Hill v Reglon Pty Ltd - [2007] NSWCA 295

No judgment structure available for this case.

Appeal Outcome: Special leave refused with costs by the High Court - 13 June 2008

New South Wales

Court of Appeal

CITATION: Hill & Anor v Reglon Pty Limited [2007] NSWCA 295

HEARING DATE(S): 29 August 2007

JUDGMENT DATE:
24 October 2007

JUDGMENT OF: Spigelman CJ at 1; Beazley JA at 2; Ipp JA at 157

DECISION: 1. The appeal is dismissed with costs; 2. The Amended Notice of Cross-Appeal is allowed in part, with costs; 3. The parties, within seven days, are to bring in short minutes of order to accord with these reasons.

CATCHWORDS: BAILMENT – bailment created by contract – whether common law principles continue to apply depends upon construction of contract – common law rights excluded only where clearest terms used – bailment contract provided remedies were not exclusive but cumulative to remedies existing at law – not necessary for bailor to accept repudiation for the right of possession to revert to bailor - BAILMENT – goods of bailor interchangeable with goods of third party so as to be indistinguishable – where goods mixed by accident owners become owners in common of the mixed property – whether goods were mixed - BAILMENT – purpose of bailment was for on-hire of goods – bailor entitled to immediate possession where bailee performs act repugnant to or inconsistent with terms of bailment – whether action of bailee providing goods to third party for on-hire was repugnant to bailment - PRACTICE AND PROCEDURE – cause of action accrued after proceedings commenced – Civil Procedure Act 2005 (NSW) s 64 allows document to be amended to substitute cause of action that accrues after proceedings commenced - TORTS – conversion – damages of loss for conversion ordinarily full value of thing converted - TORTS – conversion – goods converted where they are dealt with inconsistently with owner’s rights with intention of denying owner’s rights or asserting right inconsistent with them – no requirement that goods must be destroyed or sold in a market overt – whether licence agreement vesting exclusive control over goods with third party was inconsistent with bailor’s right to immediate possession

LEGISLATION CITED: Civil Procedure Act 2005 (NSW) s 64
Conveyancing Act 1919 (NSW) s 36A
Uniform Civil Procedure Rules 2005 (NSW) r 14.17

CASES CITED: Baker v Barclay’s Bank Ltd [1955] 2 All ER 571
Baldry v Jackson (1976) 2 NSWLR 415
Barnardiston v Chapman and Smith (1715) 4 East 121; (1715) 102 ER 776
Barton v Williams (1822) 5 B & Ald 395
Big Top Hereford Pty Limited v Thomas [2006] NSWSC 1159
Buckley v Gross (1863) 3 B & S 566
Coleman v Harvey [1989] 1 NZLR 723
Foskett v McKeown & Ors [2001] 1 AC 102
Harper v Goodsell (1870) LR 5 QB 422
Indian Oil Corporation Ltd v Greenstone Shipping SA (Panama) [1988] QB 345
Kitano v The Commonwealth of Australia (1974) 129 CLR 151; [1974] HCA 31
Mayhew v Herrick (1849) CB 229
McDonald v Lane (1882) 7 SCR 462
North General Wagon & Finance Co Limited v Graham [1950] 2 KB 7
Owners of Dredger Liesbosch v Owners of Steamship Edison [1933] AC 449
Parr v Ash (1876) SCR (NSW) 352
Penfold’s Wines Proprietary Limited v Elliott (1946) 74 CLR 204; [1946] HCA 46
Poulton v The Commonwealth & Ors (1952) 89 CLR 540; [1952] HCA 70
Re Gillie & Ors: Ex parte Cornell (1996) 70 FCR 254
Sandeman & Sons v Tyzac and Branfoot Steamship Company Limited [1913] AC 680
Smith v Torr [1862] 3 F & F 505
Spence v Union Marine Insurance Co Ltd (1868) LR 3 CP 427
The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (2006) 65 NSWLR 400; [2006] NSWCA 22
The Nominal Defendant v Andrews (1969) 121 CLR 562; [1969] HCA 51
Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All ER 385
Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276
Clerk & Lindsall on Torts, 15th ed
Derham D P, “Conversion by Wrongful Disposal as between Co-Owners” (1952) 68 Law Quarterly Review 507
Halsbury’s Laws of England, 4th ed, 1984, vol 35
Fleming J G, The Law of Torts, 9th ed (1998) Sydney, Law Book Co Ltd
Palmer on Bailment, 2nd ed, (1991) Sydney, Law Book Company Ltd

PARTIES: Grahame Peter Hill (First Appellant)
Citadel Financial Corporation Pty Limited (Second Appellant)
Reglon Pty Limited (Respondent)

FILE NUMBER(S): CA 40865/06

COUNSEL: S B Docker (Appellants)
A Bannon SC; M Ashhurst; T Baw (Respondent)

SOLICITORS: Kemp Strang Lawyers (Appellants)
Peter Kemp Solicitors (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 1478/06

LOWER COURT JUDICIAL OFFICER: Windeyer J

LOWER COURT DATE OF DECISION: 11 December 2006

LOWER COURT MEDIUM NEUTRAL CITATION: Reglon Pty Limited v Hill & Ors [2006] NSWSC 1360

- 53 -

CA 40865/06
SPIGELMAN CJ
BEAZLEY JA
IPP JA

24 October 2007

Grahame Peter Hill & Anor v Reglon Pty Limited

Headnote

In December, 2004, the respondent (Reglon) entered into a hire agreement with ACS Hire Pty Limited (ACS Hire) for the stated purpose of on-hiring Reglon’s scaffolding to other scaffold users. The hire agreement was for a period of ten years. Under the hire agreement ACS Hire was a mere bailee, with a right only to use the scaffolding in accordance with the terms of the hire agreement. The scaffolding was held in Reglon’s holding yard at Wetherill Park.

Contrary to the terms of the hire agreement ACS Hire gave the Reglon scaffolding to Action Constructions Services Pty Limited (Action), which in turn on-hired the scaffolding.

Action also owned scaffolding which was the subject of a fixed and floating charge in favour of the second appellant, Citadel Financial Corporation Pty Limited (Citadel). Action painted the Reglon scaffolding a distinctive red colour (Action red) and as required by Citadel, painted some of its own scaffolding the same colour. In addition, about 30 per cent of the Reglon scaffolding was micro-dotted as a means of specifically identifying it. However, the evidence disclosed that the micro-dotting was ineffective as a specific identifier. Except to the extent that some Action scaffolding had not been painted, there was no means of distinguishing between the Reglon and Action scaffolding. Action first used Reglon scaffolding to complete any of the on-hire agreements and then used its own.

In September 2005, ACS Hire defaulted in the payment of hiring fees to Reglon. In December 2005, all of the Reglon and Action scaffolding (other than that on sites) was moved to a holding yard at St Peters. At this time, Action became substantially arrears in its payments to Citadel, and as a result, Citadel appointed the first appellant, Mr Grahame Hill, receiver and manager of Action’s assets. Mr Hill took possession of all the scaffolding in the St Peters yards and gave notice of appointment to persons operating sites where there was Action scaffolding.

In January 2006, Mr Hill licensed the business of Action to Action Construction Services (NSW) Pty Limited (Action NSW). Reglon’s solicitor informed Mr Hill that part of the scaffolding in his possession belonged to Reglon. Notwithstanding this, the terms of the licence agreement permitted Action NSW to use all of the mixed stock. On 15 May, 2006, Mr Hill retired as receiver and Citadel, as mortgagee, entered into possession of the Action assets. On that same date, Citadel entered into a new licence agreement with Action NSW in which it licensed the use of all of the scaffolding to Action NSW.

On 16 February, 2006, Reglon commenced proceedings against Grahame Hill and Citadel, relevantly alleging that they had converted the Reglon scaffolding. The trial judge, Windeyer J, found that the entry into the licence agreement was an act of conversion. His Honour entered judgment for Reglon in the amount of $1,331,212 being the value of the Reglon scaffolding that had been the subject of the hire agreement.

Held per BEAZLEY JA (SPIGELMAN CJ and IPP JA agreeing)

Did Reglon have an immediate right to possession?

Penfold’s Wines Proprietary Limited v Elliott

North General Wagon & Finance Co Limited v Graham

The Anderson Group Pty Ltd v Tynan Motors Pty Ltd

North General Wagon & Finance Co Limited v Graham

Union Transport Finance Ltd v British Car Auctions Ltd

The Anderson Group Pty Ltd v Tynan Motors Pty Ltd

Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited

(3) Clause 17.2 of the hire agreement provided that the remedies under the hire agreement were not exclusive, but cumulative and in addition to all other remedies existing at law. Accordingly, the common law principles continued to apply: [59]

(4) Any use of the Reglon scaffolding by Action that was permitted or authorised by ACS Hire directly or indirectly, was an act repugnant to the terms of the hire agreement. Unlike the position had Reglon been seeking to terminate the hire agreement, there was no necessity for Reglon to accept the act of repudiation for the purposes of the right to possession reverting to it. As a result, Reglon had a right to immediate possession: [84]-[85]

Did the mixing of Reglon’s scaffolding have the effect that Reglon and Action became co-owners?

Sandeman & Sons v Tyzac and Branfoot Steamship Company Limited

(6) There was no error in the trial judge’s reasoning or conclusion that the articles had been commingled. In addition, there was no basis to disturb the trial judge’s finding that the mixing was wrongful: [101], [103]

(7) Despite the fact that 30 per cent of the Reglon scaffolding was micro-dotted, it was not possible to identify this scaffolding as belonging to Reglon: [105]-[108]

Was the Reglon scaffolding converted?

Kitano v The Commonwealth

of Australia

Coleman v Harvey

Re Gillie & Ors: Ex parte Cornell

(9) Whilst there may have been a historic basis for the restrictive rule that the goods must be destroyed, or some act akin to destruction, such as sale in a market overt, it is apparent that the law has developed and should be applied in its modern form: [123]
Parr v Ash (1876) SCR (NSW) 352 (disapproved)

(10) The licence agreement between Action and Action NSW, by enabling Action NSW to continue with the on-hiring of the commingled scaffolding and to enter into new on-hire contracts in respect of which Reglon had no benefits, had the effect that Action NSW exercised a right of exclusive control over the scaffolding, which was inconsistent with Reglon’s right to immediate possession. As a result, the trial judge was correct in finding that the entry into the licence agreement constituted a conversion of the Reglon scaffolding: [126]-[127]

What consequences flowed from the cause of action against Citadel accruing after proceedings were commenced?

(11) Section 64 of the Civil Procedure Act 2005 (NSW) provides that an amendment may be made to a document at any stage of proceedings, and that an amendment may be made notwithstanding that it has the effect of adding or substituting a cause of action that accrues after the commencement of the proceedings. As a result, there was a cause of action maintainable against Citadel: [129]

Did Reglon authorise the mixing of the scaffolding?

(12) Reglon did not authorise the mixing of the scaffolding. The terms of the hire agreement required ACS Hire to keep the scaffolding separate and that had not been waived. There was also evidence that established Action was responsible for mixing the scaffolding: [137]-[139]

The extent of Reglon’s entitlement to the commixed scaffolding

(13) As Reglon did not authorise the mixing of the scaffolding, there was no error in the trial judge’s finding that Reglon was entitled to recover from the Reglon scaffolding an amount of scaffolding equivalent to the scaffolding that was the subject of the hire agreement: [141], [148]

Did his Honour err in reducing Reglon’s entitlement by ten per cent?

(14) Under the terms of the hire agreement, ACS Hire was the bailee and was responsible for the whole of the Reglon scaffolding. The evidence established that the whole of the Reglon scaffolding came into the possession of ACS Hire and/or Action. In circumstances where Reglon established that it had handed over the entirety of the goods to ACS Hire; and that the entirety of the goods had been mixed with the Action scaffolding, it had established its entitlement to damages for conversion of the whole: [144]

(15) In these circumstances, there was no basis for the trial judge’s finding to reduce the damages by ten per cent: [147]

Did his Honour err in adding to the award of damages an amount for goods and services tax and a buyer’s premium?

(16) The measure of damages of loss for conversion, ordinarily, is the full value of the thing converted: [154]

(17) In circumstances where the Court was concerned with the market value of goods, there was an argument for accepting the figure assessed, as market value, regardless of the underlying methodology. Further comfort may be gained for this approach where there was little argument on the point before the trial judge. Accordingly, there was no error in the trial judge including an amount for goods and services tax and a “buyer’s premium” in determining damages for conversion: [155]

CA 40865/06

SPIGELMAN CJ
BEAZLEY JA
IPP JA

24 October 2007

Grahame Peter Hill & Anor v Reglon Pty Limited

Judgment

1 SPIGELMAN CJ: I agree with Beazley JA.

2 BEAZLEY JA: This is an appeal from a decision of Windeyer J in which his Honour ordered that the appellants pay damages to the respondent, Reglon Pty Limited (Reglon) for the conversion of a large quantity of scaffolding that had become mixed with the scaffolding of another company, Action Construction Services Pty Limited (Action). The appeal is against both his Honour’s finding that the scaffolding had been converted and against the quantum of damages awarded.

3 The appeal raises the following issues: whether Reglon, had an immediate right to possession of the Reglon scaffolding so as to give it a right to sue for conversion: (grounds 1 and 2); whether the mixing of Reglon’s scaffolding with Action’s scaffolding had the effect that Reglon and Action became co-owners of the whole of the scaffolding: (grounds 3, 4 and 14); whether the Reglon scaffolding had been converted: (grounds 5 and 6); what consequences flow from the fact that the cause of action against the second appellant, Citadel Financial Corporation Pty Limited (Citadel), accrued after the date that proceedings were commenced: (ground 7); whether Reglon authorised the mixing of the scaffolding: (grounds 8 and 13); the extent of Reglon’s entitlement to the commixed scaffolding: (grounds 9 and 12); whether his Honour erred in reducing Reglon’s entitlement by 10 per cent: (ground 4 of the Amended Notice of Cross-Appeal); and whether his Honour erred in adding to the award of damages an amount for goods and services tax and an amount for buyer’s premium: (ground 15).

4 Reglon has filed a Notice of Contention, alleging that there were other bases upon which his Honour could have found that it had an immediate right to possession of its scaffolding so as to give it an entitlement to sue in conversion. Reglon has also filed a cross-appeal, in which it presses a claim in detinue and further appeals against the reduction of the award of damages by 10 per cent, which it contends was based upon an arbitrary assessment by his Honour of likely loss of scaffolding in the ordinary course of use. Counsel for Reglon informed the Court that it relied on detinue only if for any reason its entitlement accrued after the act of conversion.

Facts

5 On 21 December 2004 Reglon purchased a quantity of scaffolding (the Reglon scaffolding) from the receivers of a partnership known as the Prime Partnership. There were approximately 117,000 individual items of scaffolding, together with a number of pallets of other items of scaffolding. At the time of purchase, the scaffolding was located on two separate sites, one at Prestons in New South Wales and the other at Brooklyn in Victoria. Following the purchase, the Reglon scaffolding was moved to Reglon’s holding yards at Wetherill Park.

6 Reglon had been introduced to the purchase transaction by Brian Baker, who previously had been involved with a scaffolding company, Rildean Pty Limited (Rildean). Rildean had been placed in receivership and went into liquidation in 2002. Subsequently, Brian Baker caused Action to be incorporated and in 2004, Action purchased the scaffolding owned by Rildean from Rildean’s receiver. Action borrowed the whole of the purchase price for this scaffolding from Citadel, which took a fixed and floating charge over the assets of Action (other than debtors), to secure the loan.

7 In 2002, Brian Baker incorporated another company, ACS Hire Pty Limited (ACS Hire). At various times, one or another of Brian Baker’s sons was a director of the company, although Brian Baker was the person who exercised effective control of the company. At the time that Action purchased the scaffolding from Rildean, it was either hired out for use on construction sites, or was located in a holding yard at Granville, which was operated by Action. Action owned other scaffolding which was also located at Granville and it will be convenient to refer to any scaffolding owned by Action as the ‘Action scaffolding’.

8 On 13 December 2004, Reglon and ACS Hire entered into a hire agreement pursuant to which Reglon agreed to hire the Reglon scaffolding to ACS Hire for a period of ten years (the hire agreement). ACS Hire was required to clear the Reglon scaffolding from the sites at Prestons and Brooklyn and transfer it to the premises at Wetherill Park.

9 Under the hire agreement, the stated purpose of the hiring of the Reglon scaffolding to ACS Hire was for the on-hire to other scaffold users: cl 2.3. The rights of ACS Hire to the scaffolding were described in cl 5.1 as the rights of a mere bailee, with a right only to use the scaffolding in accordance with the hire agreement. ACS Hire was required to keep the Reglon scaffolding at Wetherill Park and to make it identifiable.

10 Notwithstanding that the purpose of the hire agreement between Reglon and ACS Hire was for the on-hire of the scaffolding, ACS Hire did not hire out the scaffolding. That was done by Action. However, ACS Hire paid the hire fees to Reglon in accordance with the terms of the hire agreement, but was reimbursed by Action for these amounts.

11 Citadel had required that the scaffolding subject of its charge (which was that part of Action’s scaffolding purchased from Rildean) be painted a distinctive colour. In order to comply with this requirement, two employees of Action, Greg Baker and Paul Stuart, arranged for the purchase of a distinctive coloured paint called “action red”. As there was no room at Action’s yard at Granville to set up a painting dock, Greg Baker and Paul Stuart sent Action scaffolding to the Wetherill Park site to be painted there. Other Action scaffolding that from time to time came back from construction sites was also taken to Wetherill Park to be painted.

12 The Reglon scaffolding was also painted “action red” at the Wetherill Park site. Indeed, it seems that the Reglon scaffolding was painted first and that the Action scaffolding was painted as and when it arrived back after having been used on various construction sites. Any of the Action scaffolding that was at the Granville site was brought across to Wetherill Park to be painted. However, not all Action scaffolding, some of which was at all relevant times out on site, was painted.

13 In addition, about 30 per cent of the Reglon scaffolding was micro-dotted. The identification on the microdot was “Action Constructions”.

14 Once the scaffolding arrived at Wetherill Park, there was no separation of the Reglon scaffolding from the Action scaffolding and apart from scaffolding that had been micro-dotted and in the case of Action scaffolding that had not been painted, there was no means of distinguishing the Reglon scaffolding from the Action scaffolding. Further, as is discussed below, the micro-dotting process did not provide an effective means of differentiating that portion of Reglon’s scaffolding that had been micro-dotted from any other scaffolding.

15 After the Reglon scaffolding had been painted and in some cases micro-dotted, Mr Greg Baker, who was employed by Action, sent it to construction sites or to the holding yard at Granville, at which Action scaffolding was located. Greg Baker gave evidence that if the Reglon scaffolding was insufficient to complete any particular contract, scaffolding that was kept at Granville and not owned by Reglon was used. He explained that this was possible because the scaffolding was interchangeable.

16 In September 2005, ACS Hire defaulted in the payment of hiring fees.

17 In October 2005, Reglon agreed with ACS Hire that the scaffolding at the Wetherill Park yard would be moved by early December 2005, to a new yard at St Peters that Brian Baker was in the process of leasing. On 8 November 2005, Reglon gave notice to ACS Hire that it had terminated its lease of the Wetherill Park yard and it required the scaffolding to be removed within four weeks. By mid-December 2005, all of the scaffolding from Wetherill Park had been moved to St Peters and the stock at Granville was also moved to St Peters.

18 Action at this time was substantially in arrears in its payments to Citadel. On 29 December 2005, Citadel appointed Grahame Hill receiver and manager of Action’s assets, pursuant to the terms of its charge. By 18 January 2006, Grahame Hill had taken possession of all of the scaffolding in the St Peters yard, as well as any remaining stock at the Granville yard and had given notice of his appointment to persons operating sites at which there was scaffolding hired from Action. His Honour found that some of that scaffolding was Reglon scaffolding.

19 On 18 January 2006, Grahame Hill licensed the business of Action to Action Construction Services (NSW) Pty Limited (Action NSW). Action NSW had been incorporated on or about 16 January 2006. Its sole director was Antonio Maiolo, who was also the sole director of Citadel. Prior to the licence agreement between Action and Action NSW being entered into, Reglon’s solicitor had informed Grahame Hill that part of the scaffolding at the St Peters and Granville yards belonged to Reglon. He had also come to understand from Action’s staff that the Reglon scaffolding could not be identified, either by micro-dotting or otherwise, and thus could not be differentiated from the Action scaffolding. Notwithstanding that Grahame Hill understood that Reglon scaffolding was at the St Peters yard and that it could not be separately identified, the terms of the licence agreement permitted Action NSW to use all of the mixed stock: see licence agreement, cls 1(b) and 3.

20 The trial judge found that the entry into the licence agreement was an act of conversion.

21 On 31 January 2006, an administrator was appointed to Action and it subsequently went into liquidation on 27 April 2006. On 15 May 2006, Grahame Hill retired as receiver and Citadel, as mortgagee, entered into possession of the assets of Action. On the same date, Citadel entered into a new licence agreement with Action NSW on similar terms to the original licence agreement. The trial judge found that Antonio Maiolo was well aware that Reglon claimed that its scaffolding was mixed with the Action scaffolding in the St Peters and Granville yards. His Honour also found that Antonio Maiolo was well aware that he was using some scaffolding of Reglon for his own benefit, or the benefit of his companies. In March 2006, Antonio Maiolo caused a stocktake to be undertaken of the scaffolding in the St Peters yard and on the construction sites. The stocktake revealed there were approximately 285,000 items of scaffolding in total.

22 The trial judge held that the entry into the new licence agreement was also an act of conversion.

23 On 13 April 2006, ACS Hire went into liquidation.

The proceedings

24 On 16 February 2006, Reglon commenced proceedings against Grahame Hill and Citadel, seeking interlocutory orders directed to requiring a quantity of scaffolding equipment equal to the quantity of the Reglon scaffolding retained at the St Peters yard. Orders restraining the sale or disposition of any of the scaffolding was also sought. Reglon’s claim for final relief was brought, relevantly, in detinue and conversion.

Grounds 1 and 2: did Reglon have a right to immediate possession of the Reglon scaffolding?

25 In order to maintain an action in conversion, Reglon was required to demonstrate that it had a right to immediate possession of its scaffolding. Its claim was that, notwithstanding that it had hired the scaffolding to ACS Hire for a period of 10 years, ACS Hire had, by allowing Action to have possession and use of the scaffolding, acted in a manner that was fundamentally inconsistent with the terms of the hire agreement so as to be an act repugnant to it, or a repudiation, so that the right to immediate possession of the scaffolding reverted to it. It was fundamental to this submission that Reglon did not have to comply with the terms of the hire agreement relating to termination, nor did it have to accept ACS Hire’s repudiation. The fact of repudiation was sufficient. The essence of this argument was that Reglon’s position as bailor was governed by common law principles.

26 The appellants contended, however, that the right to immediate possession was dependent upon Reglon terminating the hire agreement in accordance with its terms, or, alternatively, it had to accept any alleged repudiation of the contract. In short, the argument was that the terms of the hire agreement governed the relationship between the parties, including the circumstances in which Reglon’s right to immediate possession of the goods arose.

27 The appellants also contended that there had been no breach of the hire agreement, nor any conduct that was repugnant to its terms. In particular, they contended that ACS Hire did not hand over the Reglon scaffolding to Action and even it did, Reglon did not thereby obtain a right to immediate possession under the terms of the hire agreement, because such an act was not repugnant to the bailment and even if it was, Reglon had no right to immediate possession, because it had not terminated the hire agreement. They also submitted that insofar as Reglon scaffolding was out on construction sites, Reglon had no right to immediate possession, because its rights were subject to the rights of the end hirers.

28 The trial judge accepted that the right of termination provided for in the hire agreement required notice in writing: cl 15.2.3, and that none had been given. His Honour considered, however, that the provisions of cl 2.3, which provided that the purpose of the hire agreement was for the on-hire of scaffolding to scaffold users on building and construction sites, and cl 5, which related to ownership of the scaffolding, were relevant to the determination of the question of the right to immediate possession. His Honour held that under the terms of the hire agreement, ACS Hire had no right to hand over the Reglon scaffolding to Action and in doing so had acted outside the terms of the hire agreement. His Honour held that ACS Hire had no entitlement to possession and therefore, the right to possession was in Reglon. It followed, on his Honour’s reasoning, that Reglon had standing to sue in conversion.

29 As the competing contentions of the parties require a consideration of the relevant terms of the hire agreement, it is convenient in the first instance to turn to its provisions.

The hire agreement

30 Clause 1.3 provided that the terms of the hire agreement exclusively and completely stated the rights of Reglon and ACS Hire with respect to the hiring of the scaffolding.

31 Clause 2.3, which is one of the provisions upon which the trial judge relied in reaching his conclusion that Reglon had the right to immediate possession, provided that the parties “acknowledge that the [Reglon] scaffolding has been hired to ACS Hire for the purposes of on-hire to scaffold users in the building and construction industry”.

32 Clause 3.1 provided that the term of the hire agreement was 10 years.

33 Clause 5.1 related to ownership of the scaffolding. It provided:

“5 Ownership of the Scaffolding

5.1.1 ACS Hire taking possession or control of the Scaffolding; or

5.1.2 the management and use of the Scaffolding by ACS; or

5.1.3 any temporary attachment of the Scaffolding to any land or buildings to facilitate use of the Scaffolding,

subject only to the rights of ACS Hire as a mere bailee of the Scaffolding with a right only to use them in accordance with, and under, this Agreement.” (Blue book 362)

34 Clause 9 contained a series of covenants regarding possession and use of the scaffolding. Under that clause, ACS Hire acknowledged Reglon’s right, at all reasonable times, to, inter alia, enter upon any premises or location upon which the scaffolding may be stored by ACS Hire: cl 9.3(a); and inspect the state of repair of the scaffolding: cl 9.3(b). ACS Hire also acknowledged Reglon’s right and covenanted that it would use its best endeavours to ensure that others acknowledged Reglon’s right at all reasonable times to “do any act, matter or thing which may be required to be done to give proper effect to the terms of [the hire agreement] or to protect Reglon’s rights in the Scaffolding”: cl 9.3(f).

35 Clause 15 provided for default and termination. Clause 15.1 specified the events of default, including a failure to pay hiring fees. Should an event of default occur, cl 15.2 gave Reglon an option to: enforce performance; terminate the hire agreement; or retake possession of the scaffolding: cls 15.2.1, 15.2.2 and 15.2.3 respectively.

36 The right to terminate under cl 15.2.2 specified that Reglon may “[t]erminate this Agreement and ACS Hire’s right to possession of the Scaffolding by notice in writing to ACS” (emphasis added). Upon service of notice, ACS Hire’s rights to, or in the use of, the scaffolding terminated and Reglon was entitled to take possession.

37 Clause 15.3 specified events that constituted a fundamental breach of the hire agreement. It provided:

“15.3 Events Constituting Fundamental Breach

15.3.1 It is expressly agreed and declared by ACS Hire and Reglon that the obligations of ACS Hire under the following clauses are essential and fundamental terms of this Agreement such that failure to comply with them will constitute a repudiation of this Agreement entitling Reglon to accept such repudiation: clause 6, clause 9, clause 10 and clause 14.

ACS Hire further agrees that should any event of default occur, its occurrence will be a breach of an essential and fundamental provision of this Agreement by ACS Hire amounting to a repudiation by ACS Hire of this Agreement.

15.3.2 The presence of clause 15.3.1 does not mean, and will not be construed as meaning, that there are no other terms and conditions which are fundamental and essential terms and conditions of this Agreement.” (Blue book 375)

38 As outlined above, cls 6, 9, 10 and 14 were the nominated provisions in cl 15.3.1.

39 Clause 6 provided for the payment of hiring fees and other costs and expenses. Clause 9, to which I have already referred in part, contained covenants regarding possession and use of the Reglon scaffolding. Clause 10 provided that ACS Hire had the obligation to maintain specified insurances in respect of the Reglon scaffolding. Clause 14 provided that ACS Hire agreed to use, operate and possess the scaffolding at its own risk and to indemnify Reglon against specified costs and liabilities.

40 Clause 17.2 provided:

Remedies Cumulative

The remedies provided in this Agreement in favour of Reglon arising pursuant to an event of default or after a repudiation of this Agreement by ACS Hire will not be deemed to be exclusive but will be cumulative and will be in addition to all other remedies in its favour existing at law, in equity or in bankruptcy or insolvency. The election at any time to enforce any such remedies will in no way bar the later enforcement from time to time of any other such remedies.”

Legal principles governing the right to immediate possession

41 The hire agreement, both as a matter of general law, and in accordance with cl 5.1 constituted a relationship of bailment between Reglon and ACS Hire. The general principle is that in a simple bailment, repudiation of the bailment brings the bailment to an end: The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (2006) 65 NSWLR 400; [2006] NSWCA 22 per Young CJ in Eq at [63]; Palmer on Bailment, 2nd ed, (1991) Sydney, Law Book Company Ltd. Both parties accepted that a reference to an act inconsistent with or repugnant to the bailment was a reference to a repudiation of the bailment.

42 This principle is of ancient origin. In Penfold’s Wines Proprietary Limited v Elliott (1946) 74 CLR 204 at 227; [1946] HCA 46, Dixon J adopted as correct the principle as stated in Pollock & Wright, Possession in the Common Law, at 132:

Donald v Suckling

Fenn v Bittleston

Cooper v Willomott

Bryant v Wardell

43 North General Wagon & Finance Co Limited v Graham [1950] 2 KB 7 is also authority for the principle that an act inconsistent with or repugnant to the bailment terminates the bailment and gives to the bailor an immediate right to possession. As Asquith LJ stated at 14:

“If the bailor [has] a right to terminate this hiring at will the moment after a breach such as has occurred in this case, then it seems … the case becomes one in which the bailor has an immediate right to possession and can sue a third party in conversion.”

44 It seems that when Asquith LJ referred to a right to terminate at will, he did so in the sense meant in Possession in the Common Law at 166, which his Lordship quoted as follows at 14:

or become determinable at will

45 Cohen LJ stated at 15:

“I must further point out that the hirer, in instructing the defendant to sell, and in selling, the car, has committed a breach of the contract which goes to the root of it. In those circumstances the following passage in Halsbury’s Laws of England (2nd ed), vol 1, p 736, seems in point: ‘The act of the bailee in doing something inconsistent with the terms of the contract terminates the bailment, causing the possessory title to revert to the bailor and entitling him to maintain an action of trover.’”

46 Where the bailment is created by contract, the extent to which the common law principles continue to apply depends upon a construction of the contract: see The Anderson Group Pty Ltd v Tynan Motors Pty Ltd per Young CJ in Eq at [60]. Common law rights are only excluded or overridden by the terms of the contract if the clearest of terms to that effect are used: see also Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276. A clause that merely gives a right to terminate by notice for breach of the contract of bailment does not have that effect: Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All ER 385 at 391 per Bridge LJ; The Anderson Group Pty Ltd v Tynan Motors Pty Ltd per Young CJ in Eq at [70]. In Union Transport Finance Limited v British Car Auctions Ltd, Bridge LJ stated the proposition in these terms:

“… it would be perfectly possible to introduce into a contract of bailment a term expressly limiting the manner in which the bailee's right to possession as against the bailor could be terminated ... It seems to me that it would require the clearest express terms to have that effect. A clause which merely gives a right to terminate by notice for any breach of the contract of bailment could not possibly, in my judgment, be construed as having that effect. Its purpose is to enhance the rights of the bailor and not to curtail them.”

47 Palmer on Bailment explains the interaction between these principles at 108-109. The author points out that there is a distinction between the termination of the contract underpinning the bailment and the circumstances in which the bailor’s immediate right to possession revives. He states:

“When the bailee performs an act fundamentally at variance with the terms of the bailment (eg, by deviating from the agreed route) no formal conduct is required on the part of the bailor in order to determine the accompanying contract or to crystallise her or his immediate right to possess.”

North General Wagon & Finance Co Limited v Graham

48 Reglon relies upon this principle. The appellants contend, however, that to the extent that this principle was adopted in The Anderson Group Pty Ltd v Tynan Motors Pty Ltd, that case was wrongly decided, because the stated principle is inconsistent with statements made by Barwick CJ in The Nominal Defendant v Andrews (1969) 121 CLR 562; [1969] HCA 51. They submit, therefore, that North General Wagon & Finance Co Limited v Graham should not be followed.

49 I will deal with that submission shortly. However, leaving The Nominal Defendant v Andrews to one side, it would appear from the authorities to which I have referred, as summarised by Young CJ in Eq in The Anderson Group Pty Ltd v Tynan Motors Pty Ltd, that the principle is, as stated by Roskill LJ in the Union Transport Finance case at 390:

“… there is no room for doubt that the position at common law is this: if the bailee acts in a way which, to use the phrase used in argument, destroys the basis of the contract of bailment, the bailor becomes entitled at once to bring that contract to an end, and thus at once acquires the right to immediate possession of the article bailed.”

The Nominal Defendant v Andrews

50 In The Nominal Defendant v Andrews, the plaintiff had recovered damages against the Nominal Defendant for injuries suffered in a motor vehicle accident. The car in which the plaintiff was a passenger was unregistered and uninsured within the meaning of the Motor Vehicles (Third Party Insurance) Act 1942 (NSW) (Motor Vehicles (Third Party Insurance) Act) at the time of the accident. The car was the subject of a hire purchase agreement between the plaintiff and a finance company and was in the custody and possession of a third party, who was driving it at the time of the accident.

51 The Nominal Defendant brought a third party claim against the plaintiff on the basis that he was the owner of the car and the person entitled to immediate possession of it, so that pursuant to the provisions of s 32 of the Motor Vehicles (Third Party Insurance) Act, any judgment recovered against the Nominal Defendant in satisfaction of the plaintiff’s claim might be recovered by the Nominal Defendant as a debt from the plaintiff. Under s 5 of the Motor Vehicles (Third Party Insurance) Act, “owner” was defined to mean:

“(ii) where the motor vehicle is unregistered … any person who solely or jointly in common with any other person is entitled to the immediate possession of the motor vehicle.”

52 The action was heard by a jury who rejected the Nominal Defendant’s third party claim. In the High Court, it was held that it had not been established that the jury verdict should be disturbed. In coming to that conclusion, Barwick CJ discussed the question as to who had the right to possession of the car. He did so against the background of the hire purchase agreement, noting that it was a condition that the hirer, who was the plaintiff, was required under the hire purchase agreement not to take the goods outside New South Wales and to retain them in his possession and custody.

53 Clause 5 of the hire purchase agreement provided that if the plaintiff committed any breach of the agreement, then the hiring company might “without previous notice … determine the hiring and retake possession of the goods”. The plaintiff’s case was that because the third party who had been driving the vehicle obtained physical possession of the car with the plaintiff’s assent, there had been a breach of the hire purchase agreement, so that the right of possession thereupon and without any necessity on the part of the hiring company to take any action, reverted to the hire company. The argument then was that at the date of the accident, the hiring company was, as a matter of law, exclusively entitled to possession of the car. It was contended, therefore, that as the hiring company had the right of exclusive possession of the car, the plaintiff could not have been the owner for the purposes of the Motor Vehicles (Third Party Insurance) Act.

54 Barwick CJ stated at 567, that until the hire agreement had been terminated, “the right to possession remains in the hirer”. The appellants in this case, rely upon that statement as stating the law governing the right to possession. They contend that cl 15 of the hire agreement specified the circumstances and the manner in which the agreement could be terminated. Even assuming there had been an event of default giving rise to the right to termination, Reglon had not terminated the hire agreement by giving notice in accordance with cl 15.2.2.

55 Senior counsel for Reglon submitted, however, that when making the comment that until termination, the right to possession remains in the hirer, Barwick CJ was concerned only with the definition of “owner” under s 5 of the Motor Vehicles (Third Party Insurance) Act and was not concerned with the question of title to sue in conversion and in particular, was not dealing with the law as to when a party has a right to immediate possession for the purposes of the tort of conversion. It was submitted that this was apparent from his Honour’s comments at 567, that the mere fact that there had been a breach of the hire purchase agreement when the respondent parted with possession of the car, did not mean “that there was therefore an automatic change in the right to possession of the car in a proprietary sense” (emphasis added). The reference to possession in a “proprietary sense” is not relevant to the right to immediate possession for the purposes of entitlement to sue in conversion. Thereafter, his Honour’s discussion was focussed upon the right of the hiring company to “recover the car”, which also depended upon termination of the hire agreement.

56 In my opinion, this understanding of the Chief Justice’s judgment is correct. The decision and his Honour’s comments were directed to the construction of the meaning of “owner” within the Motor Vehicles (Third Party Insurance) Act and the question whether the trial judge’s direction to the jury in that regard was correct. The statement “that there was therefore an automatic change in the right to possession of the car in a proprietary sense” was made in that context and not in the context of a claim in conversion. The principles that this Court should apply, subject to the question whether the terms of the hire agreement ousted the operation of the general law, are those to which I have referred above, that any act which is repugnant to the bailment or inconsistent with the terms of the bailment terminates the bailment, causing the right to possession to revert to the bailor.

Did the hire agreement oust the operation of the general law principles?

57 Before dealing with the question whether there was an act repugnant to the bailment, the logically anterior question arises as to whether the terms of the hire agreement exclusively govern the right to immediate possession, or whether the common law principles continue to apply.

58 The appellants relied upon the provisions of cl 1.3 in support of their argument that the terms of the hire agreement exclusively govern the rights of the parties, including any right to immediate possession. They submitted that cl 1.3 was an “entire contract clause”. They also relied upon cl 15.2.2, whereby Reglon’s right to retake possession was dependant upon Reglon giving notice in writing and where Reglon had not done so.

59 The complete answer to this submission is to be found in cl 17.2. Clause 1.3 is a clause which has the effect of preventing reliance on, for example, pre-contractual representations. Clause cl 17.2, however, specifically provided that the remedies under the hire agreement arising pursuant to “an event of default”, as well as “after a repudiation of the [hire agreement]” were not exclusive, but were cumulative and in addition to all other remedies otherwise existing at law. Accordingly, the principles to be applied in this case are those discussed above, that is, when the bailee commits an act totally inconsistent with or repugnant to the bailment, the right to immediate possession of the bailed property is to revert to the bailor. It is thus necessary to consider whether there was an act repugnant to the terms of the bailment.

Repudiation of the bailment

60 The trial judge found that ACS Hire’s conduct in handing over the Reglon scaffolding to Action was inconsistent with the possession it was given under the hire agreement and thus gave to Reglon the immediate right to possession. Accordingly, Reglon had standing to sue in conversion. The trial judge considered that cls 2.3 and 5 of the hire agreement were relevant in reaching that conclusion. It will be recalled that under cl 2.3, Reglon acknowledged that the Reglon scaffolding had been hired to ACS Hire “for the purposes of on-hire to scaffold users in the building and construction industry”. Clause 5 then specified that ACS Hire’s rights in the scaffolding were as a mere bailee, with a right “only to use [the Reglon scaffolding] in accordance with and under [the hire agreement]”.

61 The appellants challenge this finding. Before dealing with the bases of this challenge, it is convenient to deal with another aspect of the appellants’ appeal, namely, their contention that ACS Hire did not hand over the Reglon scaffolding to Action. The appellants argue that it was ACS Hire that took possession of the Reglon scaffolding from sites in Preston and Brooklyn and had it delivered to Wetherill Park; ACS Hire had a lease over part of the Wetherill Park site and when Reglon scaffolding was transferred to construction sites, it did not thereby pass into Action’s actual possession. The appellants also rely upon the fact that ACS Hire and Action were both under the control of Brian Baker.

62 In my opinion, the appellants’ submissions misunderstand the trial judge’s finding on this question. At [33], his Honour stated that “[t]here was no right to hand the scaffolding over to Action for hire”. The import of the appellants’ submissions seems to suggest that there had to be some physical handing over of the equipment. Whilst I consider that the evidence was sufficient to establish that there was a physical handing over, the essential finding made by his Honour was that ACS Hire allowed Action to hire the equipment to scaffolding users. It was in this sense that his Honour found that ACS Hire handed over the Reglon scaffolding to Action for hire.

63 The evidence on that point was all one way. Brian Baker gave evidence that Action contracted with various builders to supply scaffolding and secured and administered those contracts. He also gave evidence that Action paid ACS Hire’s bills. Greg Baker also gave evidence that the Reglon scaffolding was used to fulfil Action’s hire contracts and if the Reglon scaffolding was insufficient, the Action scaffolding was also used. Donald Campbell, the internal accountant for Action, gave evidence that even after the hire agreement was entered into, ACS Hire did not carry on the business of hiring scaffolding equipment. Rather, Action used whatever scaffolding it received from Reglon to integrate it with its own scaffolding for the purpose of its business.

64 The appellants contended that that there was no difference in substance in handing the scaffolding to Action, because the intent of the hire agreement was that the scaffolding would not remain in ACS Hire’s possession. Rather, the possession of the scaffolding was intended, by the terms of the hire agreement, to be given to third parties and there was no difference in substance in the scaffolding being given to Action for the purpose of on-hiring from ACS Hire, or ACS Hire doing the on-hiring itself. It was submitted that, in fact, the handing over of the Reglon scaffolding to Action was done in furtherance of the purpose in cl 2.3. The appellants also contended that there was nothing in the hire agreement to prevent ACS Hire using other entities as the hiring company, especially those controlled by Brian Baker.

65 It was also submitted that the effect of Reglon’s contention would be to impose an arbitrary limit on the way in which ACS Hire could conduct its business and was inconsistent with the context in which the hire agreement was made. In this regard, the appellants contended that the context in which the hire agreement had been entered into included; John Smit’s knowledge as to Brian Baker’s businesses, John Smit’s confidence in Brian Baker’s expertise in operating scaffolding business and his acknowledgment that he had no desire to interfere with how Brian Baker ran his business.

66 The appellants further contended that the conduct of John Smit on behalf of Reglon, as revealed by his own evidence, was consistent with the appellants’ interpretation of the hire agreement. They relied upon the fact that John Smit had fortnightly meetings with Brian Baker to see how the overall position was in respect of hiring out the scaffolding; that he gave evidence that he was “simply content that rent be paid”; and that Reglon, through John Smit, took no steps to ensure that ACS Hire was complying with the terms of the hire agreement. In addition, the appellants rely upon John Smit’s evidence that he said he would not have given instructions to separate the scaffolding.

67 I do not accept that this is a fair statement of John Smit’s evidence. Indeed, his evidence was somewhat equivocal. It was apparent that Reglon did not know at least until early 2006 that the Reglon and Action scaffolding had been mixed. However, John Smit said in his affidavit sworn 13 June 2006, that “[a]ccordingly, and in any event” (emphasis added), he would not have given instructions to separate the scaffolding. The appellants rely upon the phrase “and in any event” as demonstrating that Reglon did not consider that the fact that Action had possession of the scaffolding and had mixed it with its own, was inconsistent with the terms of the hire agreement.

68 However, that evidence has to be viewed in conjunction with John Smit’s cross-examination. When asked whether he had taken any steps to ensure that ACS Hire was complying with its responsibilities under the hire agreement to keep records of the comings and goings of the scaffolding, he explained that although he did not himself take any steps to ensure the records were kept, he was given assurances on many occasions by Greg Baker, Brian Baker and other senior persons that stock control records were being kept and stock movements were being recorded. John Smit also said that he was content to leave it to Brian Baker to maintain such adequate records as he might choose to keep. In any event, he understood that because of the fact the stock was painted red and to some extent, the fact some scaffolding was micro-dotted, the Reglon scaffolding remained readily identifiable.

69 The effect of the appellants’ argument is that no distinction was to be drawn between ACS Hire and Action and no significance should be attached to ACS Hire’s obligations under the hire agreement because Brian Baker was, in effect, both ACS Hire and Action. Whilst that might be an agreeable enough proposition in a non-legal context, it has no relevance to legal obligations created under a contract. Its irrelevance is underscored by the fact that, being separate legal entities, either ACS Hire or Action, or both, could have come under completely separate ownership at any time during the course of the ten year period of the hire agreement. Accordingly, any ‘comfort’ that might have arisen from Brian Baker’s background control of each company was not to the point.

70 The very purpose of the detailed provisions of the hire agreement was to enable Reglon to be assured of a number of matters, including the financial viability of ACS Hire and its ultimate control over the scaffolding. As I explain below, the handing over of the Reglon scaffolding to Action undermined, or at least had the potential to undermine, each and every obligation that ACS Hire had under the hire agreement and had the potential to render the representations made under the hire agreement worthless.

71 It was submitted, alternatively, that Action itself was a scaffold user, within the meaning of cl 2.3 of the hire agreement so that there had been an on-hire of the scaffolding by ACS Hire to it. There was no evidence to support this contention.

72 The appellants further contended that his Honour’s reliance on cl 5 was misguided. They argued that that clause did not have the effect of reserving the right to immediate possession to Reglon. Rather, it was concerned with ownership, not the right of possession. It followed on this argument that his Honour erroneously construed cl 5 when, at [33], he stated that the handing over of the Reglon scaffolding to Action for hire was an action “outside the terms of possession acquired by the contract”. The appellants also submitted that this construction of cl 5 gave cl 15.2 no work to do and in particular, overlooked the operation of cl 15.2.2, which made provision for the termination of ACS Hire’s right to possession in the case of an event of default.

73 There are a number of underlying difficulties with this submission. First, it fails to recognise the principles to which I have already referred, namely, that a bailment may be terminated by a repugnant act notwithstanding that the contract underlying the bailment may not be terminated, unless some requirement of the underlying contract, such as the giving of notice, has been complied with. Further, his Honour did not, as I understand his reasoning at [33], construe cl 5 as having the effect of “reserving the right to immediate possession to Reglon” as contended by the appellants. Rather, his Honour considered that his conclusion that ACS Hire’s actions in handing over possession of the Reglon scaffolding to Action had the effect that the right to immediate possession reverting to Reglon, was supported by the provisions of cls 2.3 and 5. That is quite a different proposition from saying that his Honour construed cl 5 as having that effect.

74 In my opinion, his Honour’s conclusion is correct and was supported by cls 2.3 and 5. Clause 2.3 required that the scaffolding be used for the purposes of on-hire to scaffold users. Under cl 5, ACS Hire had a right to use the scaffolding only “in accordance with, and under, this Agreement”. As I explain below, giving Action possession of the Reglon scaffolding did not amount to compliance with cl 2.3. A failure to perform any of the covenants or provisions of the hire agreement was an event of default: cl 15.1, giving Reglon the right to specifically enforce performance, or terminate the hire agreement, or to take possession of the scaffolding: cls 15.2.1, 15.2.2 and 15.2.3.

75 Under cl 15.2.3, if Reglon chose to retake possession of the scaffolding, ACS Hire was required to do all things necessary to give Reglon the benefit of any contracts or arrangements entered into by ACS Hire relating to the scaffolding. ACS Hire may have been able to comply with this clause to the extent that any Reglon scaffolding was in the actual possession of Action. However, ACS Hire would have had no legal right to pass on to Reglon the benefit of contracts of hire entered into by Action with scaffold users, unless Action cooperated with ACS Hire. There was no legal obligation on Action to do so and if Action was in receivership or liquidation, it would have no actual ability to do so.

76 In any event, the handing over of the entire quantity of the Reglon scaffolding to Action was a distinctly different commercial operation with different contractual and financial implications from ACS Hire on-hiring the scaffolding to scaffold users from time to time in accordance with the terms of the hire agreement. There are a number of reasons why this is so. First, there was no express contractual control relating to the use of the scaffolding in Action’s hands. This is of particular importance, because under the terms of the hire agreement, ACS Hire had specific obligations in relation to the scaffolding. These obligations included where the scaffolding was to be stored: cl 4.1. It was required to pay various costs relating to the scaffolding, including all repair and operating expenses: cl 6.2.4. It was required, at its own cost, to keep and maintain the scaffolding in a properly serviced and working order, and in good and substantial repair: cl 9.1.1.

77 In addition, ACS Hire made certain representations and warranties under the hire agreement, including a representation that it was not in default or difficulty under any deed or the like by which it was bound or in respect of any financial commitment or obligation that it had: cl 7.1.1. It also had an obligation to comply with all applicable laws relating to the safe and lawful operation of the scaffolding: cl 9.2.1. Action had none of these obligations, nor did it make any representations to Reglon.

78 Further, it is apparent that the fees to be derived from the on-hire of the scaffolding were to be a source of the hire fees payable to Reglon under the hire agreement. By handing over the scaffolding to Action, ACS Hire deprived itself of that source of income and potentially of its ability to pay the hiring fees under the hire agreement. Although Action paid ACS Hire the amount of the hiring fees payable to Reglon, this arrangement was only as viable as Action’s own financial position, a matter in respect of which Reglon had no knowledge and no control.

79 This is to be contrasted with the position as between Reglon and ACS Hire. ACS Hire was required to submit to Reglon a proposed annual program and budget: cl 11. Quarterly statements were required to provide true and accurate records and accounts of its performance of its duties under the hire agreement: cl 12. It was required to maintain proper systems of internal control to enable its assets to be adequately controlled and accounted for and to provide reasonable control of transactions: cl 13.1.2. Those records were to be available for inspection by Reglon on 30 days notice: cl 13.2, and ACS Hire was to provide a statement of account reflecting those matters at the end of each financial year: cl 13.3.

80 There were other provisions of the hire agreement that demonstrate the fundamental difference in the ‘control’ Reglon had under the hire agreement and the potentiality for the loss of ‘control’ by the handing over of the scaffolding. Thus, pursuant to cl 6.2.4, not only was ACS Hire responsible for the payment of all repairs and operating expenses relating to the scaffolding, it did not have authority to create any lien or charge upon the scaffolding and was required to give any workman notice of that prohibition before such workman undertook any work upon the scaffolding. There was no such prohibition or obligation on Action.

81 Under cl 7.1.1, ACS Hire warranted that it was not subject to any financial obligation that was reasonably likely to adversely affect its ability to comply with its obligations, including the payment of hiring fees, under the hire agreement. Action gave no such warranty. This could have significant practical effects. For example, if a receiver or liquidator was appointed to Action, the receiver or liquidator would be entitled to receive the fees for the on-hire of the scaffolding by Action for the payment of Action’s creditors. Reglon, of course, was not a creditor of Action and thus would not have any entitlement to claim any hire fees owing by ACS Hire under the hire agreement either from the receiver or liquidator.

82 The loss of control by ACS Hire over the scaffolding by giving possession to Action underscores the fundamental difference in that arrangement to what was specified in the hire agreement and demonstrates that the arrangement with Action was repugnant to the express provisions of the hire agreement. Accordingly, there is no error in the trial judge’s conclusion at [33] that handing the scaffolding over to Action for Action to on-hire was outside the terms of the hire agreement and was so inconsistent with the terms of the contract as to constitute a repudiation. As there was a repudiation, then, on the principles that I have already discussed, the right to immediate possession in the Reglon scaffolding reverted to Reglon.

83 The appellants further contend that even if Reglon had an immediate right to possession in respect of the Reglon scaffolding, that did not extend to the scaffolding on sites, because the contracts for hire of scaffolding to builders vested the right of possession in the hirers. The appellants accepted that the hirers on site were sub-bailees and as such owed duties to Reglon as the owner, those duties being subject to the contracts of sub-bailment. Reglon’s answer to this is simple: the sub-bailments themselves were acts which were inconsistent with the terms of the bailment because the contracts of hire were between Action and the relevant building companies. Reglon’s agreement was for the on-hire by ACS Hire. It was submitted that any sub-bailment agreement by Action was contrary to the provisions of cl 9.3 and in particular, cl 9.3(f), which provided:

“[ACS Hire] acknowledges Reglon’s right, and will use its best endeavours to ensure that others acknowledge Reglon’s right at all reasonable times to:

…

84 In my opinion, Reglon's submission is correct. But in any event, the Reglon scaffolding first came into Action’s possession because ACS Hire allowed Action to on-hire the Reglon scaffolding. I have explained this above. The evidence disclosed that Action took the Reglon scaffolding from the Wetherill Park yard for that purpose. It follows, in my opinion, that any use of the Reglon scaffolding by Action that was permitted or authorised by ACS Hire directly or indirectly, was an act repugnant to the terms of the hire agreement.

85 Unlike the position had Reglon been seeking to terminate the hire agreement, there was no necessity for Reglon to accept this act of repudiation for the purposes of the right to possession reverting to it.

Grounds 3, 4 and 14: did the mixing of scaffolding result in co-ownership?

86 The trial judge held at [22] that the Reglon scaffolding was commingled with the Action scaffolding and that the various pieces of scaffolding were both interchangeable and indistinguishable from one another. There is no dispute about that factual matter. Nor can there be any doubt, for the reasons explained above, that Action, not ACS Hire, commingled the goods. Likewise there is no doubt that there was a lack of discrimination in Action’s painting of the scaffolding – both Reglon scaffolding and a quantity of Action scaffolding ended up painted “action red”. The commingled scaffolding ended up at the St Peters yard and/or on building sites.

87 The trial judge further held that, as a result of the commingling, Reglon and Action owned the scaffolding in common in the proportions that each had contributed: see Sandeman & Sons v Tyzac and Branfoot Steamship Company Limited [1913] AC 680 at 694.

88 His Honour held that Reglon was entitled to recover from the red-painted scaffolding, scaffolding to the amount claimed in the Summons: this entitlement was based upon the principles in Indian Oil Corporation Ltd v Greenstone Shipping SA (Panama) [1988] QB 345 at 370-371, where Staughton J stated:

“… where B wrongfully mixes the goods of A with goods of his own, which are substantially of the same nature and quality, and they cannot in practice be separated, the mixture is held in common and A is entitled to receive out of it a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of A.”

89 The appellants contend that his Honour erred in finding that the scaffolding was co-owned by Action and Reglon. If it was not co-owned, they submitted that there was no conversion, because Reglon was unable to identify the items that it alleged had been converted. This is the issue raised in ground 14. Alternatively, if his Honour was correct in finding that the mixing had resulted in the property becoming co-owned, the appellants contend that the licensing of the Reglon scaffolding did not amount to conversion. This is the issue raised in grounds 5 and 6.

90 Reglon accepts that more than one person may have an interest in goods at the same time. Nonetheless, a person with a co-interest may commit an act of conversion. For example, in the case of joint owners of property, each joint owner is entitled to possession of the property, but does not have the right to exclusive possession. If a joint owner does an act that is justified only by the right of exclusive possession, then it commits an act of conversion as against the other joint owner: see Baker v Barclay’s BankLtd [1955] 2 All ER 571. See also The Anderson Group Pty Ltd v Tynan Motors Pty Ltd.

91 The appellants’ submission in respect of the question of co-ownership amounted to the following proposition: commingling for the purposes of the law of conversion only applies where substances are mixed in a way that the mixture becomes irreversibly one compound. The classic examples are the mixing of oil from two different owners. Once such substances are mixed, it is not possible to separate out the individual substances which went into the mix. It was submitted that the mixing of matters that retain their individual identity, such as was alleged in the case here, did not have the consequence of affecting title to the component parts.

92 This argument was based upon the Roman law principles of confusio (substances becoming irreversibly mixed) and commixtio (items which, though mixed together, retain their individual identity). The appellants contend that his Honour’s adoption of the principles stated in Sandeman was erroneous, because that decision itself was erroneous. In short, the point was that his Honour applied the principle that was only available in the case of confusio and the intermingling of the Reglon and Action scaffolding was a case of commixtio. It was further submitted that his Honour erred in distinguishing Smith v Torr [1862] 3 F & F 505. In that case, Bramwell B stated that the doctrine of confusion of property did not apply to distinct chattels such as chairs and tables and by analogy for the appellants, to individual pieces of scaffolding. Rather, it was a principle that was confined to the mixing of substances such as corn, wine and oil. The point sought to be made was that individual pieces of scaffolding were ‘distinct chattels’.

93 In my opinion, his Honour’s approach and answer to the question whether the intermingling of the scaffolding resulted in Reglon and Action co-owing the scaffolding was correct and his terse dismissal of the need to enter into the interstices of Roman law was appropriate. In Sandeman, Lord Moulton, at 694-695, referred to the legal consequences that followed where the goods of one party become “indistinguishably and inseparably mixed with the goods” of another. Having explained that the consequence of the goods becoming mixed due to the wrongful act of one of the owners was that the innocent owner could claim the goods, his Lordship then stated the principle that Windeyer J applied in this case, namely:

for which neither of the owners is responsible

94 His Lordship then commented that it was not safe to go further than stating that settled principle. He observed that it was apparent that the law was not settled, as was shown by the divergence of opinions as to the relevant shares that participating parties have in the case of an accidental commixtio. His Lordship referred to Buckley v Gross (1863) 3 B & S 566 at 575, where it was considered that where goods had been mixed, the parties would be tenants in common in equal shares; and to Spence v Union Marine Insurance Co Ltd (1868) LR 3 CP 427, where it was held that the parties possessed the mixed mass in proportion to the probable amounts of their contributions. Lord Moulton observed at 695:

“The fact is that the conclusion of the Courts in such cases, though influenced by certain fundamental principles, have been little more than instances of cutting the Gordian knot – reasonable adjustments of the rights of parties in cases where complete justice was impracticable of attainment.”

95 In this case, Windeyer J, after applying the principle to which I have referred, observed that the principles stated by Bramwell B in Smith v Torr had not been strictly applied in other cases. His Honour referred to McDonald v Lane (1882) 7 SCR 462, where the principle relating to the rights of co-owners in an indistinguishable mass was applied in Canada to logs of wood. His Honour saw no reason, therefore, to require a commingling of substances, as distinct from a mixing of many types of indistinguishable items, where the ownership of any particular item is impossible to tell from other items of the same type. This, in my opinion, must be correct. It is apparent that the circumstances with which Bramwell B was dealing in Smith v Torr were different from the circumstances here. In that case, the tables and chairs were said to be distinct goods and not commodities such as corn, wine or oil, etcetera, of which there could be commingling of substance. Here, the scaffolding were not distinct goods as such. Further, there is no reason in principle to confine the concept of confusio in the way suggested by the appellants. Principles of law may be applied to different circumstances either directly because there is no difference in substance in the different circumstances, or by analogy. Further, as Moulton LJ observed in Sandeman, the full parameters of the principle have not been determined. However, his Lordship stated the principle to the extent that it was settled. It was that principle that the trial judge applied in this case.

96 Not unsurprisingly, the concepts of confusio and commixtio have received little judicial attention. There was a passing reference in Foskett v McKeown& Ors [2001] 1 AC 102. That case involved a dispute between two groups of parties as to the rights to a death benefit of approximately $1m paid by insurers pursuant to a whole of life policy. In the course of his judgment, Lord Hoffman referred briefly to the Roman concept of confusio. His Lordship stated at 115:

confusio

97 The point was picked up by Lord Hope of Craighead, who, although dissenting in the result, did not agree that the principles of confusio and commixtio related exclusively to the ownership of corporeal property. His Lordship observed at 121 that there was no clear distinction in the use of the terminology applied to what had become recognised as the doctrines of confusio and commixtio. His Lordship also referred to Lord Moulton’s description of the principles in Sandeman.

98 In Poulton v The Commonwealth& Ors (1952) 89 CLR 540; [1952] HCA 70, Williams, Webb and Kitto JJ referred to the law applicable to the class of cases referred to by Lord Moulton in Sandeman. Although their Honours observed that it had not been established in that case that there had been any intermixture of the wool (being the commodity in question), to make it necessary to give the matter consideration, their Honours did not cast any doubt upon the correctness of the principle stated in Sandeman.

99 Brereton J, in Big Top Hereford Pty Limited v Thomas [2006] NSWSC 1159, at [62], applied the principle to circumstances where cattle had become mixed in a way that one group could not be distinguished from another.

100 In my opinion, the principle stated by Lord Moulton is not dependant on the type of goods in question, such as the mixture of oils, but to cases where items or goods become so inextricably mixed that they cannot be distinguished one from the other. Indeed, it might be said that one of the traditional examples of confusio, namely, the intermingling of pieces of corn, is no different, except to the extent of the size of the items, to the intermingling of indistinguishable items of scaffolding.

101 It follows, therefore, that there was no error in his Honour’s reasoning or conclusion that the articles had been commingled so as to become commixtio.

102 If the appellants are correct in their submission, then subject to the question whether Reglon authorised the mixing, the consequences may be that Reglon was entitled to the whole of the scaffolding. If it is accepted, for the purposes of this argument, that Reglon, through John Smit, did not authorise the mixing of Reglon scaffolding with Action scaffolding and that mixing was done by ACS Hire, as asserted by the appellants, then, in accordance with the principles in Sandeman discussed above, in circumstances where the wrongful intermingling was done by one party, the whole belongs to the other. However, Reglon did not contend for that position and I leave it to one side.

103 The appellants further contend that if Reglon authorised mixing of the scaffolding, then the principle to be applied was that the shares of Action and Reglon as co-owners of the scaffolding were equal to the proportion of their contributions. In my opinion, there is no basis to disturb his Honour’s finding that the mixing was wrongful, that is, that Reglon did not authorise it.

104 Having reached that conclusion, it is not necessary to separately deal with ground 14 of the appeal, that Reglon could not identify the items said to have been converted, as that ground depended upon there being error found in his Honour’s finding as to commingling and co-ownership. However, the conclusion that I have reached does require a consideration of two issues: the first is that raised by ground 4, namely, that his Honour erred in finding that commingling occurred in respect of all the Reglon scaffolding and grounds 5 and 6, that there had been no conversion by the red scaffolding having been licensed.

Ground 4: did micro-dotting enable identification of the Reglon scaffolding?

105 This issue is essentially a factual one and can be disposed of briefly. The submission advanced by the appellants was that 30 per cent or less of the Reglon scaffolding had micro-dots on it. It was submitted that the evidence supported a conclusion that so much of the scaffolding that had been micro-dotted could have been identified as being Reglon’s. It was submitted that the onus was upon Reglon to establish that its scaffolding had become mixed with Action’s scaffolding in such a way that both had become co-owners of the whole upon the basis of the principles just discussed: see also Indian Oil Corporation v Greenstone Shipping Company SA (Panama).

106 There is no doubt that the intention of micro-dotting the Reglon scaffolding was so as to put a specific identifying mark upon it. The difficulty, however, with this identification system, was that, as described by Greg Baker in his evidence, each micro-dot looks like “grinding dust”. The micro-dots are sprayed with a spray gun, leaving approximately 20 to 30 micro-dots with each spray. Greg Baker explained that once applied, the dots are very hard to find. He said that to be able to find the micro-dots, one would need to know where to find them, or, alternatively, every item of scaffolding would need to be inspected from every angle under an ultraviolet light.

107 Brian Baker gave evidence that he did not believe that the micro-dotted equipment could have been easily located. He described the work of locating the micro-dots as being “extremely intensive work”. As he explained, it would have been necessary to unstack in excess of 4,000 pallets, some of which were stacked four pallets high; unpack each pallet; inspect each of over 400,000 pieces of equipment, repack the pallets and restack the pallets.

108 In addition, not all the scaffolding was at the St Peters yard. Some had been hired out. It would therefore be necessary to visit all of the relevant building sites and carry out inspections on each piece of scaffolding with an ultraviolet light. To state the facts throws up the absurdity of the proposition upon which the appellants rely and ground 4 should be rejected.

Grounds 5 and 6: did the entry into the licence agreement amount to an act of conversion by the appellants?

109 The trial judge held that the licence granted by Action to Action NSW to use the commingled scaffolding constituted an act of conversion because the entering into the licence agreement was an act in complete disregard of Reglon’s interests: see Baker v Barclay’s Bank Ltd.

110 The appellants contend this finding was wrong. They contend, in short, that for a co-owner to be able to maintain an action in conversion, the co-owned goods must have been destroyed, or some action equivalent to destruction must have occurred at the instance of the co-owner. They rely on the statement of Mason J in Kitano v The Commonwealthof Australia (1974) 129 CLR 151 at 172; [1974] HCA 31.

111 In Kitano, Mason J said at 172:

Barnardiston v Chapman and Smith

Jacobs v Seward

Barnardiston v Chapman and Smith

112 Counsel for the appellants submitted that the authorities to which Mason J referred in this passage stand for the proposition that for an action in conversion to lie at the suit of a co-owner, the co-owner has to be deprived of the goods absolutely, or of all possible use and enjoyment of the goods: see Halsbury’s Laws of England, 4th ed, vol 35 at [1217]; Clerk & Lindsall on Torts, 15th ed at 21-66. Counsel for the appellants further submitted that the reason behind the rule is that where a co-owner has used goods to the exclusion of another co-owner, the excluded co-owner can follow the property. In a case such as this, it was submitted that Reglon’s remedy was to have sued Action for a division of property under s 36A of the Conveyancing Act 1919 (NSW) (the Conveyancing Act). The appellants also accepted that Reglon would probably have been entitled to sue for an account of profit. However, those claims were different from claims in conversion.

113 In Barnardiston v Chapman and Smith (1715) 4 East 121; (1715) 102 ER 776, the question before the Court was whether one tenant in common was only answerable to the other tenant in common for an actual destruction of the co-owned goods. That question was left to the jury in circumstances where the defendant had taken the goods in question, a ship, out of the co-owner’s possession, secreted it from him and changed the name of the ship. The ship afterwards came into the possession of another party and was subsequently sunk and entirely lost. The question, therefore, was whether, in those circumstances, it could be found that the destruction had occurred “by the defendant’s means”. The jury found in the plaintiff’s favour and the Court held there was no error in that finding, as the defendant had permitted the ship to go out of its possession and thereby lost control of it.

114 It appears that the same rule was followed in Parr v Ash (1876) SCR (NSW) 352. In that case, Sir James Martin CJ, after considering Banardiston v Chapman and Smith and certain other authorities, stated at 355:

“The principle to be gathered from the cases is that where one joint or part owner of chattel property seized the joint property, and deprived the other owner or owners of the use and possession of it, no action will lie except where the property was sold in market overt or where it was destroyed so that the part owner could not recover his share.”

Harper v Goodsell

115 The appellants also submitted that to the extent that more modern authorities stated that goods will have been converted where some act is done inconsistent with the rights of co-ownership and only consistent with the right of sole ownership or exclusive possession, those authorities are wrong. In this regard reference was made to Coleman v Harvey [1989] 1 NZLR 723 and Re Gillie & Ors: Ex parte Cornell (1996) 70 FCR 254.

116 Before considering those decisions, it is convenient to refer again to Kitano v The Commonwealth of Australia. In that case, a yacht that was co-owned by four people, and was on an around the world cruise, came under control of the Australian Customs Department when it entered port in Darwin. A dispute then arose between the co-owners. One of the co-owners obtained a certificate of clearance from the Customs Department and he and another two of the co-owners sailed away. The remaining co-owner brought proceedings against the Commonwealth, claiming that by issuing a certificate of clearance of the yacht, which enabled it to be sailed away, the Commonwealth had converted the yacht.

117 Mason J held that the certificate of clearance was a declaration that the law of the port had been complied with and that the yacht was entitled to leave. The issue of the certificate was not a dealing with the yacht in a manner inconsistent with the rights of the plaintiff as co-owner, nor was it a denial of the plaintiff's rights as a co-owner. Nor was its effect to deliver possession of the yacht to the party who sailed it away. It was in that context that his Honour made the observation that conversion will lie at the instance of a co-owner and in particular will lie at the suit of the co-owner of a ship. It was also in that regard that his Honour made reference to the decision in Banardiston v Chapman and Smith in the terms quoted above. It is significant, in my opinion, to note that what his Honour derived from the facts was the inconsistent dealing which had the effect of depriving the co-owner of possession of goods and which prevented the co-owner from exercising the rights of co-ownership.

118 Thus, in examining whether the Commonwealth had converted goods by issuing the certificate of clearance his Honour focussed upon the effect of giving a certificate. The issue of the certificate of clearance enabled the ship to be sailed from the port without breaching any provision of the Customs Act 1906-1968 (Cth). It did not have the effect of delivering possession of the yacht from Customs to the persons who sailed it away. Those persons already had possession of the yacht. His Honour observed that the other co-owner was subsequently deprived of possession, but that was due to the acts of the other three co-owners and not by the actions of Customs in giving the certificate of clearance.

119 If a cause of action in conversion required either the destruction of goods or the sale in a market overt, as contended by the appellants, it is inconceivable that Mason J would not have said so and there would not have been any necessity for him to give any more extensive consideration to whether there had been a conversion by for example, considering the effect of the issue of a certificate of clearance.

120 In Coleman v Harvey, the New Zealand Court of Appeal held that the sale of the plaintiff’s silver, which had been mixed with other silver, amounted to conversion. Somers J, (Richardson J agreeing) noted, at 731, that there was a respectable line of authority to support the proposition that a sale by one co-owner did not amount to conversion save where the right of property was lost. His Honour considered however that that proposition, the origins of which lay in the history of the actions of trespass, detinue and trover should not be sustained: see DP Derham, “Conversion by Wrongful Disposal as between Co-Owners” (1952) 68 Law Quarterly Review 507 at 511-512.

121 In his article, Professor Derham explained that trover originally applied only to cases of a wrongful disposal of a chattel, which in turn had developed as a remedy for cases that would ordinarily have been treated as trespass. He considered that the analogies that the courts had to draw on between co-owners were analogies arising out of relations between co-tenants of land and their rights inter se with respect to trespass of that land. He pointed out that it was understandable that an ouster was required before one co-tenant of land could sue his companion for trespass. In order for the same concept to be applied to conversion, Professor Derham considered that it was necessary to have something amounting to destruction of the chattel because of the rule that possession of one co-tenant is the possession of both. He states at 513 that that may well be the historical explanation of the rule having been laid down so dogmatically in the old cases. Professor Derham considered that the rule as tentatively expressed in Mayhew v Herrick (1849) CB 229 and in Barton v Williams (1822) 5 B & Ald 395 was to be preferred. In those cases it was held that it was not necessary to establish actual destruction in order to bring a claim in conversion.

122 Returning then to Coleman v Harvey, although Somers J acknowledged that there was authority to the contrary, his Honour considered that the correct statement of principle was that:

"Conversion 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.”

Kitano v The Commonwealth of Australia

123 In my opinion, this statement, which accords with the principle as stated by Mason J in Kitano is correct and should be applied according to its terms. See also Re Gillie and Ors; Ex parte Cornell per Finn J. For the reasons I have explained, I do not consider that there is any basis for reading Kitano in the restrictive way suggested by counsel for the appellants. Further, the old rule has been criticised both judicially and extra-judicially. 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.

124 The question to be determined therefore is whether the entry into the license agreement constituted an act of conversion. Under the licence agreement, Action NSW took over the business of Action, including taking over the performance of all existing contracts that Action had, as well as entering into new contracts in the future of the same kind as Action had entered into. Action agreed to make available all of its scaffolding, and any other scaffolding that was being used by it to perform its existing contracts to enable Action NSW to continue to perform those contracts and to enter into new contracts.

125 Reglon contend that in circumstances where its scaffolding could not be distinguished from the Action scaffolding, the entry into the licence agreement constituted an act that was inconsistent with its rights as joint co-owner. In short, the effect of the licence agreement was to enable Action NSW to use all of the commingled scaffolding for its own purposes, to the exclusion of Reglon, in circumstances where there was no possibility that Reglon could ever use or recover the Reglon scaffolding because it could not ascertain what was its scaffolding and what was the scaffolding of Action.

126 It is possible that one answer to that contention is that Reglon, as a co-owner would have had the right to use the whole of the scaffolding. Whilst that is right as a matter of principle, it also explains why, in my opinion, the licence agreement was an act of conversion. Under the licence agreement, a third party, over whom Reglon had no control and with whom it had no contractual relationships, had the use of the scaffolding. Reglon itself could not use the scaffolding and did not necessarily know where it was. The licence agreement, by enabling Action NSW to continue with the on-hiring of the commingled scaffolding and to enter into new on-hire contracts in respect of which Reglon had no benefits, had the effect that Action NSW exercised a right of exclusive control over the scaffolding, which was inconsistent with Reglon’s right to immediate possession.

127 It follows, in my opinion that the trial judge was correct in finding that the entry into the licence agreement constituted a conversion of the Reglon scaffolding.

Ground 7: cause of action against Citadel

128 The appellants contend that the claim against Citadel should have been dismissed, as the alleged act of conversion upon which Reglon relies did not occur until after the proceedings had been commenced. Reglon’s Summons in the matter was initially filed on 16 February 2006, in which Reglon sought both interlocutory and final relief. The final relief included a claim for damages for conversion of the Reglon scaffolding. The appellants contend that there was no cause of action for conversion against Citadel when the proceedings were commenced, with the consequence that there was no cause of action maintainable based on the cause of action on which Reglon ultimately succeeded.

129 This ground should be rejected. Section 64(1) of the Civil Procedure Act 2005 (NSW) (the Civil Procedure Act) provides that a court may, at any stage of proceedings, order that a document in the proceedings be amended. The power of amendment is to ensure that the court determines the real questions raised by or otherwise depending on the proceedings and includes the purpose of avoiding multiplicity of proceedings: subs (2). Pursuant to subs (3), an amendment may be made notwithstanding that it has the effect of adding or substituting a cause of action that has arisen after the commencement of the proceedings.

130 Should the amendment be made for the purposes of adding a cause of action, then the date of commencement of the proceedings in relation to that cause of action is to be taken to be the date on which the amendment is made: see also subs (3). The purpose of that provision relates, inter alia, to the calculation of interest. Section 64 is further aided by r 14.17 of the Uniform Civil Procedure Rules 2005 (NSW) (the UCPR), which provides that a party may plead any matter, even if the matter has arisen after the commencement of the proceedings.

131 Counsel for the appellants refined his argument on this point and made two submissions. The first was that r 14.17, which permitted the pleading of a matter which had arisen after the commencement of proceedings, did not extend to a cause of action. This submission was undoubtedly based upon this Court’s decision in Baldry v Jackson (1976) 2 NSWLR 415, in particular at 419, to which reference is made in the annotations to r 14.17: see “Ritchie’s Uniform Civil Procedure New South Wales” para 14.17.5. It is not necessary to pause to consider the effect, purpose or extent of the operation of r 14.17. Section 64(3) of the Civil Procedure Act which specifically permits an amendment to add or substitute an action that has arisen after the commencement of the proceedings.

132 As I understand it, this led to a further submission, which was directed to the operation of r 14.17 but may also have extended to s 64, that is, the power of amendment only related to pleadings and this matter was commenced by Summons. However, Reglon claimed in its Summons an order that the appellants pay damages for conversion of the Reglon scaffolding. That is the relief that was ordered. Accordingly, it was not necessary for it to amend its claim in order to be entitled to the relief sought. I perhaps should add that, in any event, the Summons was amended, it appears, on two occasions, with a Further Amended Summons being amended on 7 November 2006 with leave, but not so as to amend the relief sought in respect of the conversion of the Reglon scaffolding.

133 Counsel for the appellants argued, although only faintly, that the cause of action had to accrue before proceedings were commenced. He acknowledged the existence of s 64(3) of the Civil Procedure Act which permitted an amendment to introduce a cause of action that had not accrued at the time that the proceedings were originally commenced. His point, however, seemed to be no more than that there was no amendment to do that. I would reject this argument for the reasons already given.

134 It follows that this ground should be rejected.

Grounds 8 and 13: the mixing of the Action and Reglon scaffolding was authorised by Reglon and it was not established that Action did the mixing

135 The trial judge found at [23] that the mixing of the Action and Reglon scaffolding was not shown to have been authorised by Reglon. The appellants challenge the correctness of this finding. They also contend that it is implicit in this finding that Action was responsible for the mixing and contend that this was not established on the evidence.

136 The appellants rely upon John Smit’s evidence that he knew that Brian Baker had other scaffolding interests and the only reason that he purchased the Reglon scaffolding in the first place was because he could on-hire it immediately to a company under the control of Brian Baker. The appellants also rely upon the fact that John Smit knew that the scaffolding at Wetherill Park was to be moved to St Peters, together with scaffolding from the yard conducted by Action at Granville. This was for the express purpose of Brian Baker consolidating his scaffolding operations in the one place.

137 However, the fact that John Smit knew that Brian Baker had other scaffolding operations and that he knew, at least at some stage, that all the scaffolding was to be held in the same yard, does not mean that he authorised it to be mixed together so as to become indistinguishable. In any event, the evidence is to the contrary. There was evidence that the terms of the hire agreement required ACS Hire to keep the scaffolding separate. The circumstances relied upon by the appellants do not establish that that obligation had been waived.

138 Furthermore, the evidence contradicts the appellants’ assertion. John Smit, in his affidavit of 16 February 2006, stated that when the Reglon scaffolding was first brought to the yard at Wetherill Park, there was no other scaffolding on the site. In February 2005, Greg Baker informed him that a painting bay was to be constructed for the purposes of painting the Reglon scaffolding. Greg Baker advised John Smit that his sole role in being at the Wetherill Park yard was to prepare and paint the Reglon scaffolding. During this process, Greg Baker also invited John Smit to attend at the yard to see the micro-dots that had been placed on the Reglon scaffolding.

139 John Smit also gave evidence that he was never told that scaffolding other than the Reglon scaffolding was being brought into the Wetherill Park site. The evidence of Brian Baker and Greg Baker was that Action was responsible for mixing the two lots of scaffolding. There was no evidence to the contrary and this evidence was not challenged.

140 Accordingly, these grounds should also be rejected.

Ground 9: Reglon was not entitled as against Action to recover from the red scaffolding an amount of scaffolding equivalent to the Reglon scaffolding

141 The appellants advanced the same arguments in support of this ground as were advanced in respect of Ground 8. However, as I have found that Reglon did not authorise the mixing of the scaffolding, it has not made out its challenge to the trial judge’s finding that Reglon was entitled to recover from the red scaffolding an amount of scaffolding equivalent to the Reglon scaffolding. The appellants also advanced the submission that his Honour’s finding in this regard was dependent upon a finding that Action mixed the scaffolding. I deal with this question below and determine it adversely to the appellants’ contention. It follows, therefore, that Ground 9 should also be rejected.

Ground 4 of the Amended Notice of Cross-Appeal: reduction of Reglon’s entitlement by 10 per cent

142 The trial judge, at [36], dealt briefly with Reglon’s ultimate entitlement to damages. That determination depended upon whether Reglon had established that all goods identified in the Summons had been converted. His Honour found, correctly on the conclusions to which I have come, that the entirety of Reglon’s scaffolding came into Action’s possession. His Honour considered that it was reasonable to make some allowance for loss prior to conversion and for damaged stock. His Honour considered that it was reasonable to allow a reduction of 10 per cent to take account of what I understand to be, in effect, a contingency to allow for that. It is not apparent from his Honour’s reasoning what factual findings underlay this reduction. As I have said, it appears more to be an allowance of a type of contingency for what might have happened. The appellants appear to accept this analysis, as they accept in their written submissions that the estimate of 10 per cent was not based upon evidence. They considered, however, that it was for Reglon to prove that all of its scaffolding had been mixed with Action scaffolding.

143 In my opinion, his Honour’s reduction of the damages by 10 per cent was not supported by the evidence and was in fact contrary to the evidence. First, the evidence was unequivocal that the entirety of the Reglon scaffolding arrived at the Wetherill Park yard and that at that time there was no other scaffolding at the yard. Thereafter, the scaffolding was, pursuant to the hire agreement, under the care and control ACS Hire. Further, as the evidence disclosed, Action had the physical control of the scaffolding.

144 Under the terms of the hire agreement, ACS Hire was the bailee. It was responsible for the whole of the Reglon scaffolding. The evidence established that the whole of the Reglon scaffolding came into the possession of ACS Hire and/or Action. In my opinion, in circumstances where Reglon established that it had handed over the entirety of the goods to ACS Hire; and that the entirety of the goods had been mixed with the Action scaffolding, it had established the first step necessary to be entitled to damages for conversion of the whole. Thereafter, the evidence was that when scaffolding was required to fulfil an order for a particular site, about 99 per cent went via the Granville yard.

145 The Granville yard, of course, was operated by Action. When the scaffolding was at the Granville yard, it was entered into Action’s computer records. The evidence was also that when the move was made to the yard at St Peters, any remaining stock at Wetherill Park was transferred to St Peters, so that by the end of December 2005, all the stock at the Wetherill Park yard and a large percentage, if not all, of the stock from the Granville yard had been moved to St Peters. On 29 December 2005, Grahame Hill was appointed receiver and manager of Action and on that date, he took possession of all the scaffolding at the St Peters yards as well as the scaffolding at the building sites that were serviced by Action.

146 It is perhaps relevant in this regard to observe that Grahame Hill did not become aware that Reglon owned any of the scaffolding until about 11 or 12 January 2006.

147 In my opinion, there was no basis in the evidence for his Honour’s finding to reduce the damages by ten per cent. Accordingly, there will have to be an adjustment in the judgment sum.

Ground 12: it was not established that all of the Reglon scaffolding was mixed

148 The conclusion at which I have arrived in respect of Ground 9 and Ground 4 of the Cross-Appeal effectively deals with Ground 12 of the Appeal in which the appellants contend that it was not established that all of the Reglon Scaffolding was mixed. Ground 12 should accordingly also be rejected.

Ground 15: “buyer’s premium” and GST

149 The appellants contend that the damages should be reduced in any event by deducting GST and a “buyer’s premium”, which they contend was included in the valuation of Mr O’Mara and accepted by the trial judge.

150 The appellants contend that these amounts should be deducted because the ordinary measure of damages in conversion is the value of the thing converted as if there was a forced sale to Reglon. It was submitted that, as there was no actual sale, then additional amounts such as GST and buyer’s premiums ought not to be included.

151 Reglon contended that this submission misunderstands the evidence. Mr O’Mara assessed the sale price of the Reglon scaffolding at $1,478,125, including GST and buyer’s premium, following a joint consultation with Reglon’s expert, Mr Hyman. In the combined report put before the trial judge, the experts agreed that auction value in the present case was the same amount as the market value. They also agreed that market value was:

“… the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.”

152 Whilst it is correct to say that that amount included both the buyer’s premium and GST, the calculation that needed to be done was one that assumed an auction. Under an auction, the buyer, who on the underlying principles was the appellants, would be required at auction to pay both a buyer’s premium and GST. Whilst the sale is hypothetical and because the appellants in this notional sale would not receive either the buyer’s premium or the GST, there is a basis for an argument for the reduction of damages so as to exclude those amounts.

153 Reglon submits that the amounts should not be deducted for two reasons: the first was that the sale price of $1,478,125, was Mr O’Mara’s assessment of fair market value. However, where, as in this instance, the fair market value was also the auction price, then it is arguable that those amounts ought to be deducted.

154 Reglon advanced an alternative argument, namely, that a proper measure of loss for conversion is the fair market cost to Reglon of replacing the goods as at the date of conversion: see Owners of Dredger Liesbosch v Owners of Steamship Edison [1933] AC 449. That case, however, did not involve conversion, but rather the negligent destruction of goods. The correct principle, it would seem, is as stated in J G Fleming, The Law of Torts, 9th ed (1998) Sydney, Law Book Co Ltd, at 76, that the measure of damages, ordinarily, is the full value of the thing converted. In Palmer on Bailment at 214, the author explains the basis of damages as being, that the act of conversion is a sufficiently serious infringement of the plaintiff’s right of control over the converted goods to justify “the drastic sanction of compelling the wrongdoer to buy the plaintiff out”. In this case, both valuers agreed that the market value was the auction value.

155 However, if what the Court is concerned with is market value, then there is an argument for accepting the figure assessed, as market value, regardless of the underlying methodology. Further comfort may be gained in adopting this approach in this case because, as his Honour observed at [34], there was apparently little argument as to whether the trial judge should accept the evidence of the valuers and if so, which valuer should be accepted. His Honour recorded that the appellants did not challenge either valuation except in general terms. His Honour accepted the lower valuation of Mr O’Mara, having regard to one aspect that differentiated their approaches. Accordingly, I would reject this ground of appeal.

156 Having regard to the conclusion at which I have arrived, namely, that the Reglon scaffolding had been converted, it is not necessary to deal with the remaining claims made on the Amended Notice of Cross-Appeal or in the Notice of Contention. However, I would comment that I would not have found that a claim in detinue had been made out. So far as s 36A of the Conveyancing Act is concerned, I would comment that that matter was not argued in the court below. Accordingly, I propose the following Orders:

1. The appeal is dismissed with costs;

2. The Amended Notice of Cross-Appeal is allowed in part, with costs;

157 IPP JA: I agree with Beazley JA.

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Citations

Hill v Reglon Pty Ltd [2007] NSWCA 295

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CITATION:	Hill & Anor v Reglon Pty Limited [2007] NSWCA 295
HEARING DATE(S):	29 August 2007
JUDGMENT DATE:	24 October 2007
JUDGMENT OF:	Spigelman CJ at 1; Beazley JA at 2; Ipp JA at 157
DECISION:	1. The appeal is dismissed with costs; 2. The Amended Notice of Cross-Appeal is allowed in part, with costs; 3. The parties, within seven days, are to bring in short minutes of order to accord with these reasons.
CATCHWORDS:	BAILMENT – bailment created by contract – whether common law principles continue to apply depends upon construction of contract – common law rights excluded only where clearest terms used – bailment contract provided remedies were not exclusive but cumulative to remedies existing at law – not necessary for bailor to accept repudiation for the right of possession to revert to bailor - BAILMENT – goods of bailor interchangeable with goods of third party so as to be indistinguishable – where goods mixed by accident owners become owners in common of the mixed property – whether goods were mixed - BAILMENT – purpose of bailment was for on-hire of goods – bailor entitled to immediate possession where bailee performs act repugnant to or inconsistent with terms of bailment – whether action of bailee providing goods to third party for on-hire was repugnant to bailment - PRACTICE AND PROCEDURE – cause of action accrued after proceedings commenced – Civil Procedure Act 2005 (NSW) s 64 allows document to be amended to substitute cause of action that accrues after proceedings commenced - TORTS – conversion – damages of loss for conversion ordinarily full value of thing converted - TORTS – conversion – goods converted where they are dealt with inconsistently with owner’s rights with intention of denying owner’s rights or asserting right inconsistent with them – no requirement that goods must be destroyed or sold in a market overt – whether licence agreement vesting exclusive control over goods with third party was inconsistent with bailor’s right to immediate possession
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW) s 64 Conveyancing Act 1919 (NSW) s 36A Uniform Civil Procedure Rules 2005 (NSW) r 14.17
CASES CITED:	Baker v Barclay’s Bank Ltd [1955] 2 All ER 571 Baldry v Jackson (1976) 2 NSWLR 415 Barnardiston v Chapman and Smith (1715) 4 East 121; (1715) 102 ER 776 Barton v Williams (1822) 5 B & Ald 395 Big Top Hereford Pty Limited v Thomas [2006] NSWSC 1159 Buckley v Gross (1863) 3 B & S 566 Coleman v Harvey [1989] 1 NZLR 723 Foskett v McKeown & Ors [2001] 1 AC 102 Harper v Goodsell (1870) LR 5 QB 422 Indian Oil Corporation Ltd v Greenstone Shipping SA (Panama) [1988] QB 345 Kitano v The Commonwealth of Australia (1974) 129 CLR 151; [1974] HCA 31 Mayhew v Herrick (1849) CB 229 McDonald v Lane (1882) 7 SCR 462 North General Wagon & Finance Co Limited v Graham [1950] 2 KB 7 Owners of Dredger Liesbosch v Owners of Steamship Edison [1933] AC 449 Parr v Ash (1876) SCR (NSW) 352 Penfold’s Wines Proprietary Limited v Elliott (1946) 74 CLR 204; [1946] HCA 46 Poulton v The Commonwealth & Ors (1952) 89 CLR 540; [1952] HCA 70 Re Gillie & Ors: Ex parte Cornell (1996) 70 FCR 254 Sandeman & Sons v Tyzac and Branfoot Steamship Company Limited [1913] AC 680 Smith v Torr [1862] 3 F & F 505 Spence v Union Marine Insurance Co Ltd (1868) LR 3 CP 427 The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (2006) 65 NSWLR 400; [2006] NSWCA 22 The Nominal Defendant v Andrews (1969) 121 CLR 562; [1969] HCA 51 Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All ER 385 Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276 Clerk & Lindsall on Torts, 15th ed Derham D P, “Conversion by Wrongful Disposal as between Co-Owners” (1952) 68 Law Quarterly Review 507 Halsbury’s Laws of England, 4th ed, 1984, vol 35 Fleming J G, The Law of Torts, 9th ed (1998) Sydney, Law Book Co Ltd Palmer on Bailment, 2nd ed, (1991) Sydney, Law Book Company Ltd
PARTIES:	Grahame Peter Hill (First Appellant) Citadel Financial Corporation Pty Limited (Second Appellant) Reglon Pty Limited (Respondent)
FILE NUMBER(S):	CA 40865/06
COUNSEL:	S B Docker (Appellants) A Bannon SC; M Ashhurst; T Baw (Respondent)
SOLICITORS:	Kemp Strang Lawyers (Appellants) Peter Kemp Solicitors (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 1478/06
LOWER COURT JUDICIAL OFFICER:	Windeyer J
LOWER COURT DATE OF DECISION:	11 December 2006
LOWER COURT MEDIUM NEUTRAL CITATION:	Reglon Pty Limited v Hill & Ors [2006] NSWSC 1360