Hill & Anor v Reglon Pty Limited

[2008] HCATrans 228

[2008] HCATrans 228

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S547 of 2007

B e t w e e n -

GRAHAME PETER HILL

First Applicant

CITADEL FINANCIAL CORPORATION PTY LIMITED

Second Applicant

and

REGLON PTY LIMITED

Respondent

Application for special leave to appeal

GUMMOW ACJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 JUNE 2008, AT 12.01 PM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   If it please the Court, I appear with my learned friend, MR S.B. DOCKER, for the applicants.  (instructed by Kemp Strang)

MR A.J.L. BANNON, SC:   If it please the Court, I appear with MR T. BAW for the respondent.  (instruction by MacPherson & Kelley)

GUMMOW ACJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, the passage in the reasoning of the Court of Appeal in relation to which we seek special leave may be found in its conclusion on page 70 of the application book, particularly at paragraph 123.  Justice Beazley concludes, about line 45, “it is apparent that the law has developed and should be applied in its modern form.”  Now, that is a sentence ‑ ‑ ‑

GUMMOW ACJ:   To call that modern really follows what Professor Derham was writing in (1952) 68 LQR. 

HAYNE J:   It is very, Mr Walker, very modern.

MR WALKER:   I am confronting two streams.  I am going to try not to fuse them.  Your Honours, Justice Gummow anticipates the next point I was going to come to.  The law should be applied in its modern form.  In October 1952 Professor Derham said of what he then called the “old rule” that it was “open to review by the highest tribunals in the common law jurisdictions”.  It has not, in fact, been reviewed, at least in the manner proposed by that learned commentator or in the manner that the Court of Appeal has done so in this case, between, so far as we can observe, October 1952 and now.

GUMMOW ACJ:   What about New Zealand?

MR WALKER:   In particular, the New Zealand decision of Coleman v Harvey does not do so in the respects that matter because there, of course, the silver in question had become unavailable to trace.  That, of course, is in accordance with what has been called, it would appear derogatorily, the “old rule”.  In our submission, there is no denigration involved in calling the rule an old one, to the contrary.  In our submission, when it is in particular a rule that recognises the nature of the ownership of co‑owners, in this case the chattels, then there are very important reasons why fully‑developed enunciation of the occasion for change, the reason for change and the doctrinal basis of the so‑ called “new rule” to be articulated in the court that accomplishes the change. 

With great respect to their Honours in the Court of Appeal, neither in the lead up to the passage I have quoted from page 70 of the application book, nor in that passage itself, does one find an explanation as to why something in the nature of destruction rendering it impossible for the co‑owner to trace or to retrieve, why that has become unnecessary.  I stress, the New Zealand decision, which her Honour’s reasoning plainly sees as some kind of intellectual watershed for the purposes of understanding the rule, does not supply that deficiency at all.

GUMMOW ACJ:   What is wrong with the reasoning of Professor Derham?

MR WALKER:   Your Honour, the reasoning of Professor Derham does not deal with the question that has to be answered as between co‑owners and the particular application of the nemo dat principle which underlies the old rule.  Unless it be found – which would be a revolution at common law – that co‑owners have, as a matter of status, each for the other, an agency to sell, or perhaps with more refinement or subtlety but less convincingly even, that they have something in the nature of an ostensible authority to sell, then, in our submission, plainly a dealing by one without the authority of the other does nothing to change the ownership and thus nothing to change the right to immediate possession which the other has by reason of co‑ownership.

Professor Derham does not deal, as a matter of reasoning, with how that ought to be regarded as of no importance when considering the basal question in conversion whether or not there has been an action inconsistent with a right to immediate possession.  Professor Derham’s focus, of course, is on sale.  This is not a case of sale.  Out and out sale, to use the expression which Professor Derham borrows from Mr Justice Maule in Mayhew v Herrick – and you will see that at page 510 of the Law Quarterly Review article we have supplied and which was heavily relied upon in the Court of Appeal – out and out sale has at least the potential, demonstrated in New Zealand with the silver ingots and demonstrated in Barnardiston itself where the ship sailed off and sank, it at least has the potential of putting in train events which proved in the event the impossibility of the co‑owner recovering possession, or the right to possession.

The hiring in this case is not shown on the facts of this case to have done any such thing.  At the high level of abstraction with which the Court of Appeal now pronounces the rule ‑ ‑ ‑

GUMMOW ACJ:   The relevant Act here, whilst it might not have been a sale, was entering a licence deed, was it?

MR WALKER:   Yes, it is the hiring out.  It is not suggested that it is impossible to trace them, the mixed scaffolding, so called.  It is not suggested it is impossible to trace them for a purpose, say, of a Conveyancing Act partition claim.  That is what makes it different from the ship that is wrongfully sold and then sinks.  That is what is different from the silver ingots that are wrongfully remelted or used or whatever else happened to them and that remained mysterious.  It is for those reasons that what is wrong with Professor Derham’s reasoning in the sense of why is it inadequate to be the new doctrine, is that it simply does not deal with (a) the facts of a case like this which is not out and out sale, let alone events which ran to impossible recovery and possession, nor, with respect, does his Honour deal with the basal question, how can it be said that one co‑owner has done anything to the right of property, including the immediate right to possession of the other co‑owner, by purporting to sell the chattel?

GUMMOW ACJ:   What do you say about Jacobs v Seward?  Mr Bannon relies on Lord Hatherley at 471of (1872) LR 5 HL.

MR WALKER:   Yes.  At 122 of the application book my learned friends extract and emphasise a passage which precedes the passage which we, of course, had quoted, we treating our quoted extract as a statement of the old and good rule.  But the emphasised passage at line 20 or thereabouts of my learned friend’s written submission on page 122 of the application book has assumptions which are contrary to the consequences in law of co‑ownership.  Where his Lordship was talking about “there has been a direct and positive exclusion of the co‑tenant in common from the common property”, it would appear that ouster is what is in mind, because simply having possession of the property, it being in law the possession of the other co‑owner and incapable of defeating a right to immediate possession of the other co‑owner, does nothing to exclude.

So, in our submission, those emphasised words were about ouster and the old rule has always accommodated that.  An action for ouster has always produced legally and economically the same effect as the purported new rule of conversion, according to the Court of Appeal would.  It is for those reasons, in our submission, that Jacobs v Seward properly understood raises an important question for this Court to determine.  Now, this Court, it is said against us we apprehend, has looked at it in Kitano to which we say, but no. 

Now, with the greatest of respect, this first can be said about Kitano.  It is a trial judgment in which a number of causes of action, and the one in conversion being a difficult one, were considered by Mr Justice Mason and the Full Court dismissed the appeal without adding any reasons.  It was not a case which concerned a sale by co‑owner.  It was not a case that concerned a hiring, that is, a temporary or limited duration, parting with possession by a co‑owner.  It does not contain any discussion relevantly of the nemo dat foundation of the old rule.  It does not contain any recognition that for a long time equity recognising the dilemma of the co‑owner not properly ousted but nonetheless denied the enjoyment of possession for a time in some fashion needing an account in equity to reflect what equity regarded as inadequacy in the common law remedy were drawn to attention the modern books of doctrine, the treatises, referring to that gap.

The argument against us upheld in the Court of Appeal is one which says rather that equity was mistaken to perceive this inadequacy from a point of view of one co‑owner, the so‑called wronged co‑owner, in the remedies available.  Not so, we submit.  Now, Kitano as well, it can be said, is a case which produces statements of principle that Sir Anthony plainly did not intend to be departing from any of the authorities he referred to or which had been cited to him, though it does not bespeak that it was altering any common law doctrine at all.  They have been taken, we submit, at an accessibly high abstract level to produce the outcome that if this decision were to stand unsupervised, so to speak, by this Court, then it produces a statement of principle which will immediately require qualification the first time someone asks for full damages in conversion for a limited duration so‑called deprivation of possession for goods which they can literally lay their hands on the next day.  That is true of the scaffolding.  They have not been lost like the ingot, they have not been sunk like the ship ‑ ‑ ‑

HAYNE J:   Would that not invoke, is it, Carter v Egg Board?  Is it Carter v Egg Board that says that the damages in trover are not necessarily fixed immutably as the value?

MR WALKER:   Immediately this case will require qualification if at the abstract level it is pronounced it is to be regarded as the law.  In our submission, there is nothing on page 70 or the surrounding text of the reasons of the Court of Appeal that works out that problem.  In particular, there is no explanation of why the co‑owner in a case where no impossibility of a kind the old rule required has been produced, why the co‑owner, as it were, cannot pocket damages in conversion and claim the ownership. 

HAYNE J:   There was a deal of debate in the Court of Appeal, was there not, for example, about the so‑called micro dot point, about whether you could actually go and find this stuff?

MR WALKER:   Yes, but factually what this case presents is a case where the scaffolding is still out on hire at various building sites.  If it were otherwise, this would have been a case for the old rules application and we have no point.  But, as it happens, this is a case where the very point in question that drove the Court of Appeal to question whether the so‑called old rule was still the law was precisely because there was not the impossibility produced a la destruction or sale in a market overt ‑ ‑ ‑

GUMMOW ACJ:   Where does the Court of Appeal formulate the new rule?

MR WALKER:   The closest summary is to be taken from paragraph 123, which commences with an opinion of accordance with principle as pronounced in the High Court of the statements quoted in paragraph 122 on page 70.  It is:

the wrongful act of dealing with goods in a manner inconsistent with the owner’s rights with the intention of denying the owner’s rights or asserting a right inconsistent with them.  One of those rights is possession or the immediate claim to it.

With great respect, that is a reversion to an even higher level of abstraction.  Without any disrespect, that is, as it were, the commencement of a legal encyclopaedia definition of “conversion”.  Before one gets to the question at hand, which is the one that is referred to at the foot of paragraph 121, moving back up page 70 – you see her Honour’s last sentence by reference to Professor Derham:

In those cases it was held that it was not necessary to establish actual destruction in order to bring a claim in conversion.

But something akin to destruction, it being impossible to retain or to regain possession, is, in our submission, the obviously symmetrical element necessary to reflect the fact that the co‑owner, the wronged co‑owner, has not lost property by the punitively wrongful sale.  Unless there be that impossibility, the property exists and the right is undisturbed.  A right is undisturbed though it may require legal action to assert it.  Indeed, the assertion by action of a right bespeaks its full blown existence.

GUMMOW ACJ:   Does the law of tort afford any remedy at all to Mr Bannon’s claim?

MR WALKER:   Short of ouster, no.  There was a right of possession, we had it, he has got a right of possession.  Pretty difficult unfortunately for co‑owners to exercise that right of possession in full autonomy, one from the other, where the chattel in question is an article of commerce that requires to be hired out to one person, one at a time.  In our submission, that is exactly why the equitable remedy of accounting, depending upon the circumstances of the case, will be available and otherwise common law ‑ ‑ ‑

GUMMOW ACJ:   What is the footing of the equitable remedy?

MR WALKER:   The footing is a denial of the enjoyment of the right to possession without a legal destruction of it and that is the key as to why equity is required because the law does not provide a remedy where the right to possession has not been destroyed.  That is why the statement of the general principle in paragraph 122 is at a greatly excessively abstract or generalised level.  It begs the question, what has been done to the wronged co‑owner’s right of possession when the wrongdoer co‑owner has purported to sell the chattel?  The short answer is nothing, because it is part and parcel of the ownership which itself nemo dat has not been affected by the wrongful sale.

HAYNE J:   What then is the significance of the last four lines of paragraph 125 at page 71, “in circumstances where there was no possibility . . . could ever use or recover . . . because”?

MR WALKER:   Your Honour, that, with respect, is a reversion back in the history of this matter to an irrelevant fact.  The commingling and the impossibility of saying that is mine, that was yours was what led to the co‑ownership and we accept that and that is a premise of the argument we put.  The commingling led to the co‑ownership.  Only the Conveyancing Act provides a means, as it were, to untangle that in specie.  Statute was necessary because the common law cannot do it.  The commingling meant co‑owners of all of the scaffolding which had formerly in fact been separately owned.  Once commingled, the co‑owner ‑ ‑ ‑

HAYNE J:   Then the last three lines of paragraph 126?

MR WALKER:   Now, the right of exclusive control is, in our submission, an assumption her Honour makes contrary to the law of co‑ownership.  There was no right of exclusive control; there was a right of possession in each of them simultaneously.  With all the difficulties that the common law of ouster and the equity of accounts between co‑owners recognises.  That is the practical difficulty.  They may not agree on how it should be explored.

GUMMOW ACJ:   There would be implied in the licence agreement an obligation of quiet possession?

MR WALKER:   Your Honour, there is no question that the licence agreement is a dealing which is in terms inconsistent with an immediate enjoyment by the other co‑owner of its practical possession.  It has been given to someone else, but it has not been given away so as not to be capable of being followed.  It has not been given away so as to be destroyed and it has been given away only for a time.  The way the principle has been pronounced by the Court of Appeal, that time could be very short indeed

and exactly the same comment appearing in the last three lines of paragraph 126 on page 71 could have been made. 

It is for those reasons, in our submission, that bearing in mind that the Court of Appeal has very explicitly decided to depart from what it calls the old rule, the establishment of which seems not to be subject to any doubt, but it is a matter which has been expressly the subject of scholarly concern for a long time without elucidation by this Court and that it is certainly not the subject of a decision upon issues joining Kitano, the case is one which, regardless of the outcome upon argument in this Court, is nonetheless deserving of a grant of special leave.  If it please the Court.

GUMMOW ACJ:   Yes Mr Bannon.

MR BANNON:   There are two factual findings in the matter which we say determine the matter adversely to the applicant.  Firstly, the Court of Appeal found that, as to the trial judge, that the scaffolding which Reglon had was originally provided under its hire agreement on terms which required that it be kept at certain premises, firstly, secondly, kept under strict control and, thirdly, be used directly by hire to building sites. 

The original hiring company committed an act which was repugnant to that arrangement, that bailment, by delivering the whole of that scaffolding mixed in with its own scaffolding to another company without any means of control.  That gave rise to our immediate right of possession, but at that point in time the Court of Appeal found that was an act repugnant to the original basis on which the scaffolding was provided. 

The second step in the process is that company again it engaged in an act which we say and the Court of Appeal found was even more repugnant than the original basis on which the scaffolding was provided.  It was handed over under the authority of Mr Hill and then subsequently Citadel under what is described as a licence agreement, the terms of which provide no control, in terms referred to on assignment of business to another company with respect to which we have no relationship, on terms where they can provide the scaffolding in an undistinguishable way throughout building sites throughout Sydney or elsewhere.  It is not possible to trace, no one knows where it is and the Court of Appeal in those passages identified and found that that arrangement was inconsistent with the originally contemplated arrangement and inconsistent with a co‑owner’s rights to immediate possession.

The terms of the particular arrangement are worth looking at briefly.  At application book 97 to contradict, we say, is a factual proposition the assertion that this was just another mere hiring, one can see firstly that obviously there is no building site which is referred to.  Recital A refers to the nature of the scaffolding.  E provides that:

The Insolvency Practitioner –

who is Mr Hill –

to avoid exposing the Company to liability, has agreed with the Licensee, on behalf of the Company, that the Licensee will take over performing all existing contracts that the Company has for its Business (“Existing Contracts”) and to enter into contracts of the kind that the Company had entered into on and from the date of this Deed (“Future Contracts”), and the Company will make available to the Licensee its scaffolding, and any other scaffolding (if any) that is being used –

et cetera.  Recital F:

In the event that the Company is able to sell the Business, or the Receivership is terminated . . . then the shares in the Company will be transferred. 

Then there is a commencement date in 1(a) and 1(b) provides that:

the Licensee has agreed to take over from the Commencement Date all Existing Contracts (but may elect in writing not to) . . .  and to enter into Future Contracts –

Sub (c), “the Licensee shall pay the Company such fees” as are determined, and one can see that the balance of the terms is completely vague.  There was actually no provision for any specific hiring fee.  Then clause 2 over on 99, it has a discretion as to whether it takes over certain contracts.  Clause 3, there is a provision which precludes the assignment of fixed charged assets, but subject to a capacity in the company to agree to such arrangement, and then 4, a complex clause which provides that in certain events, including, “the Insolvency Practitioner determines to sell the Business”, or the debt is repaid:

the Insolvency Practitioner gives notice that it requires to take back under its control the Business that is hereby assigned –

see those words?  So that is what the effect of this agreement was, an assignment of the business –

the Shareholder will, if requested in writing by the Insolvency Practitioner, transfer its Shares in the Licensee (“Shares”) to such person –

We submit, this is an arrangement which bears no relation to an ordinary use by one co‑owner of scaffolding. 

GUMMOW ACJ:   Does anything turn on the circumstance that the first applicant is a receiver?

MR BANNON:   I suppose only this, that the arrangement which I have just identified demonstrates, if I can use the word, the unnatural type of arrangement foreign to an ordinary hiring business because it involves a receiver.

GUMMOW ACJ:   How is it reflected in the two awards of damages?

MR BANNON:   It makes no impact on award of damages.

GUMMOW ACJ:   I am just looking at page 81.  Why is the interest payment different?

MR BANNON:   Because they were separate acts of conversion.

GUMMOW ACJ:   I see.

MR BANNON:   At different points in time.  We submit there are factual findings the effect of which, we submit, this Court would not disturb which say whichever test one applies, this is an effective exclusion by a co‑owner, contrary to any contemplated use or ordinary use of the scaffolding.  We say that the short facts are they have got our scaffolding, they have never given it back and no one knows where it is and, we submit, there are simply insufficient prospects of success.

In relation to the question of the test, one just cannot discern, we respectfully submit, in the older cases some consistent line of principle and, as we say in the Seward Case, we say that there are statements there which are completely consistent with the approach taken by the Court of Appeal, was this an act which might be described as a legitimate act, an act which might be contemplated a co‑owner would engage in in respect of co‑owned chattels?  We say plainly not. 

HAYNE J:   The so‑called old rule identifies particular factual circumstances as instances of an entitlement or instances giving rise to an entitlement to action.

MR BANNON:   Yes.

HAYNE J:   The question is whether the factual circumstances instanced exhaust the universe of possibilities.  It would be a surprising conclusion if they did when the second of the factual instances given is the suffering of something akin to destruction.  The point then becomes one of fact rather than legal principle.

MR BANNON:   We respectfully submit so and we submit Sir Anthony Mason’s statement adopted by the Full Court to the effect, firstly, saying a co‑owner does have a right to sue for conversion and, secondly, distilling out of the earlier cases the proposition that, is it an act inconsistent with, was a deft and appropriate distillation, if one needs it, of some form of principle which ultimately in every case will depend on the facts and a consideration of the particular circumstances.  A deeper consideration of each factual circumstance of any of the older cases brings one to the same conclusion.  At the end of the day they are asking the general question, is the conduct engaged in such as can be described as inconsistent with the rights of the co‑owner?  For those reasons, special leave should be refused.

GUMMOW ACJ:   Thank you, Mr Bannon.  Yes, Mr Walker.

MR WALKER:   Your Honours, this case does raise an appropriate vehicle to test the continued existence of the so‑called old rule because the something amounting to effectively being or akin to destruction, which is at the heart of our defence of the old rule and its continued viability, is presented by the findings of fact.  In this case it is not suggested there are no findings to the fact that this scaffolding has been scattered to the four winds.  The question of micro dotting that Justice Hayne raised with me in‑chief and the question of commingling to which my learned friend went in his answer, makes that good. 

At page 59 of the application book in paragraph 89 the issues are described in a way which shows that the present application for special leave has only to do with the second or consequential aspect of the case.  The first part of the case we accept and seek no special leave because the question of co‑ownership was brought about by the commingling to which the facts concerning so‑called micro dotting, which is spraying microscopic substance on the pipes that can be picked up by ultraviolet light, arose in relation to the commingling question, which itself turned on questions of fact concerning reasonableness of sorting out one lot from the other.

Then when one goes to page 65 of the application book in paragraphs 107 and 108 the factual conclusion was reached adverse to an argument we mounted below, but do not persist in here, namely, that there had been the commingling necessary to produce the co‑ownership which is the premise of the one point we do seek to raise.  In those findings in 107 and 108, particularly 108, at about lines 38 to 40 the reference to visiting all of the relevant building sites is not a reference to scaffolding which had become will of the wisp.  To the contrary, there were relevant building sites.  That is where they were.  It was considered for the commingling case with the microscopic dots on pipes, et cetera, that it was impracticable to the point of being unreasonable so as to produce the commingling which produced the co‑ownership.  But it did so on the basis of facts, which show that there was no impossibility of the co‑owners knowing where all the material was.  This was not the ship that had sailed away and sunk, it is not the yacht whose fate is unknown in Kitano and it is not the silver ingot that had been used or otherwise distributed so as not to be available in Coleman.

That is why, in our submission, it is significant that though her Honour bases the perceived need to reshape the rule on what Professor Derham once said, at the foot of page 69, the very last two lines on that page she paraphrases him as considering it “necessary to have something amounting to destruction of the chattel”.  Quite so, that is the old rule.  But then in paragraph 123, where I started in‑chief, line 41 or so her Honour says:

Whilst there may have been an historic basis for the restrictive rule that the goods must be destroyed, or some act akin to destruction, such as a sale in a market overt, it is apparent that the law has developed and should be applied in its modern form.

So there is a finding of principle that all the defects of the excessive generality seen in paragraph 122 which does not take up Professor Derham’s requirement for something in the nature of destruction and is done so in a case where it was decisive for her to pronounce the rule in that fashion because there had not been anything akin to destruction, as that phrase has been understood and applied in all the authorities to which we have drawn attention.  So of course the case involves the application of the rules and particular facts, but, in our submission, the facts are clearly such as hitherto to have been plainly a case not of anything akin to destruction whereby the so‑called old rule will have applied.  Reasoning is not supplied in the Court of Appeal’s judgments for a departure from that requirement which is based upon fundamental matters of the law of property.

GUMMOW ACJ:   We will take a short adjournment.

AT 12.34 PM SHORT ADJOURNMENT

UPON RESUMING AT 12.37 PM:

GUMMOW ACJ:   As is illustrated by the decision of this Court in Kitano v Commonwealth (1974) 129 CLR 172, the proposition that one co‑owner has an action in conversion against another co‑owner only if the chattels are destroyed or suffer something akin to destruction points to two particular factual circumstances in which a co‑owner immediately entitled to possession is deprived of that entitlement. Those factual circumstances emphasise the need to consider whether in light of the principle nemo dat quod non habet one co‑owner has been deprived of the entitlement to possession by the conduct of another co‑owner. But, however, those factual instances are not exhaustive of the facts which may demonstrate a sufficient deprivation in order for the action to lie.

It is with that in mind that it follows that there are insufficient prospects of success in an appeal in this case.  Accordingly, special leave is refused with costs.

AT 12.38 PM THE MATTER WAS CONCLUDED