In this case his Honour concluded that the disposal by the third defendant of its warehousing rights in the fertiliser constituted a conversion of the goods but that since Mr Ouston had acquiesced in the disposal within a short time and since there was no evidence of loss in the interval between conversion and acquiescence the plaintiff had failed to establish that the third defendant was liable in damages to them. The claim against the third defendant accordingly failed.

With respect, the flaw in that analysis arises from the fact that the creation and delivery of exhibit 55 was an essential part of the agreement between the second and third defendants. It would seem beyond question that before one can be said to have acquiesced in a transaction one must be aware of and have consented to every aspect of it. Since that was not the case here the third defendant's defence based upon acquiescence should in our view have failed because the third defendant's dealing with the goods was never truly authorized. We should add that although his Honour was satisfied that exhibit 55 was not intended, in spite of the natural meaning of the words endorsed on it, to be evidence of a sale of the goods and although he found there was no evidence that the document had been used in disposing of the goods by the first and second defendants, those considerations are irrelevant to this aspect of the case. The significance of exhibit 55 is not in the interpretation put upon it or in the use to which it was or was not put: it is in its creation and delivery as a term of the agreement.

The loss and damage that resulted from the third defendant's unauthorized dealing with the goods was, based on his Honour's findings, $80,123.00: $75,493.00 plus $4,630.00. But it was argued for the third defendant that the second plaintiff was not entitled to damages because it had suffered no loss since it had on February 18, 1993 disposed of all of the fertiliser for its full value; and because the first plaintiff had not been in a bailor - bailee relationship with the third defendant, it was further argued for the third defendant, the first plaintiff was not entitled to damages either.

It can safely be concluded, however, that in disposing of the goods to the first plaintiff the second plaintiff also assigned the ancillary chose in action it had as bailor against the third defendant. That follows from Mr Berghaeuser's evidence: he said that the sale had been made on legal advice that because the second plaintiff was a foreign company and the first plaintiff was not the sale would assist the plaintiffs in conducting their action. Rights of action, even in tort, which are incidental and subsidiary to property may validly be assigned when the property is transferred: see Chitty on Contracts, 27th ed., vol.1, para.19-027, pp.972-973. Clearly that was what was done here. That means that the first plaintiff should have judgment against the third defendant for the sum it seeks, which is actually less than the loss suffered. On that analysis we see, however, no proper basis for awarding damages to the second plaintiff.

The first plaintiff's appeal should be upheld and judgment should be entered for it against the third defendant for $74,393.00.

The second plaintiff's appeal should be dismissed.

The third defendant should pay to the first plaintiff its costs of and incidental to the

action and of the appeal to be taxed.

The second plaintiff should pay to the third defendant its costs of and incidental to the

appeal to be taxed.