Redox v Swan Hill Chemicals Pty Ltd
[2018] VCC 531
•7 May 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-15-05713
| REDOX PTY LTD (ACN 000 762 345) | Plaintiff |
| v | |
| SWAN HILL CHEMICALS PTY LTD (ACN 144 706 258) CHEP AUSTRALIA LTD (ABN 11 117 266 323) OLAM ORCHARDS AUSTRALIA PTY LTD (ACN 139 442 532) | First Defendant Second Defendant Third Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6, 7, 8, 9, 20, 21 March 2018 | |
DATE OF JUDGMENT: | 7 May 2018 | |
CASE MAY BE CITED AS: | Redox v Swan Hill Chemicals Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 531 | |
REASONS FOR JUDGMENT
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Subject: CONTRACT
Catchwords: Sale of goods transported on Chep pallets to participants in Chep system; what terms govern dealings between participants in absence of any written terms; whether any, if so what, terms to be implied; consignee `de-hiring’ pallets and taking financial benefit; whether constituting conversion; allegations of misleading or deceptive conduct not made out; no effective equitable estoppel; judgment for defendants.
Legislation Cited: Australian Consumer Law; Trade Practices Act 1974; Goods Act 1957
Cases Cited:Etna v Arif & Ors [1999] VSCA 99 at [46]; Hart v MacDonald (1910) 10 CLR 417, 42; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-3; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 346; Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190; R W Cameron and Company v L Slutzkin Pty Ltd (1923) 32 CLR 81; Bisognin & Anor v Hera Project Pty Ltd [2016] VSC 75; Hera Project Pty Ltd v Bisognin & Anor [2016] VSCA 322]; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; Walton’s Stores (Interstate) Limited v Maher (1988) 164 CLR 387; Crown Melbourne Limited v Cosmopolitan Hotel (2016) 333 ALR 384; ACCC v Maritime Union of Australia [2001] FCA 1549; Bill Acceptance Corporation Pty Ltd v GWA Ltd (1983) 50 ALR 242; Lyndel Nominees Pty Ltd v Mobil Oil Australia Ltd (1997) 37 IPR 599; BIS Cleanaway (trading as Chep) v Tatale [2007] NSWSC 378; CHEP Australia Ltd v Bunnings Group Ltd [2010] NSWSC 301; Bunnings Group Ltd v CHEP Australia Ltd [2011] NSWCA 342; Pangallo Estate Pty Ltd v Killara 10 Pty Ltd [2007] NSWSC 1528; Jansz v GMB Imports Pty Ltd [1979] VR 581; Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2008] NSWDC 235; Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204; Badische Anilin und Soda Fabrik v Hickson [1906] AC 419; Chapman Bros v Verco Bros & Co Ltd (1933) 49 CLR 306
Judgment: 1. Judgment for the 1st and 3rd Defendants as against the Plaintiff
2. Costs reserved
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G Lucarelli | Mitry Lawyers |
| For the First Defendant For the Second Defendant For the Third Defendant | Mr J Whelen Mr D F McAloon Mr D B Bongiorno | Michael R. Coldham & Assoc Thomson Geer Holding Redlich |
HIS HONOUR:
Background
1 According to Wikipedia, the acronym “CHEP” is derived from an organisation originally known as “Commonwealth Handling Equipment Pool”. This pool was established by the Commonwealth of Australia “to provide efficient handling of defence supplies during World War II. When the war ended in 1945, the Americans returned home, leaving behind millions of blue pallets at their military bases in Australia. With this asset base and established infrastructure, the [Commonwealth] continued to endorse the organisation after the war to support the national economy.” With a change of government in 1949, the organisation was privatised. It is now a part of the Brambles Group. The second defendant is now the operator of this system.
2 Each of the other parties ─ the plaintiff, Redox Pty Ltd (“Redox”), the first defendant, Swan Hill Chemicals Pty Ltd (“Swan Hill”), and the third defendant, Olam Orchards Australia Pty Ltd (“Olam”) ─ is a “participant” in the CHEP system.
3 Each participant in the CHEP system enters into terms of hire with CHEP. The “terms and conditions of hire” are set out in their standard form at Joint Court Book (“CB”) 627-633. Clause 2(a) of those standard terms provides as follows:
“2Hire of Equipment
(a)Equipment will be added to and deducted from the Equipment held by the Hirer and the Hirer’s Quantity on Hire when:
(1) Equipment is hired to the Hirer (issue);
(2) hired Equipment is returned to CHEP at a Service Centre authorised to accept that Equipment (return);
(3) there is an approved transfer of hired Equipment by the Hirer (Sending Party) to another Hirer (Receiving Party) or by a Receiving Party to the Sending Party; or
(4) there is an adjustment under these terms.
An item of Equipment will not be recorded or returned until the whole of the item is returned or compensation is paid under clause 4.” (CB 628)
4 Clause 3 provides for the participant to pay CHEP hiring charges on a monthly basis for the equipment on hire to it by CHEP, viz the blue cargo pallets. It will be necessary to return to this clause in greater detail later. (CB 629-30) The effect is that a participant in the system is required to pay the CHEP hire charges for the period within which pallets are on issue to it and until the pallets are either returned to an authorised CHEP service centre or transferred to another CHEP participant. Where a transfer in accordance with the terms and conditions is made to another participant, the liability to pay the hire charges attaches to the transferee, and the transferor is relieved of further liability upon an effective transfer taking place. Clauses 2(b) and (c) of the terms and conditions provide as follows:
“(b)A Sending Party must establish that the transfer of any Equipment is accepted by the Receiving Party and obtain CHEP’s approval to the transfer. Unless otherwise agreed by CHEP, a transfer will be rejected unless it is notified to CHEP by an approved CHEP transfer document. CHEP may refuse to issue Equipment to a Hirer or refuse to approve a transfer. Variation by CHEP of a Hirer’s Quantity on Hire or sending an invoice does not itself constitute approval of a transfer.
(c)The Hirer must not part with possession of any Equipment unless:
(1) it is returned to CHEP;
(2) it is transferred onto another Hirer’s account with CHEP; or
(3) the Hirer keeps and makes available to CHEP on demand approved CHEP documentation, CHEP electronic records or other control records approved by CHEP identifying the name and address of the person in possession of the Equipment, the date of the change of possession, the quantity and type of Equipment, and the terms (if any) on which the Hirer parts with possession. The Hirer must ensure that those terms are at all times subordinate to and will be overridden by these terms. If CHEP requests, the Hirer must provide to CHEP (at CHEP’s reasonable expense) a copy of all or any part of such records.” (CB 628)
5 In 2012-13, Mr Sebastian Leith was a senior account manager in the sales department of the plaintiff, Redox. His duties “included servicing existing customers, sourcing new customers, negotiating sales of bulk chemicals, overseeing and generally managing a customer’s account, including processing a customer’s purchase orders …”. (CB 62, paragraphs 2‑3). According to Mr Leith:
“Bulk chemicals are stored and transported in a variety of ways, one way was in bulker bags ranging from 800kg to 1.2 metric tonnes, the most common being on palletised ‘bulkers’, which is a 1.2 tonne (approximately) synthetic cubic bag resting on a standard pallet.” (CB 63, paragraph 6)
6 Bulk chemicals sold by Redox could be delivered in 1.2 tonne bulkers either on standard “one way” pallets or on CHEP pallets. Mr Leith said he customarily explained those options to Redox’s customers. (Ibid paragraph 7) The option for the use of CHEP pallets was open where a customer had a CHEP account and was a participant in the CHEP system. Where a customer elected to use “one way” or non-CHEP pallets, Mr Leith recalled that a charge of $10 per pallet would be levied on the supply. (Ibid paragraph 8) If the CHEP option were chosen by a Redox customer, it was the responsibility of the logistics staff at Redox to manage the movement of the CHEP pallets. Where a Redox customer intended to arrange its own transport, Mr Leith said he would negotiate those arrangements designating the delivery terms as “FCA” from the relevant warehouse. According to Mr Leith, such a term meant “Redox is to make the goods available for collection by the buyer at a named destination and transport from that point is the buyer’s responsibility.” (CB 64, paragraph 10) When a purchase order was “input” into the Redox accounting and inventory system, a product code was employed which, according to Mr Leith, “exactly matched the requirements of the customer’s order, including packaging and palletising requirements.” (Ibid paragraph 12) Mr Leith would then make arrangements for the product to be available either for a single delivery or a series of deliveries, with the Redox computer system generating a sales order including all necessary details. As part of his sales duties, Mr Leith was accustomed to liaising with the customer’s nominated carrier “to coordinate the delivery times and locations”. He said:
“… I would let the carrier know, and when the goods were ready for collection. I would also then work with the dispatching warehouse, to ensure trucks were loaded in a timely and efficient manner.” (CB 65, paragraphs 14‑17)
7 At the relevant time, the second defendant, Swan Hill, was amongst the Redox customers for which Mr Leith was responsible. He said he generally negotiated with Gary Jeans on behalf of Swan Hill “and, to a much lesser extent, Brian Cumming and David Ford.”
8 On 9 May 2012, the second defendant, Swan Hill, generated purchase orders numbered 24905 and 25292 for quantities of calcium nitrate granular 1.2 tonne bags; in one case for 762 units and, as to the second purchase order, 1,049 units. The purchase prices were $458,114.40 and $649,540.80. (CB 398-9) These purchase orders as mentioned were designated 24905 and 25292. The Court Book also includes a purchase order by the second defendant, No 25644, pertaining to potassium chloride, dated 31 July 2012. This purchase order seems to be extraneous and does not appear to pertain to any of the transactions involved in this proceeding. Relevant to the proceeding are a series of order confirmations relative to Swan Hill addressed “Dear Gary Jeans” at CB 402-444. Taking the order confirmation at CB 404, it provides for despatch from “Secon Carriers – Altona for External Delivery to: Swan Hill Chemicals – Swan Hill”.
9 Mr Leith said he did not distinctly recollect a conversation with Mr Jeans relative to pallet selection for these orders, but “consistent with my usual practice, I believe I would have discussed the CHEP or plain pallet option with Gary Jeans.” (CB 66, paragraph 21) He said there were a number of reasons why this would be so. First, with such large orders with a value in excess of $1 million, the orders entailed the delivery of some 1,800 bulkers and therefore a similar number of pallets. At $10 a pallet, this would generate an additional charge of $18,000 in toto. The documentation does not disclose any such additional cost being charged to Swan Hill. (Ibid paragraph 22) Mr Leith also said that the product code which he used corresponded with product delivered by way of bulkers on CHEP pallets. (CB 66-67, paragraph 23) Therefore, he said, he had “no reason to doubt that [he] followed [his] usual and ordinary practice … and specifically discussed pallet options with Gary Jeans prior to receipt of the purchase orders.” (CB 67, paragraph 25) For his part, Mr Jeans had no particular recollection of his negotiations with Mr Leith as to these matters. (Transcript (“T”) 383, Lines (“L”) 44-45)
10 Redox has been a customer of Secon Freight Logistics since about 2009. Secon arranges for the delivery of shipping containers consigned to Redox into Secon’s Altona warehouse, and for the unloading and unpacking of bulk goods such as granulated chemicals shipped to Redox via shipping container. Upon delivery, these items are entered into the computerised inventory management system maintained by Secon. Secon also makes those bulk goods ready and available for delivery to Redox’s customers “at or by specified dates”. (CB 86B, paragraph 7) Like Redox, Swan Hill and Olam, Secon is a participant in the CHEP system. (CB 86C, paragraph 15) The calcium nitrate shipment supplied by Redox to Swan Hill was supplied via the Secon warehouse in Altona. The various Redox confirmation orders provided for delivery by Redox to Swan Hill from Secon - Altona. Redox also generated delivery receipts relative to the Swan Hill order. (CB 172-251) These delivery receipts provided for delivery “FCA”; that is, with the product being made available at the Secon warehouse and with the responsibility for removal lying with Swan Hill or its carrier, in this case an organisation known as Pickering. (CB 86G, paragraph 28) On page 2 of delivery receipt 1940837, under the heading “Preparation”, “To be completed by the Picker”, is the signature of a person identified as “Nick”, namely, Nick Richards, whose job it was to retrieve the relevant number of bulkers of calcium nitrate. (CB 86G-86H, paragraph 30) According to Mr Paul Considine, a director of Secon, his company retained the delivery receipt “until a truck driver [turned] up with a copy of the Order Confirmation”. According to the usual practice, this would leave the Secon staff to prepare a CHEP Transfer Off form in duplicate. The “loader” in this case was one, Jamie Silcock. The delivery receipt was signed by Pickering’s driver as “Received”. (CB 86H-86I)
11 In addition to these processes designed to “track” the product itself, there were also processes undertaken in accordance with standard procedure to “track” the CHEP pallet on which the product was loaded. As a general rule, Secon stores a stock of thousands of CHEP pallets at its Laverton warehouse which it obtains from the CHEP depot at North Laverton. It was onto pallets from this store, and also from pallets which had arrived at Secon from inward deliveries, that the group of pallets on which the Redox shipments were loaded. (T212-213)
12 Participants in the CHEP system have, since approximately 2007, been required to employ a software program introduced by CHEP known as “ChepMate” to track the movement of the CHEP pallets. (CB 86C, paragraph 16d) When a participant delivers goods on CHEP pallets to another participant, the software program enables it to generate a form to record the number of CHEP pallets going from the one participant to the other. This form is called a “Transfer Off”. These forms identify the CHEP account number for the transferor and the transferee, and the effective date on which the transfer is to take effect. There may be a retrospective element in the “effective date” because there may be a delay in the process of uploading or “exporting” the Transfer Off onto the CHEP system. The Transfer Off forms each have a unique number allocated by the software system. Secon customarily obtains a signature from the transferee, typically its carrier at the time of release of the relevant shipment on the pallet. Once this is done, Secon, as sender or transferor, uploads or exports the form to the ChepMate system based on the data contained in the relevant form. (CB 86D) The Transfer Off forms generated as part of the present transaction are to be found at CB 252-297. These forms each include a “dispatch account” and a “receipt account”. These account numbers are the CHEP account numbers respectively for Secon and Swan Hill. The effect of these forms should have been to transfer the responsibility for each of the CHEP pallets on which the relevant bulkers were loaded to Swan Hill, such that from the date of delivery, which is shown as the “effective date” on each of the forms, the responsibility for hire charges on the relevant pallets would lie with Swan Hill and not with Secon. The transfers which these forms purported to effect were unsuccessful, according to Mr Considine, a director of Secon, because “the CHEP’s account for Swan Hill as specified in the Transfer Off forms … was rejected by CHEP, as it [viz the account number] had been closed since 25 March 2011.” All of the pallets used for the Redox shipment, totalling 1,956, therefore remained on Secon’s account. Secon remained responsible for the hire charges on them, but lacking physical control of those pallets, could not “de-hire” them and bring its hiring fee liability to a conclusion. (CB 86L, paragraph 54) Mr Winslow of Secon sent an email to his superior, one of the directors, Mr Considine, stating:
“I’ve found a major issue with the amount of chep on our account. Swan Hill Chemical’s chep account (1610333538) has been closed since 25/03/2011. We had no notification of the closure, or any rejection of pallets from them. The amount of pallets not accepted is currently at 1956 chep with the majority of the movements being since the end of August 2012. I’ve contacted Redox and they have given me another chep account for Swan Hill Chemicals but will not give me any contact information for Swan Hill’s pallet controller so I can talk to him about this. I’m talk to everyone [sic] at our end to not raise any chep dockets for Swan Hill Chemicals until advised to. I’d suggest not sending any orders to them but this will likely cause issues with Redox themselves.” (CB 298)
13 Mr Winslow, the following month, February 2013, uploaded a new batch of individual Transfer Off forms to the same effect as the earlier ones, save that they quoted Swan Hill’s correct account number. Swan Hill accepted a transfer of some 530 pallets, but rejected the balance, 1,426, the liability for which is the subject matter of the present proceeding. (CB 86M, paragraphs 59-64) The reason for this refusal seems to be that the various shipments in satisfaction of Swan Hill’s order on Redox were delivered not to Swan Hill’s premises, but to premises controlled by the third defendant, Olam Farms Australia Pty Ltd. Swan Hill had been successful in a tender proposal to supply the calcium nitrate to Olam. Mr David Ford, the general manager of Swan Hill, sent an email to one of his colleagues, Kieran McLaughlin, on the afternoon of 15 February 2013, where he stated that he had “gotten to the bottom of the pallet debacle”. He said he had interviewed a carrier, Mr Craig Stevens, who “finally admitted to me that he picked up 1700 cheps and de- hired them from Olam’s account. I have spoken to Sebastian [Leith of Redox] and told him he needs to talk to Seacon [sic] and get them to transfer the pallets to Olam’s account because they have already de-hired them. You will need to get Olam’s chep account number to give to Sebastian.” He added “Justin Pickering told Sebastion [sic] that he picked up and transferred 560 pallets.” [It would seem the true number was 560.] (First Defendant’s Court Book 72, hereinafter identified as “DCB”)
14 In March 2013, Secon transferred the pallets the subject of the discrepancy to Redox. (CB 356 and following) According to a statement made by Mr Leith (by then no longer an employee of Redox) to a private investigator on 28 October 2016, this “was the decision of Mal (surname not recalled), Redox’s Senior Counsel, made the decision to transfer the 1400 odd pallets from the defunct SHC Chep account, which I believe was the wrong decision.” (DCB 106, paragraph 16) The effect, then, was to leave Redox with the hiring liability for the 1,426 CHEP pallets, but without physical possession, enabling it to de-hire them and bring that liability to an end.
15 Mr Leith then commenced an attempt to negotiate the transfer of the contentious pallet liability to Olam. It seemed initially that this would prove the solution for Redox. By an email dated 22 February 2013 to Mr John Toms of Olam, Mr Leith said:
“We have tried to transfer pallets as discussed this morning from Secon Transport on to your account 4000226020 and we are getting a message saying we have no privilege to this account. Can you please let me know if you have a lock on the account. Thank you.” (D 90)
16 At this stage, the liability still lay with Secon. A later email from Mr Toms indicated the “lock” imposed by CHEP on the Olam account was a result of non-payment of one or two months’ charges from CHEP. On 25 February 2013, Mr Toms advised, “my Manager has now asked me to do a full count on all orchards before we release any credits and our account with Chep is still on hold as at today.” (DCB 83) The manager referred to is apparently Mr Wheatley, who was scheduled to give evidence for Olam. Olam’s counsel, Mr Bongiorno, however, announced in response to a question from Redox’s counsel, Mr Lucarelli, when the plaintiff was considering whether to close its case, that Mr Wheatley would not be called as a witness for Olam. As a result of this indication, Mr Lucarelli decided to call Mr Wheatley as a witness for Redox “on the blind”. In the course of his evidence, Mr Wheatley seemed to say that since his investigations did not disclose that Olam’s account ever went into a negative balance – that is, a situation where Olam was shown to have de-hired more pallets than it had been liable for hiring fees on in the first place – there was no occasion for any refund or credit to be made available to Redox or Secon. As to what the situation would have been had a negative balance on Olam’s CHEP account been revealed, Mr Wheatley merely said that he would have referred the issue to his superiors. Implicitly, with no negative balance on Olam’s CHEP account being evident, there was nothing to refer to his superiors and no liability was accepted by Olam. (T341-343)
This proceeding
17 As long ago as 2015, solicitors acting for Redox filed the writ which commenced this proceeding. By 4 August 2017, by virtue of orders made by Judicial Registrar Burchell, the plaintiff had reached its Further Amended Statement of Claim. I granted leave to Mr Lucarelli to make a minor amendment to that pleading in the course of trial, with the result that the plaintiff now relies upon its Second Further Amended Statement of Claim. The claim was brought against Swan Hill and Olam, and also against CHEP as the second defendant. CHEP’s involvement was solely for the purpose of its being bound by the outcome of the proceeding. At the outset of the trial, I excused Mr McAloon, counsel for CHEP, from further attendance, though he reserved the right to make submissions as to costs and on the final orders disposing of the proceeding. The plaintiff’s claim originally consisted of some 61 paragraphs. As it was, however, the amendments made during the pre-trial processes led to multiple additional paragraphs being added within the existing numeration by the addition of paragraphs in a number of places with the suffixes “A” and “B”, et cetera.
18 For ease of reference, I will refer to the Second Further Amended Statement of Claim simply as “the Statement of Claim”. After making certain background allegations as to the nature of the CHEP system, the corporate existence of the parties and their various businesses, Redox’s Statement of Claim made reference to its acceptance of the order for the delivery of calcium nitrate made by Swan Hill. It said that Swan Hill offered to buy three shipments of calcium nitrate from Redox and that it was an express oral term of each such offer that the calcium nitrate would be palletised on CHEP pallets. This was described as the “CHEP Pallet Term”. Next, it was said that it was an implied term of each such offer “that Swan Hill would, with respect to each collection of Goods made available on CHEP pallets, accept a ‘transfer on’ to Swan Hill’s Chep account of that number of Chep pallets on which the collected goods were palletised”. This was described as the “Transfer On Term”. Alternatively, it was said that at all material times, Swan Hill “knew full well” the requirements of the CHEP term, and in requiring that the calcium nitrate be delivered on CHEP pallets, the arrangement necessarily contained “a correlative obligation on Swan Hill to accept a transfer on to its Chep account of that number of Chep pallets collected by Swan Hill with the Goods”.
19 Next, it was said that there was an oral term of each offer by Swan Hill that the calcium nitrate be available for collection from the premises of Secon in Altona. This was described as the “FCA Term”. Therefore, it was said, each of Swan Hill’s orders or offers included the CHEP Pallet Term, the Transfer On Term and the FCA Term.
20 Next, it was said that “it was the parties [sic] mutual understanding that the Goods were to be made available from September 2012 in palletised quantities as specified by Swan Hill from time to time, in accordance with Swan Hill’s ‘call up’ instructions.”
21 It was said that at the time of each order, Redox created a computerised inventory invoice and system for each such order providing for the goods to be palletised on CHEP pallets and to be subject to “call-up” in quantities, as instructed by Swan Hill from time to time and made available for collection from Secon in Altona. The then current terms of contract used by Redox had the effect that no contract arose between it and Swan Hill until the issue of “sales confirmations”, as defined in the terms, and Redox’s standard conditions of sale applied. Swan Hill, it was said, called up specific quantities of goods and separate sales confirmations were issued by Redox, thereby forming a contract evidenced by Redox’s standard conditions and its order confirmations. It was said that the Redox order confirmations were evidence of Redox’s agreement to include the CHEP Pallet Term, the Transfer On Term and the FCA Term as terms of the contract. The FCA Term was said to be referred to expressly and the inclusion of a product code by Redox requiring goods to be palletised on CHEP pallets incorporated thereby the CHEP Pallet Term. Alternatively, the order confirmations were said to evidence Redox’s agreement in writing to accept those terms. Therefore, it was said, each of those terms were terms of the contract between Redox and Swan Hill.
22 Next, it was said that Secon Freight Logistics was the agent of Redox responsible for palletising Redox products, storing them and making them available for collection by Redox customers. Swan Hill, it was said, was aware of the capacity in which Secon acted and that “at all material times” Redox had the right to immediate possession of the bulk chemicals held by Secon as the owner and bailor of the chemicals held by Secon as bailee for reward under terms that Secon was obliged to release or deliver the chemicals as directed by Redox. Redox and Secon were participants in the CHEP system and Secon was therefore authorised and permitted to release goods palletised on CHEP pallets to Redox, and Redox was authorised and permitted to receive goods palletised on CHEP pallets from Secon. Therefore, it was said, that with the bulk chemicals palletised on CHEP pallets, “Secon held the bulk chemicals and the Chep pallets onto which they had been palletised as bailee for Redox”. Alternatively, Redox, it was said, had the right to immediate possession of the palletised bulk chemicals held on its behalf by Secon. Further, or alternatively, it was said, it was a term of the bailment between Redox and Secon that Secon would deliver the bulk chemicals and the pallets to Redox on demand. Therefore, “at all material times Redox had the right to immediate possession of the palletised bulk chemicals … including the right to immediate possession of the Chep pallets onto which Redox’s bulk chemicals had been palletised.” Swan Hill, it was said, knew Secon was a participant in the CHEP system from September to November 2012. Secon, as Redox’s agents, made the goods available in palletised quantities for collection by Swan Hill and Swan Hill’s transport agent, Pickering Transport Pty Ltd, collected the goods. Immediately prior to the delivery and at the time of release, the goods and the pallet were held by Secon as bailee for Redox, with Redox having the right to immediate possession of both and Secon was authorised to release the palletised goods “only to Swan Hill, and to no other person”. The goods were supplied to Swan Hill “on 1,426 Chep pallets”.
23 Alternatively, according to Redox, the liability of a participant in the CHEP system to pay the hire charges for CHEP pallets received from another participant was “so notorious and well established that upon a participant accepting possession of a Chep pallet from another participant, a collateral or additional contract [arose] between the releasing participant and the receiving participant requiring the receiving participant to accept a ‘Transfer Off’ to their Chep pallet account.” Therefore, according to Redox, on each occasion its agent, Secon, released a pallet to Swan Hill’s agent, Pickering, “there arose a collateral or additional contract between Redox and Swan Hill pursuant to which Swan Hill [agreed] to be liable for Chep hiring charges….”
24 Next, according to Redox, when Swan Hill required Redox to make goods available in bulkers, palletised on CHEP pallets, it “impliedly represented to Redox that Swan Hill would accept a ‘transfer on’ to its Chep account of that number of Chep pallets collected from Secon.” According to Redox, this representation “was made by Swan Hill to Redox in trade or commerce”. Redox said it relied on that representation.
25 A further alternative interpretation was that the execution of the Redox delivery receipts and Transfer Off forms by Swan Hill’s agent, viz Pickerings, “amounted to a positive representation by Swan Hill that Swan Hill accepted liability for Chep hiring charges …”
26 A further alternative formulation of Redox’s claim was that, during the negotiations between Swan Hill and Redox, Mr Jeans required the relevant goods to be palletised on CHEP pallets rather than on one way or plain pallets, which requirement Redox accepted and directed Secon accordingly, with the result that the calcium nitrate was palletised on CHEP pallets for collection and they were collected by Pickering as agent for Swan Hill, which signed the CHEP Transfer Off form specifying Swan Hill as the recipient. Therefore, “Swan Hill’s requirement for the Goods to be palletised on CHEP pallets created in Redox an assumption that Swan Hill would comply with the notoriously well-known requirements of the Chep pooled pallet system and duly accept a ‘transfer on’ …” Relying on that assumption, Redox issued delivery receipts to Secon instructing it to make the goods available on CHEP pallets but Swan Hill refused to accept a transfer of the 1,426 CHEP pallets. According to Redox, “It would be unconscionable for Swan Hill to now be permitted to resile from the assumption …” Swan Hill was therefore estopped from denying liability.
27 Yet a further formulation of the claim was that the execution of the Redox delivery receipts and Transfer Off forms by Pickerings as Swan Hill’s agent, “was a promissory representation by Swan Hill that Swan Hill accepted liability for CHEP hiring charges. …”, which representation was relied on by Redox when it directed Secon to release the palletised goods. Alternatively, it was said that these matters led Redox to assume, consistent with the notorious industry custom, that Swan Hill accepted liability for the CHEP hiring charges. According to Redox, “It would be unjust and unconscientious for Swan Hill to be permitted to now resile from that promissory representation or depart from that assumption.”
28 Redox said that, had it not accepted the transfer of the pallets from Secon, “Secon would have billed Redox for the hiring charges incurred by Secon … in any event.”
29 The statement of claim then proceeded to make allegations of detinue and conversion. It repeated the proposition that “at all material times prior to their release to Swan Hill, Redox had the right to immediate possession of the Goods and the Chep pallets” or alternatively, was in constructive possession of those items.
30 Next, it was said, wrongfully, Swan Hill has refused either to accept liability for the hiring charges on the 1,426 CHEP pallets or to return them and Swan Hill, it was said, had no intention of returning the CHEP pallets. Therefore, according to Redox, Swan Hill had “acted in a manner intended to permanently deprive Redox of the benefit of 1,426 CHEP pallets and [had] converted [them] to its own use and benefit.” To the extent that no demand for delivery might have been made, Redox by this proceeding made such demand.
31 As to Olam, noting that the shipments of calcium nitrate had been delivered to various properties owned and occupied by Olam, Redox referred to the signature by Pickering on the Redox delivery receipts relative to each shipment containing the words, “Receiver must acknowledge responsibility for pallets which are not exchanged.” According to the statement of claim, Pickering was acting as agent for Olam and as a result, “a contract was formed pursuant to which Olam became liable for Chep pallet hire charges … “. The consideration supporting this contract, insofar as it imposed obligations on Olam, was the release of the pallets by Secon, “enabling Olam to have the benefit and use of those Chep pallets for the purposes of its own business activities.” Redox said there was a promissory estoppel created by the execution of Redox delivery receipts by Pickering, as “Olam’s authorised agent”, which was relied upon by Redox. According to Redox, “It would be unjust and unconscientious for Olam to be permitted to now resile from that promissory representation or depart from that assumption.”
32 Redox said that when Pickering signed a Transfer Off form, it acted as Olam’s agent. Pickering, as Olam’s agent, misrepresented to Redox that Swan Hill was “the true Chep representative onto whose account the Chep pallets were to be transferred.” This representation was said to be made “in trade and commerce” and was relied upon by Secon, as Redox’s agent.
33 Redox said there was a contract between it and Olam implied “as a matter of notorious industry custom” in accordance with the same notorious industry custom alleged and “Accordingly, on each occasion Olam received a Chep pallet from [Pickering] there arose a contract between Redox and Olam pursuant to which Olam agreed to be liable for Chep hiring charges …”
34 Finally, Redox made a claim in detinue and conversion against Olam. It alleged that it was either entitled to immediate possession of the goods and the pallets or was in constructive possession of them but, “Despite demand, Olam has refused to accept liability for the hiring charges referrable to 1,426 CHEP pallets” and has refused to return those pallets. Olam, it was said, had no intention of returning them. Therefore, Olam had “acted in a manner intended to permanently deprive Redox of the benefit of 1,426 Chep pallets” and had converted them. To the extent that demand had not already been made, Redox made demand by this proceeding. According to Redox, Olam had either breached its contract with Redox engaged in misleading or deceptive conduct and trade or commerce or “purported to unconscionably resile from the assumption it caused Redox to make concerning Olam’s acceptance of liability …”
35 Redox claimed, presumably against all defendants:
“(1) damages;
(2) relief under s236 or s243 of the Australian Consumer Law;
(3) interest;
(4) costs; including Bullock or Sanderson orders for the unsuccessful defendant to pay all parties’ costs, or indemnify the plaintiff from any costs the plaintiff may be ordered to pay to the successful defendant;
(5) as against all defendants, consequential and ancillary orders requiring each defendant to do all things necessary to “Transfer Off” 1,426 Chep pallets from the plaintiff’s Chep account to the first or third defendant’s Chep account;
(6) such further or other relief as the Court thinks fit.”
36 The first and third defendants filed defences which did not distinctly deny the primary factual allegations but rejected the legal characterisation placed upon them by Redox. As to the CHEP system, Swan Hill said that the contractual terms were exhaustively set out in CHEP’s terms and conditions. It denied a further contractual obligation alleged by Redox. It said that, insofar as there was a claim under s18 of the Australian Consumer Law against Swan Hill, it was an apportionable claim under s87CD of the Australian Consumer Law and any judgment against Swan Hill would necessarily be restricted to “that portion of the damage or loss claimed that the Court considers just having regard to the extent that Swan Hill’s responsibility for the damage or loss.” Secon, it was said, was a concurrent wrongdoer, as was Olam likewise, said that any claim against it under the Australian Consumer Law was apportionable and should be apportioned so as to reduce its liability by reference to the liability of Swan Hill.
The merits of the dispute
37 The merits of this dispute are clear. If I were empowered to dispense “palm tree justice”, I would make orders requiring the third defendant, Olam, to bear the losses which the plaintiff, Redox, seeks to recover in this proceeding. It was, according to the evidence I heard, Olam, which “reaped where it had not sown”. In a statement given to a private investigator engaged by the first defendant, Swan Hill, Mr Leith said inter alia:
“12.I understand that Select Harvest had previously managed Olam farms, and that when this contract ended, Select Harvest went around to all the Olam farms and collected all Chep pallets, leaving Olam with a massive deficit of Chep pallets.
13.From my understanding, after Olam received the Chep pallets from the calcium nitrate delivery they (Olam) de-hired the 1,400 odd pallets onto their Chep account, thereby filling the deficit. This is what I heard third hand.” (D 105)
38 Cross-examined by Mr Bongiorno for Olam, Mr Leith conceded that his knowledge as to all of those matters was “third hand”. (T185, L26-39) According to Mr Leith, this was a “very strong industry rumour”. (Ibid L41) The effect of Mr Leith’s interpretation of events was that Olam had a “hole”, constituted by a deficiency in the number of CHEP pallets which were shown in the CHEP system as being under hire to it relative to the pallets which were under its physical control. The evidence showed that at no stage did Olam’s cheque account go to a “negative balance”. This led me to suggest to Olam’s counsel, Mr Bongiorno, “one could infer the existence of the hole without resorting to third-hand information simply by mathematical logic …”. (T629, L6-9) Mr Bongiorno correctly observed that the standard conditions used by CHEP Pallet entitled CHEP to “sweep” negative balances. Nevertheless, Mr Bongiorno had to concede that the evidence showed that at no material time did Olam’s account go into negative balance. (T630, L9-15)
39 The expression “negative balance” can be misleading. The effect of “de-hiring” pallets, which were not on hire to the de-hiring party in the first place, would be similar to making an excessive payment on a credit card statement exceeding the debit balance then existing. The result would be to create a credit balance which on credit card statements, as on CHEP Pallet statements leads to a figure with a dash or minus sign in front of it. Here, as a matter of mathematical logic, unless there was a pre-existing deficiency in Olam’s CHEP Pallet account, an excessive de-hiring — that is, de-hiring of pallets which were not already on hire to Olam — would lead to the creation of a negative balance. Since no such balance arose at any material time, the de-hiring of the pallets which have not been properly accounted for went to fill a hole or deficiency in Olam’s account. I inquired of Mr Wheatley, Olam’s general manager of almond production in Australia, who, as noted above, was called “on the blind” as a witness for Olam, as to Mr Leith’s interpretation of events. His reply was as follows:
“Your Honour, all I can say is what I see, once I was made aware of this, of the CHEP accounts themselves and my – I deduce from that that we were okay and I can’t comment on anything previous to my employment there. So, from what I saw on the accounts, the CHEP accounts for Olam were okay and didn’t ever go into a negative.” (T340, L15-19)
40 Mr Wheatley appears to have said that Olam should be regarded as “in the clear”, as long as it appeared that no negative balance ever arose in its CHEP Pallet account. For reasons already explained, this seems to me to be an interpretation 180 degrees out of true. At any rate, it is the position which Olam has maintained. Olam has taken the benefit of the unaccounted for pallets to solve a pre-existing problem in its account, which was in no way caused by any of the other participants in the present drama; not by Redox, not by Pickering, not by Swan Hill, not by Secon. The question I have to determine, however, is not where, as a matter of commercial morality, the merits lie, but whether the plaintiff has made out on the evidence any of the causes of action asserted by it against one, the other, or both of the defendants.
41 In the same vein, the resistance of Swan Hill to taking a transfer of the disputed pallets onto its account and thereby assuming liability for them, both at trial and previously, is thoroughly understandable. If Swan Hill had taken such a transfer onto its account, it would have had no unilateral means of terminating the hiring liability, lacking physical custody of the necessary number of pallets to do so. That said, this dispute cries out for some arrangement whereby the ongoing liability to CHEP for hiring charges may be capped or commuted. In his opening statement, Mr Bongiorno, on behalf of Olam, said that Redox had failed to mitigate its loss by resorting to an arrangement provided for in CHEP’s standard conditions, whereby a participant may terminate its liability with a capital payment where CHEP is satisfied that the relevant pallets have been lost. Mr Lucarelli, on behalf of Redox, complained first that such a defence had not been pleaded, which appears to be correct, and, secondly, that in any event it would be morally wrong for Redox to claim these pallets as “lost” where it well knew that they had been de-hired; that is, returned to CHEP. He said that would be “a species of commercial dishonesty”. (T49, L39-40) CHEP is party to this proceeding, though excused from attendance during the course of the trial. I cannot know what may have been done or not done on this score “without prejudice”, but nothing was said on the record to indicate any attempt had been made to persuade CHEP that, in the circumstances, these pallets should be regarded as “lost” for the purposes of commuting the further liability. Given that these pallets have no earmark and therefore no-one can know where they now are (T631, L44-45), in my view, it would be no offence to language to describe them as “lost”. I would be surprised — though my involvement in commercial litigation gives me many surprises day by day and week by week — if CHEP were to prove resistant on this point, but, as far as I have been told, their opinion on this question has not been sought.
The CHEP Pallet Term
42 I turn then to the various causes of action relied on by the plaintiff, considering them in the order in which they appear in the closing submissions on behalf of the plaintiff. According to Mr Lucarelli, the plaintiff’s primary claim against Swan Hill was based on what was described as the “CHEP Pallet Term”, which was said to be —
“… an express term of each contract with Swan Hill. Pursuant to that term Redox was contractually obliged to supply bulkers palletised on Chep pallets, and Swan Hill contractually obliged to accept a transfer onto Swan Hill’s Chep account of that number of Chep pallets released with the bulkers.”
This term, according to Mr Lucarelli, “became a term of each contract by the ‘traditional’ offer and acceptance”. He referred to the discussion which Mr Leith believes that he had with Mr Jeans on behalf of Swan Hill in May 2012, whereby, according to Mr Leith’s belief having regard to his usual practice and the economics of the large transaction in which the two were involved, Mr Leith inquired of Mr Jeans what pallet system Swan Hill desired on the footing that, if non-CHEP pallets were required, a charge of $10 per pallet, amounting to $18,000, would have been levied. Mr Jeans, it will be recalled, had no recollection as to whether this conversation took place or not. The factual question I have to determine at this point does not entail an allegation of fraud, criminal wrongdoing or any moral failing on the part of any participant. Therefore, the special considerations which might arise in those situations, by reason of s140 of the Evidence Act 2008 or the principles stated by Sir Owen Dixon in Briginshaw v Briginshaw (1938) 60 CLR 336 do not arise. The finding is to be made simply upon the balance of probabilities. Mr Leith’s evidence, lacking a distinct recollection, is a relatively weak affirmative basis for the finding urged by Mr Lucarelli. Nevertheless, in the absence of any distinct contrary evidence, it is a sufficient basis for me to conclude that it is more probable than not that Messrs Leith and Jeans did discuss the issue of pallets, and Mr Jeans, on behalf of Swan Hill, decided to have the shipment of calcium nitrate, which his company had ordered, delivered in 1.2 tonne bulkers mounted on CHEP pallets.
43 I did not understand either defendant to disagree with this interpretation as a matter of fact. There might be room for debate as to whether clause 2 of Redox’s standard conditions, to which reference will be made below, constituted an entire agreement clause so as to exclude the possibility of the introduction of additional express terms into the contract between Redox and Swan Hill. In the event, however, the dispute between the parties turned not upon the CHEP Pallet Term, but, rather, upon a further term which was said to flow from it, that the contract between the parties include what was described in clause 9G of the Statement of Claim as the “Transfer On Term”, which was said to be an implied term of each offer that Swan Hill would, with respect to each collection of Goods made available on CHEP pallets, accept a ‘transfer on’ to Swan Hill’s CHEP account of that number of CHEP pallets on which the collected goods were palletised. (T531, L4-20)
44 In his final written submission Mr Lucarelli misdescribed the CHEP Pallet Term. His description of it quoted at [42] above combined it with the Transfer On Term. Clause 9F of the Statement of Claim describes its effect as being
“that the Goods would be `palletised’ on Chep pallets that is, made available on `bulkers’ resting on Chep pallets.”
The reference to obligations on the receiver of goods to accept a `transfer on’ of pallet liability is to be found not in the Chep Pallet term but in the Transfer On Term.
45 Mr Whelen said, “The CHEP pallet term is not the transfer on term.” (T632, L34-35) On the same theme, Mr Bongiorno, for Olam, complained of an elision between the CHEP Pallet Term and the Transfer On Term. Mr Bongiorno said that, even assuming the CHEP Pallet Term was part of the contract, “How do they get [to] the next step?” (T633, L36) He noted a written submission by Mr Lucarelli at clause 18 of his written outline:
“Upon a finding the Chep Pallet Term was an express term of each contract, then on its proper construction the Chep Pallet Term required:
(a)Redox to make the bulk chemicals available for collection on Chep pallets; and
(b)Swan Hill to accept a transfer of the applicable number of Chep pallets onto Swan Hill’s Chep account.”
46 It is perhaps unclear exactly how Mr Lucarelli is putting this point. As previously noted, the “Transfer On Term” was, according to the Statement of Claim, said to be implied — see clause 9G – Particulars. Yet, in the outline of submissions, clause 18(b), it is said to derive from the “proper construction” of the CHEP Pallet Term.
47 Assuming that the plaintiff’s contention is that the “Transfer On Term” was, despite what was said in the Statement of Claim, to be treated as an express rather than an implied term, I reject such a contention. The alleged term is not to be found in any written document, nor is it to be found in the evidence of either Mr Leith or Mr Jeans, the two individuals who negotiated the relevant contract. The “Transfer On Term” forms part of the relevant contract or contracts only if it can be regarded as implied.
48 Mr Lucarelli submitted that the entire agreement provision in Redox’s standard terms did not preclude the implication of terms in accordance with the standard rules. He referred to Etna v Arif & Ors [1999] VSCA 99 at [46]; Hart v MacDonald (1910) 10 CLR 417, 42; Cheshire & Fifoot Law of Contract Australian Edition [10] 384. Defendants’ counsel did not disagree. Mr Lucarelli relied on the principles formulated by the majority of the Judicial Committee of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-3, and adopted by Sir Anthony Mason in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 346, as summarised and reformulated by the Court of Appeal in Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190, where Santamaria, Kyrou and McLeish JJA said:
“138A contractual term implied as a matter of fact is specific to the contract in question, and derives from the court’s view of the intention of the parties. The conditions for implying a term in fact into a contract were set out by the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings, and adopted by Mason J in Codelfa (‘BP Test’). Those conditions are as follows:
(rrr) the term must be reasonable and equitable;
(sss) the term must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(ttt) the term must be so obvious that ‘it goes without saying’;
(uuu) the term must be capable of clear expression; and
(vvv) the term must not contradict any express term of the contract.
139In adopting the BP Test, Mason J relevantly stated:
‘For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue. And then there is the difficulty of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question.’
140The conditions in the BP Test are cumulative and import different considerations.
141In relation to the condition that an implied term ‘must be reasonable and equitable’, we note that the High Court has refused to imply a term that would operate in a partisan fashion. The application of the condition will often require consideration of the matrix of facts in which a contract was agreed.
142The condition that an implied term ‘must be necessary to give business efficacy to the contract’ requires consideration of whether the term is necessary for the purposes of ‘giving to the transaction such efficacy as both parties must have intended that at all events it should have’, making the agreement work or avoiding an unworkable situation. Where the express terms of an agreement are sufficient to give it the business efficacy the parties intended it to have, it will not become necessary to imply additional terms. However, a term may be commercially necessary, in order for the contract to be workable in a business sense, notwithstanding that it can operate without the term. In Commonwealth Bank of Australia v Barker, French CJ, Bell and Keane JJ stated that the requirement that a term implied in fact be necessary ‘to give business efficacy’ to a contract can be regarded as a ‘specific application’ of the criterion of necessity which also supports the implication of a term in law. They also said that ‘[i]mplications which might be thought reasonable are not, on that account only, necessary.’
143The condition that an implied term ‘must be so obvious that “it goes without saying”’ requires consideration of whether, at the time that the parties were making their bargain, the suggestion of insertion of the implied term into the agreement by an ‘officious bystander’ would have been met ‘with a common, “Oh, of course”’ from the parties.
144In relation to the condition that an implied term ‘must be capable of clear expression’, it is worth noting the observation of Gibbs J in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth[83] that the ‘width and lack of precision’ of a term supplied an argument against implying it. Mason J in Codelfa refused to imply a term into a contract on the basis that, had the parties explored the term at the time that they entered into the contract, negotiation about the term ‘might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution’. It has been observed by this Court that it is elementary that a contractual party who is to be subjected to an additional obligation by reason of the implication of a term into a contract should be ‘left in no doubt of the extent of the obligation’ and, accordingly, a term that would leave a party in a ‘state of speculation’ as to the extent of its obligations would not be implied.” ([2015] VSCA 190, [138]-[144])
49 Mr Whelen, on behalf of the first defendant, Swan Hill, submitted that, in light of the entire contract clause in Redox’s standard conditions, the CHEP Pallet Term formed no part of the contract. Necessarily, there could be no implication of the Transfer On Term. Clause 2(a) of those terms provided:
“Subject to any Prescribed Terms, this document together with its relevant Sales Confirmation embodies the sole terms and conditions of the Contract between Redox and the Purchaser and supersedes all other conditions and agreements between the parties, unless amended in writing by Redox.” (CB 446)
50 According to Mr Lucarelli, the flaw or fallacy in that line of reason was that the order form contained a code which, according to Redox’s internal systems, mandated the delivery of product on CHEP pallets. Mr Lucarelli denied the contention by Mr Whelen that this code was contractually ineffective because, as far as his client was concerned, it was “gobbledegook”. (T544) He relied upon a decision of the High Court in R W Cameron and Company v L Slutzkin Pty Ltd (1923) 32 CLR 81. In that case, in a dispute as to sale of goods, Irvine CJ, in the Supreme Court of Victoria, had held in favour of the buyer, which had rejected the relevant goods, being a shipment of fabric described as “Matchless No 2475 goods white voile width 39/40 weight— approximately yards to piece 35/40 or 60/60”. The basis of his Honour’s decision in favour of the buyer was that a specimen exhibited by the sales representative was much superior than the fabric delivered and rejected.
51 In the High Court, Knox CJ, Isaacs and Rich JJ were unanimous in dismissing the appeal. The learned Chief Justice disposed of the first three grounds of appeal summarily, giving substantial consideration only to the fourth, “that evidence was wrongly admitted”. The evidence said to have been admitted in error was as to “the production to the respondent [buyer] on 14 July 1920 of the specimen (exhibit 1) and of the conversation between the representatives of the appellant and the respondent on that day”. The trial judge had found that the description of the goods quoted above was not a term of well-known significance in the soft goods trade in Melbourne, and therefore did not convey to the buyer any accurate description of the character of quality of the fabric. Knox CJ said:
“If the words used to describe the subject matter of a contract have no common trade meaning, and taken in their ordinary meaning are not significant or descriptive of any particular goods or quality of goods, the only way in which the subject of the contract can be ascertained is by inquiring whether the parties to the contract used them in a conventional sense, and, if so, what that sense was. In the present case, it having been found that the words in question had no common trade meaning, and it being apparent that apart from a trade or conventional meaning they are not significant of any particular goods or quality of goods, it became necessary, if any effect were to be given to the contract, to determine from the relevant acts and statements of the parties to the contract what meaning they attached to them. The only alternative is to treat the contract as void for uncertainty. The evidence admitted was evidence of surrounding circumstances contemporaneous with the making of the contract sued on. That such evidence is admissible when necessary to identify the subject matter of a contract is clear from many decisions … . And the rule extends to evidence to show the meaning attached by the parties to particular words, phrases or symbols appearing in the document …”. (1923) 32 CLR 81, 86-7
52 Isaacs J said that, since the phrase “Matchless 2475” was not well-known in the trade, left it —
“… necessary to prove what that term meant. It being, however, found as a fact that the appellant had been in the habit of putting particular grades on the Australian market under distinguishing numbers, it is said for the appellant that the expression ‘matchless 2475’ in the contract must be read as meaning the particular grade that in fact was so put on the market, and that no extrinsic evidence was admissible to alter that construction.” (1923) 32 CLR 81, 89
53 His Honour concluded that it was permissible to the buyer in the circumstances to prove and rely on the production of the specimen. This approach, said Mr Lucarelli, was consistent with the judgment of Sloss J in Bisognin & Anor v Hera Project Pty Ltd [2016] VSC 75 where, Mr Lucarelli said, her Honour undertook a masterly summary of the law as to the admissibility of extrinsic evidence [but see the reversal of her Honour’s judgment by the Court of Appeal [2016] VSCA 322].
54 As I understood Mr Lucarelli’s submissions on this point, he suggested that, in the same way that the evidence of the sample was held properly admitted in the Slutzkin case, evidence of the signification of the product code in the plaintiff Redox’s system should be admitted here so as to introduce an express CHEP pallet term into the contract, despite the “whole agreement” clause in the standard terms and conditions. Counsel for the defendants, as I understood them, denied that it was appropriate to introduce any extraneous evidence on the basis that there was no ambiguity in the relevant contract. This view of the contract being unambiguous is difficult to square with the view adopted by Mr Whelen for Swan Hill that the product code constituted “gobbledegook”. In my respectful opinion, Mr Lucarelli’s reliance on Slutzkin’s case and the more modern authorities upon the admissibility of extraneous material in aid of the construction of a written contract is misconceived.
55 The seminal statement on these matters in Australia is to be found in the judgment of Sir Anthony Mason in Codelfa. In the course of his celebrated formulation, he said:
“Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.” (1982) 149 CLR 337, 352 (emphasis added)
56 Here, there is no suggestion that the product code is either notorious in its meaning or that its meaning was known to Swan Hill. The evidence held properly admitted by the High Court in Slutzkin’s case was not evidence of a meaning known to the seller but not to the buyer, but rather, evidence as to what the seller gave the buyer to believe it was purchasing by the production of the sample. That was evidence of surrounding circumstances “known to both parties”, as Sir Anthony Mason put it. It follows, therefore, that the CHEP Pallet Term is not to be regarded as an express term of these contracts. If it is not an express term, then it is difficult to see how it could be proper to use it as the basis for taking a further step by implying the Transfer On Term, as alleged.
57 In a broad sense, the evidence was supportive of the contention that a receiver of goods palletised on CHEP pallets, who is itself a participant in the pool system, would be expected to execute a document generated by the CHEP system accepting a transfer of the relevant pallets and thereby assuming liability for their hire charges and relieving the despatching party of continuing liability. This issue is dealt with in some detail at paragraph 16 of Mr Considine’s affidavit. I did not understand any other witness to disagree in broad terms with this principle or call it into question. It is on this basis that Mr Lucarelli on behalf of Redox contended that the Transfer Off Term should be implied in accordance with the principles quoted above.
58 If I were wrong in the conclusion that the CHEP Pallet Term did not form part of the contract or contracts between Redox and Swan Hill and became either an express written or oral term, I nevertheless would conclude that the rules as to the implication of terms did not enable the Transfer Off to be implied in the present situation.
59 Mr Whelen submitted that there could be no breach of any obligation on the part of Swan Hill or any fault found with what Swan Hill did unless and until the problem with the pallet transfers was brought to its attention in January/February 2013, that is, after the time when action seemed to be available to reverse the impasse which the parties have now reached. The fact that the “missing” CHEP pallets did not appear on Swan Hill’s CHEP statement should not be regarded as necessarily having alerted Swan Hill to the occurrence of the problem before January 2013. He said, “if CHEP pallets had been used, it was entirely conceivable that Secon had effected transfers to Pickering or Olam, thereby bypassing SAC [Swan Hill] altogether”.
60 This submission was calculated to draw attention to the tripartite aspect of the present transactions. It may be accepted for the sake of this argument that it would be normal practice for a participant in the CHEP system, on receiving goods palletised on CHEP pallets, to take a transfer of the pallet liability where, for instance, the goods in question were delivered to that participant’s warehouse and a Transfer Off form or forms were tendered as a condition for the goods being discharged from the transport to be received into the warehouse.
61 The evidence as to normal practice did not, however, extend to the situation obtaining here where, as I understood counsel, it was not to be regarded as unusual, namely, where goods were sold to a head buyer who then on-sold them to a further buyer with the goods despatched direct from the original seller’s warehouse facility to the ultimate buyer’s warehouse facility.
62 As Mr Whelen’s submission suggests, in such a situation there would be much to be said for the CHEP transfer forms recording a transfer, not to the intermediate buyer (in the situation of Swan Hill in the present case) at all, but straight to the ultimate buyer, viz Olam. Regrettably, none of the participants in the logistics industry who gave evidence at trial said anything as to this variation upon the basic theme. I regret not asking them what effect, if any, that variation had on the basic principle, myself.
63 To consider the present set of facts, is it to be thought that it was incumbent upon Pickering, as Swan Hill’s carrier, upon signing a Transfer Off form directed to transferring the pallet liability to Swan Hill to have in hand, or generate during the road journey, Transfer Offs from Swan Hill to Olam, or would the normal practice be for the Transfer Offs to be directed to Olam itself? If so, how, at the point of collection from Altona North, would Swan Hill’s carrier, Pickering, have authority to sign Transfer Off forms on behalf of Olam? None of these matters were explored.
64 In the result, therefore, I do not believe that the implied term alleged here was, in the present tripartite transaction, so obvious as to go without saying. It follows, therefore, that I reject the contention that the Transfer Off Term formed part of the contract between Redox and Swan Hill, even if the CHEP Pallet Term did.
65 If I were wrong in my conclusion that the CHEP Pallet Term forms no part of any contract between Redox and Swan Hill, even assuming that it is to be regarded as part of the relevant contract between those parties, this would not form a proper basis for implying the Transfer On Term in accordance with the BP Westernport test for the implication of terms as summarised by the Court of Appeal in the Grocon Constructors case (see [46] above). It could not be said that this alleged term was “so obvious that it goes without saying”.
66 I have already commented upon the lack of evidence as to an established or notorious custom as to the “Transfer On” of CHEP pallets in tripartite circumstances such as the present. By way of further complication, Mr Whelen, on behalf of Swan Hill, drew attention to documentation which appears to indicate that CHEP transfers, by way of typescript shown as transferring pallets to Swan Hill, were in fact signed on behalf of the transferee or “receiver” by a respresentative of Olam. (T516-520, CB 281, 546)
67 Mr Whelen said that, according to Mr Considine of Secon, “once a transfer off form is signed, the driver takes two copies of it and Secon keeps a copy”. (T515, L6-15) Mr Considine’s evidence referred to by Mr Whelen is to be found at CB 86J to 86K, [44]-[53]. Once again, this is indicative of an unclarity, at least as far as the evidence goes, as to what should occur in the present tripartite situation. This serves to underline the fact that this is not a situation where the Transfer On Term is so obvious as to go without saying.
Term implied by custom
68 Mr Lucarelli submitted that the CHEP Pallet Term was incorporated into each relevant contract between Swan Hill and Redox “as a matter of notorious custom”. He said that the following matters required to be established as the basis for a finding that a term should be incorporated as a matter of notorious custom:
(a) The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact;
(b) There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term to the contract;
(c) A term will not be implied into a contract on the basis of custom where it is contrary to the express terms of the agreement; and
(d) A person may be bound by custom notwithstanding the fact that he had no knowledge of it.
69 Mr Lucarelli referred to Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226. The first point to note about this submission is that, as framed, it extends only to the CHEP Pallet Term, not the Transfer Off Term. This is, perhaps, an example of the phenomenon commented upon by both Mr Whelen and Mr Bongiorno of a tendency in the plaintiff’s submission to elide the two things.
70 At any rate, insofar as the Transfer Off Term is concerned, in light of the comments that I have made as to the evidence of custom and practice in the logistics industry and its failure to deal with the particular situation presenting itself here, I cannot agree that any such term has been established by notorious custom based upon the evidence which I have heard.
Promissory estoppel
71 Mr Lucarelli referred to and relied upon the well-known synthesis of the doctrine of equitable promissory estoppel by Brennan J (as he then was) in Walton’s Stores (Interstate) Limited v Maher (1988) 164 CLR 387 where his Honour said:
“In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed or expected that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.” (1988) 164 CLR 387, 428-9
72 According to Mr Lucarelli, the evidence established, as against Swan Hill, each element of the cause of action described by his Honour in this passage.
73 I attach as an appendix to these Reasons for Judgment a tabular summary extracted from Mr Lucarelli’s written pleas and submissions summarising his contentions in this regard.
74 On behalf of Swan Hill, Mr Whelen submitted that, since neither Mr Jeans on behalf of Swan Hill, nor Mr Leith on behalf of Redox, had any distinct memory of the representation said to give rise to the estoppel, no such estoppel had been made out.
75 Likewise, said Mr Whelen, there was no written evidence of the alleged representation. He conceded that Exhibit D, styled “Purchase Order Store Report 1870195X” mentioned “CHEP timber pallet” as the relevant pallet type. Mr Whelen commented, however, “it was not sent by or to [Swan Hill]. It was admitted into evidence subject to [Swan Hill’s] right to object”. As I understood the evidence (T200-201), this was a document produced from its records by Secon. Mr Lucarelli’s tabular summary describes this as an instruction from “Redox to Secon to palletise the bulkers on CHEP pallets when de-stuffing the container”.
76 It is difficult to see that a document generated by Redox and provided only to its warehousing agent, Secon, can be regarded as other than self-serving. In itself, it does not indicate any agreement or assumption between Redox and Swan Hill as to the palletisation of the calcium nitrate.
77 Nevertheless, based upon the evidence summarised above, I accept that it is established that there was a mutual intention between Redox and Swan Hill that the calcium nitrate should be palletised on CHEP pallets.
78 Where, in my view, however, the syllogism formulated by Mr Lucarelli breaks down, is the contention that Swan Hill “caused Redox to assume it would comply with the CHEP pool pallet rules and accept liability for the CHEP pallets released to it …”.
79 In the uncertain state of the evidence in the tripartite situation, I cannot make any clear and unambiguous finding to that effect. In Crown Melbourne Limited v Cosmopolitan Hotel (2016) 333 ALR 384, the High Court of Australia considered allegations based upon a number of matters including an alleged collateral contract and equitable or promissory estoppel which was said to derogate from and modify the normal effect of the terms of leasing arrangements between the parties. The Court, by majority, determined the matter against the tenant relying upon the alleged promissory estoppel and collateral contract.
80 In a joint judgment, French CJ, Kiefel and Bell JJ said:
“It has long been recognised that for a representation to found an estoppel it must be clear. In Low v Bouverie, it was said that the language used must be precise and unambiguous. This does not mean that the words used may not be open to different constructions, but rather that they must be able to be understood in a particular sense by the person to whom the words are addressed. The sense in which they may be understood provides the basis for the assumption or expectation upon which the person to whom they are addressed acts. The words must be capable of misleading a reasonable person in the way that the person relying on the estoppel claims he or she has been misled. The statement that the tenants would be ‘looked after at renewal time’ is not capable of conveying to a reasonable person that the tenants would be offered a further lease.” (2016) 333 ALR 384, 395 [35]
81 In my view, the necessary precision and lack of ambiguity required to form the basis of the alleged equitable estoppel does not exist where, as I have found, the evidence fails to establish a notorious custom as to what should occur relative to CHEP pallets in a tripartite situation such as the present. There is no notorious and clear custom, nor was there any express agreement as to what would occur.
82 In those circumstances, the plaintiff’s claim based upon equitable estoppel must fail.
Misleading or deceptive conduct
83 Swan Hill’s counsel, Mr Whelen, said in closing submissions that, whilst a claim for misleading or deceptive conduct contrary to the Australian Consumer Law was made against his client in the Statement of Claim, such claim had not been “opened” by Mr Lucarelli. He said that I raised the omission from the opening statement of this cause of action and “Redox did not demur”. (T124, L27-38)
84 Mr Lucarelli, however, did make submissions as to this cause of action in his closing address. He said that by signing the delivery receipts and the CHEP Transfer Off forms by its authorised agent, Pickering, Swan Hill represented:
“conformably with the well-known requirements of the CHEP pool pallet system, [that] would accept a transfer of the specified number of CHEP pallets onto Swan Hill’s CHEP account. The words of the Delivery Receipts are clear: ‘receiver must acknowledge responsibility for pallets which are exchanged’.”
85 He said that by virtue of s84(2)(a) of the Commonwealth Competition & Consumer Act 2010, “the representations of Pickering are deemed to be conduct of Swan Hill, as Pickering was Swan Hill’s agent”. He said it was “sufficient to constitute Pickering an agent for the purposes of this provision that it be ‘clothed with actual or apparent authority’ of its principles”. He referred to ACCC v Maritime Union of Australia [2001] FCA 1549 at [83] per Hill J. He said:
“By ‘clothing’ Pickering Order Confirmation, Swan Hill conferred on Pickering all actual and incidental authority necessary to collect the palletised bulk goods from Secon, including authority to represent that Swan Hill was the CHEP participant onto whose CHEP account the CHEP pallets were to be transferred (indeed, Pickering itself knew this was so, as its tax invoices also identify Swan Hill as the party then liable for the CHEP pallets).” [Emphasis in the original]
86 Mr Lucarelli said that the representation was untrue in that Swan Hill “has repeatedly refused to accept liability for CHEP pallets released to Pickering”. Therefore, his client, Redox, had suffered damage by reason of “those misrepresentations” and sought an award of damages accordingly.
87 Mr Whelen then observed that, neither in the Statement of Claim nor in Mr Lucarelli’s written closing submissions was a distinction drawn between representations as to present matters and as to future events. The representation alleged, by its nature, pertained to future events and not present ones. A representation as to future matters was held not to be within the primary cause of action for misleading or deceptive conduct initially established by s52 of the Trade Practices Act 1974. (Bill Acceptance Corporation Pty Ltd v GWA Ltd (1983) 50 ALR 242, 250 per Lockhart J)
88 Misleading or deceptive conduct as to future matters was catered for in the amendment to the Trade Practices Act in 1986, inserting s51A. What was s51A of the 1974 Act appears in modified form in s4 of the Australian Consumer Law. It appeared, by virtue of s51A, that a representation as to future matters could be found to be misleading or deceptive if future events did not develop as represented and there were no reasonable grounds for making the representation initially. If things did not work out simply because of a change of circumstance, for instance, no misleading or deceptive conduct was established. (Lyndel Nominees Pty Ltd v Mobil Oil Australia Ltd (1997) 37 IPR 599)
89 This analysis no longer holds good under the Australian Consumer Law because the revised version of what had been s51A now includes, as sub-s(4) of s4 of the Australian Consumer Law, the following:
“Subsection (1) does not limit by implication the meaning of a reference in this Schedule to:
(a) a misleading representation; or
(b) a representation that is misleading in a material particular; or
(c) conduct that is misleading or is likely or liable to mislead;
and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.”
90 The effect of this sub-section was considered by Mr Graham S Clarke QC in an article, “Misleading or Deceptive Conduct Cases in the Supreme Court of Victoria” (2015) 89 ALJ 397, 404. None of the complications just described was adverted to in Mr Lucarelli’s submission or in the Statement of Claim.
91 Mr Whelen noted it could not be contended that the plaintiff’s case was that Swan Hill never intended to make good on the alleged representation. Such was not distinctly pleaded and no such allegation was put in cross-examination to the relevant witness, Mr Jeans. (T506, L28-37)
92 Mr Whelen complained that had his witness, Mr Jeans, been cross-examined along these lines, he would have had the opportunity to lead evidence in re-examination as to what Mr Jeans would have done had he received a proper Transfer Off of the CHEP pallets “from the very first thing”. (T507, L15-25).
93 Mr Whelen said there were a number of other options that could have been adopted, apart from the simple acceptance of a Transfer Off by Swan Hill. (T507, L42-44).
94 Mr Whelen said:
“The use of a defunct CHEP account number meant [Swan Hill] had no knowledge that Secon/Redox had done what they had done, hence no contemporaneous opportunity to right the ship by:
(a) insisting that Secon/Redox issue ‘transfer offs’ to Olam; or
(b) accepting contemporaneous ‘transfer offs’ from Secon and then taking the usual steps to manage that liability to CHEP by:
(i)issuing their own contemporaneous back-to-back ‘transfer offs’ to Olam with an effective date of the date of delivery to Olam. If accepted by Olam, that would have resulted in Secon paying hire charges to CHEP for the period until Pickering collected the pallets at Secon, [Swan Hill] paying hire charges to CHEP for the (very short) period of time whilst each pallet was in Pickering’s possession (usually only a day or two), and Olam paying hire charges to CHEP from the date of delivery to Olam onwards;
(ii)or, (if Olam rejected the ‘transfer offs’ because, for example, they pointed to ‘Condition 10’) insisting on contemporaneous exchanges or collections or other ‘self-help’ vis a vis Olam. This would have resulted in Secon paying hire charges to CHEP for the period until Pickering collected the pallets at Secon, [Swan Hill] paying hire charges for the period until they were able to dehire the exchanged/collected pallets (usually slightly longer than one day, e.g. the time when Pickering made its next delivery to Olam, at which time Pickering could have collected from Olam the pallets delivered during the previous delivery), and Olam paying no hire charges to CHEP.”
95 In any event, said Mr Whelen, there is no causal link between the alleged misleading or deceptive conduct and the loss and damage claimed by Redox. It accepted a transfer of the liability from Secon “voluntarily”. Therefore, its loss was the result of its own commercial decision to relieve Secon of that liability. He said this decision was made by Redox at a time where it knew that the transaction had misfired insofar as the pallets were concerned and it was “not in fact about to receive 1,462 CHEP pallets from Secon, and known that neither [Swan Hill] nor Olam were prepared to take a ‘back to back transfer from Redox’.”
96 Independently of the various matters urged by Mr Whelen, it is sufficient to dispose of a claim based on misleading or deceptive conduct to note that an essential and indispensable element of the cause of action is that, in the circumstances, what Swan Hill did could be said to convey an indication of a willingness and a continuing willingness (in circumstances very different from those immediately following delivery of the calcium nitrate shipments to Olam) to take a Transfer Off of the CHEP pallets.
97 Reaching this conclusion depends upon an evidentiary finding that such obligations on a participant in the CHEP system were clearly imposed by notorious custom in the logistics industry. Whatever might be said as to the situation where there are but two parties to a freight shipment arrangement in which the buyer of the goods receives such goods into its own warehouse, the asserted notorious obligations do not, on the evidence I heard, necessarily exist in the tripartite situation which exists here, with no delivery of goods or pallets having been made to Swan Hill save for the constructive delivery entailed in the receipt of the calcium nitrate by its carrier, Pickering, until physical delivery to Olam’s premises.
98 The claim for relief for misleading and deceptive conduct therefore fails.
Detinue or conversion
99 Whilst the Statement of Claim made claims against Swan Hill, both for detinue and conversion, all of the submissions appeared to be directed to the tort of conversion. The premises upon which these claims were made were as follows. First, it was said that initially until “their release to Swan Hill”, Redox owned the bulk chemicals and had a right to immediate possession of the bulkers being held by Secon. Next, it was said that Secon had possession of the bulkers “as bailee at will for Redox”.
100 Mr Lucarelli asked rhetorically, “did Redox’s right to immediate possession of the bulkers extend to the right to immediate possession of the CHEP pallets on which the bulkers rested?” He said the answer to this question was “yes” for two reasons. The first was that both Secon and Redox, as participants in the CHEP system, were at liberty to transfer the CHEP pallets to Redox. He said the terms governing Secon’s possession of the CHEP pallets expressly permitted such a transfer. Secondly, he said that if Redox had called for the delivery of the bulkers they would have been delivered up on the relevant pallets. He referred to T213, L30-45 and the evidence of Mr Considine of Secon. That evidence, he submitted, was “inherently plausible”. There was no reason to think that, in the face of any such demand, Secon would have “unpalletised” the bulkers.
101 He said that since the bailment to Secon was “at will”, Redox retained the right to immediate possession, whether that right was exercised or not. He referred to BIS Cleanaway (trading as Chep) v Tatale [2007] NSWSC 378 [42]-[43]. It did not matter that the general property in the pallets lay with CHEP. It was sufficient for a proceeding in conversion that there be an immediate right to possession. He referred to the BIS case at [44].
102 According to Mr Lucarelli, if Swan Hill never agreed to receive the bulk goods on CHEP pallets (which he said was contrary to the evidence), then Swan Hill had no contractual or other right to receive CHEP pallets from Secon and was liable in conversion or detinue at the suit of Redox, “as Redox had a right to immediate possession of those CHEP pallets”.
103 There was no requirement for an express demand to be made for the return of the pallets “if the evidence shows such a demand would have been futile”. He referred to CHEP Australia Ltd v Bunnings Group Ltd [2010] NSWSC 301. He said the emails passing between the parties showed that any demand for return of the pallets by Swan Hill or Olam would have been futile. In any event, he said that the Statement of Claim constituted a demand. He referred to paragraph 60G of the Further Amended Statement of Claim.
104 According to Mr Lucarelli, damages for conversion are not limited to simply the value of the goods. The fundamental question was, “what loss had the plaintiff suffered?” He referred to Bunnings Group Ltd v CHEP Australia Ltd [2011] NSWCA 342 at [175]. He said the plaintiff’s loss, here, was the hiring charge. The plaintiff, he said, sought to derive no profit or gain, but sought “no more than to recoup what it has paid to CHEP. Redox seeks to be ‘made whole’; no more, no less.”
105 According to Mr Lucarelli, it was not to the point that these CHEP pallets are to be regarded as “fungible”. He referred to Pangallo Estate Pty Ltd v Killara 10 Pty Ltd [2007] NSWSC 1528, where he said Brereton J “held that grapes delivered by a farmer to a wine maker, which were mixed with the grapes of another farmer and made into wine, were in fact held on bailment by the wine maker as bailee for the farmers”. He said that Brereton J found that the contract was for winemaking services and the grapes, including the resulting wine, were held by the wine maker “on bailment for the farmers, and accordingly, title to the grapes (and wine therefrom) remained at all times with the farmers”.
106 Mr Lucarelli noted that “the wine produced from the plaintiff’s grapes could be identified, as they were in specific fermentation tanks. The plaintiffs could therefore, `trace’ the wine in those particular tanks `as a matter of heredity’ back to the grapes delivered by the plaintiff farmers”. He said the right to possession of the grapes “was not `lost’ by reason of the grapes (or wine therefrom) being impossible to identify”.
107 According to Mr Lucarelli:
“Immediately prior to Olam de-hiring the Chep pallets … those Chep pallets were readily identifiable as those over which Redox had immediate right to possession [of], because on each such pallet sat a 1.2 t bulker of Redox sourced calcium nitrate.”
Therefore, these pallets were not fungible “in the sense of being indistinguishable from any other CHEP pallet: they were clearly identifiable because they had Redox’s bulkers on them”. As to fungibles being transferred by appropriation into specific goods, he referred to Jansz v GMB Imports Pty Ltd [1979] VR 581.
108 As to the New South Wales District Court in Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2008] NSWDC 235, Mr Lucarelli said this decision was distinguishable because there was an express agreement in that case between the parties that “neither property in the pallets nor a right to immediate possession accrued to Santos” and this explained the failure of the plaintiff’s claim in conversion.
109 According to Mr Lucarelli, the only significance of the “fungible” nature of the goods was that, if the goods were fungible, the plaintiff could not demonstrate any right to possession to any particular individual item of the homogeneous mass. Here, he said, the goods had been ascertained and appropriated so as to become specific goods and not merely fungible items. He said, “Pangallo Estate is an example: the grapes which are entirely ‘fungible’ … could be traced to the wine in particular tanks”, with the result that the plaintiffs were able to prove where their grapes “ended up”. Mr Lucarelli said that Tatale’s case is one where the fungibility argument was clearly raised at [87], but rejected at [90]. He said, “The `fungible’ nature of Chep pallets did not destroy Chep’s immediate right to possession to those Chep pallets in the defendant’s possession.”
110 Rhetorically, Mr Lucarelli asked:
“…has the defendant dealt with the goods in such a manner as amounts to conversion? In other words, has the defendant dealt with the goods in a manner inconsistent with or repugnant to the plaintiff’s right to immediate possession, or exercised dominion over the goods such as to infringe that possessory right?”
He referred to Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204.
111 Accordingly, he said, Redox had a right to possession of the particular CHEP pallets on which the calcium nitrate was palletised. This was analogous to the ascertainment of specific goods by their appropriation in a sale of goods arrangement. He referred to Badische Anilin und Soda Fabrik v Hickson [1906] AC 419, 421, and Jansz’s case. He referred to s21 of the Goods Act 1958.
112 Mr Lucarelli said:
“On the current hypothesis, there was no contractual arrangement between Redox and Swan Hill pursuant to which Swan Hill was obliged to accept the bulkers on Chep pallets. Swan Hill could have rejected the palletised goods, but instead it chose to accept goods palletised on Chep pallets. Swan Hill, having no contractual entitlement to possession of the Chep pallets, became a bailee at will of those Chep pallets for Redox, as Redox had the right to immediate possession of those specific Chep pallets. If Swan Hill had ‘swapped’ them with an equivalent number of Chep pallets at the time of collection, then Swan Hill would not have committed any act of conversion.”
He referred to Bunnings’ case in the New South Wales Court of Appeal at [151]. According to Mr Lucarelli, by delivering the pallets to Olam for the purposes of Swan Hill’s business, it thereby exercised dominion over the pallets and destroyed Redox’s right to immediate possession and thus committed an act of conversion. He referred to Bunnings’ case in the New South Wales Court of Appeal at [161]. The act of conversion by Swan Hill was to treat the pallets as its own by using them, without swapping an equivalent number to transport goods for its own business purposes — “That was an act of dominion which destroyed Redox’s right to immediate possession and amounted to a conversion.”
113 On behalf of Swan Hill, Mr Whelen generally adopted the submissions made in opposition to any conversion claim by Mr Bongiorno of counsel on behalf of the third defendant.
114 Mr Bongiorno contended that Olam’s mere possession of the CHEP pallets “was insufficient to constitute conversion”. He said Redox had never made any demand for their return while they remained in Olam’s possession. He referred to Bunnings’ case (2011) 82 NSWLR 420 [117]. There was no approach to Olam until 22 February 2013. By that time, Olam had already de‑hired 1,563 pallets by return to CHEP in January 2013. The last delivery was made on 30 January 2013. (Exhibit G, CB 169) In fact, he said the only demand was a transfer of the CHEP liability for hire of those pallets. He referred to Exhibit 2, DCB 90. Mr Bongiorno continued, “Confronted with this difficulty Redox makes a demand for the pallets by its pleading … filed many years after the relevant events.”
115 In any event, according to Mr Bongiorno, there was no bailment. He said, unlike the situation in Pangallo Estate, “there was `no clear physical heredity’ between something delivered by Redox and “something which Secon was obliged to return”. He referred to the Pangallo Estate case at [16] and Palmer on Bailment (3rd Ed, 2009) [1-009]. According to Mr Bongiorno, Redox neither had any property in the relevant pallets, nor delivered them to Secon. He noted the evidence established that the relevant pallets came from CHEP’s depot in North Laverton. He referred to T212, L25-30. He said Secon also received pallets from parties that delivered goods to it. He referred to T212, L35-45. He noted the findings by other courts that the CHEP pallets were fungible. He referred to Bunnings’ case [2011] 82 NSWLR 42 [8], Tatale’s case [2007] NSWSC 378 [87], and Santos Coffee’s case [2008] NSWDC 235 [14]. The pallets in question could easily have been put to use for Secon’s other customers, he said.
116 Mr Bongiorno contended that no bailment derived from Secon’s placing the calcium nitrate on the relevant CHEP pallets. Redox’s entitlement to delivery of the goods or the pallets was, he submitted, entirely hypothetical - a hypothetical which never occurred. Redox never gave a direction to Secon to deliver the calcium nitrate and the pallets to it. Rather, it directed that they be delivered to Swan Hill — “a direction being entirely inconsistent with Redox ever possessing the pallets at some future point.” If Redox had directed that the calcium nitrate be delivered to it, its receipt would have been subject to its executing a Transfer Off for the pallets. He referred to T213, L30-46. The pallets were not connected to the bulkers other than by gravity. He said:
“if Secon decided to remove one particular CHEP pallet and replace it for another under one of Redox’s bulkers (eg because it was damaged), Redox would have had no right to complain.”
Therefore, according to Mr Bongiorno, Redox had no right to the return of any pallets from Secon, let alone a right to their specific return.
117 Mr Bongiorno said that the concept of bailment required that there be an entitlement of the bailor to the return of the putatively bailed goods in specie. He referred to Chapman Bros v Verco Bros & Co Ltd (1933) 49 CLR 306, 314 per Rich J, 316 per Starke J, and 319-320 per Dixon J, as he then was. He said bailment may extend to fungible chattels — “It must be clear that the otherwise fungible items are to be returned in specie and not merely in an equivalent form.” He referred to Santos Coffee Company [2008] NSWDC 235 at [14], and Palmer, op cit [1-008]. Insofar as Redox relied upon the right to immediate possession said to have accrued to CHEP in Tatale’s case, this was distinguishable because “CHEP, being the owner of the pallets in its system, is in a qualitatively different position to a system participant.” He submitted, therefore, that the reliance on this authority by Redox was “misconceived”. According to Mr Bongiorno’s researches, “the only case concerning an alleged bailment between two participants in the CHEP system is decidedly against Redox”; that is, the Santos Coffee case. He conceded that this case was not a binding authority for this Court, but submitted that the Court “should consider it persuasive and follow it accordingly”.
Conversion claim against Swan Hill – conclusion
118 According to the online Oxford English Dictionary, the adjective `fungible’ means “(of goods contracted for without an individual specimen being specified) replaceable by another identical item; mutually interchangeable.” The parties are agreed that, in accordance with the CHEP scheme which is constituted by individual agreements between CHEP and each participant, the CHEP pallets are fungible in the defined sense; that is, a liability for, say, 100 CHEP pallets is capable of being satisfied by any 100 CHEP pallets rather than by the delivery of some particular set of 100 such pallets.
119 Again, the parties are agreed that the title which a plaintiff in conversion must show as a basis for his, her or its claim is an entitlement to immediate possession of the allegedly converted chattel. Therefore, according to the defendants, since no participant under the CHEP system has an entitlement to any particular pallet, there can be no conversion claim with respect to any particular pallet by any participant.
120 Here, the entitlement to immediate possession asserted by Redox is said to derive from a bailment. In Chapman Bros v Verco Bros & Co Ltd (1933) 49 CLR 306, the High Court considered a proceeding in which Verco Bros, which had gone into voluntary liquidation, sought declarations that wheat delivered to it by various farmers prior to the commencement of the liquidation became its property, with the farmers retaining no right to, or property in, the wheat which had been delivered to Verco in bags. The farmers’ counterclaim sought declarations to the opposite effect and an injunction restraining Verco and its liquidator from dealing with the wheat. The High Court by majority, Rich, Starke, Dixon and McTiernan JJ, with Evatt J dissenting, determined the matter in favour of the company in liquidation and against the farmers. Having considered the terms of the contract between the farmers and the company, which carried on business as a merchant or miller, Rich J said:
“The important thing to my mind is that the contract contemplates immediate delivery of the commodity, the loss of its identity and the payment for the commodity in money or in kind. The commodity is one in which identity is commercially unimportant, and when large quantities of wheat are concentrated, difficult and expensive to preserve. … Why then should a transaction involving the immediate delivery of the thing, contemplating the immediate destruction of its identity and, in exchange for the wheat, reserving to the supplier only a personal obligation of the recipient to render money or kind, be considered a bailment only? The arrangement is inconsistent with the very idea of bailment according to English law, which involves the redelivery of a specific thing in its original or some altered form to the bailor or to some other person in accordance with the terms of the bailment.” (1933) 49 CLR 306, 314
Starke J said that the effect of the arrangements between the parties depended upon their intention “gathered from the terms of the storage warrant”. (1933) 49 CLR 306, 315 He continued:
“If the identical subject matter is to be restored, either as it stood or in altered form, the case is one of bailment. If, on the other hand, the identical subject matter, either as it stood or in altered form, is not to be returned, but a different thing of equal quantity and quality may be given as an equivalent, then a bailment is not created.” (1933) 49 CLR 306, 316
The issue was, in his Honour’s view, whether the company “was under no obligation to return the identical wheat as it stood or in altered form, but only some other wheat equivalent in quantity and quality”. (Ibid) Dixon J (as he then was) said:
“Now, upon the difference between specific and unascertained goods or money, the distinction turns between bailment and debt or bare contractual obligation. In the present case, in exchange for a bare contractual obligation the company took complete possession and control of the wheat. No obligation to redeliver to the owner or anyone else was incurred and none was expressly undertaken to deal with it otherwise than as owner. It seems inevitable in all these circumstances that the property in the wheat was transferred to the company on delivery.” (1933) 49 CLR 306, 319-320
121 Inferentially, according to Sir Owen Dixon’s analysis, there was therefore no bailment. Palmer on Bailment, 3rd Edition [1-008] states:
“The doctrines of bailment may apply to money or to any other commodity in which property would normally pass upon delivery, provided it is made clear from the terms of the bailment itself that the goods are to be returned in specie and not merely in an equivalent form.”
At p7, the learned editor refers to the High Court’s decision in Chapman’s case in a footnote to this paragraph.
122 Mr Lucarelli’s submission was that, in accordance with the principles stated by Palmer in the events that occurred, it was “made clear” that the obligation resting on Swan Hill was to return the relevant pallets “in specie”, rather than merely with a “fungible” equivalent.
123 One may readily accept that a bailment could be created affecting CHEP pallets. So, for instance, if it appeared that there were a set of five pallets which had been admitted into evidence in a proceeding and were awaiting return to the relevant party at the expiration of the appeal period, leaving to one side the propriety of the arrangement as between the Court and the parties in the previous proceeding, I could release those pallets into the custody of a solicitor in a subsequent proceeding, upon the strict understanding that they were to be used solely to assist in the removal of documents and exhibits to his office and returned forthwith undamaged to the Court. Is there any resemblance between this arrangement and the arrangement which was implicitly entered into between Redox and Swan Hill when, apparently with the consent of Swan Hill, the relevant calcium nitrate was released to Swan Hill’s carrier for transport to Olam’s properties? According to Mr Considine’s evidence, the pallets which were pressed into service were derived from piles kept at Secon’s premises without any significance or knowledge as to whether they had been obtained on hire direct from CHEP or were simply left over from deliveries made to Secon by other CHEP participants. There was nothing in the arrangement which would have precluded Swan Hill, or for that matter Olam, from exonerating itself from any CHEP pallet liability to Redox by simply exchanging an equivalent number of fungible CHEP pallets which might appear to be on hand. This means that there was no obligation on Swan Hill to redeliver or account for these pallets in specie any more than the milling company in the Chapman Bros case was under such an obligation.
124 In Pangallo Estate’s case, grape growers delivered grapes to a winery for the purposes of wine production. The wine maker was evicted from the premises where she carried on her business and the wine crushed from the grapes came into the possession of the landlord. The question for the Court was whether the grape growers retained property in the wine so produced. Brereton J found at [9] of his judgment:
“The grapes delivered by [the grape growers] were crushed separately and stored into separate tanks according to their variety in the course of the winemaking process.”
This meant that it was possible for the wine to be redelivered, if not in the form of the original grape harvest, yet in altered form, which is in accordance with the principles stated above and consistent with there being a bailment between the grape growers and the wine maker. This was the conclusion which his Honour reached. There is nothing in this authority which bears directly on the present dispute. Whilst grapes of the same grade and type may be regarded as fungible, the arrangements between the wine maker and the growers established an obligation on the part of the wine maker to redeliver the grapes in specie or in altered form.
125 In Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420, the New South Wales Court of Appeal considered the outcome of a proceeding brought by CHEP against Bunnings for conversion. The trial judge found, and the Court of Appeal agreed, that Bunnings had made use of CHEP pallets which it received when palletised goods were delivered to its stores for its own purposes. It was not sufficient to make Bunnings liable for conversion that it remained in possession of the pallets, but when it employed them for its own purpose, the tort of conversion was established. Mr Lucarelli relied on this authority for the proposition that, even in the fungible CHEP system, a claim for conversion can be successfully made. In my view, however, Mr Bongiorno’s submission, that CHEP, as the owner of all the CHEP pallets, is in a qualitatively different position than any participant in the scheme might be, is correct. CHEP is the owner of each CHEP pallet and as such is entitled, subject to any lawful hiring arrangement which it may have with a participant, to the immediate possession of any CHEP pallet. Since all CHEP pallets are owned by CHEP, as far as CHEP is concerned, the entire universe of CHEP pallets constitutes a group of specific and ascertained goods, which can be the subject of a conversion claim. No participant has such an entitlement. As to whether Redox has a sufficient title to bring the claim for conversion for the pallet, the decision in Bunnings’ case provides no support to the plaintiff’s claim.
126 Santos Coffee Company Pty Ltd v Direct Freight Express Pty Ltd [2008] NSWDC 235 is factually the closest previous decision to the present case, being a decision of Judge Murrell of the New South Wales District Court (as she then was). In that case, Santos engaged Direct to deliver its product to Santos customers on CHEP pallets which had been hired by Santos. According to her Honour:
“It was agreed between Santos and Direct [the carrier engaged by Santos and the defendant in the proceeding] that there would be a weekly pallet reconciliation, whereby the full pallets that had been taken one week would be replaced by an equal number of empty pallets in the following week.” [1]
127 In fact, proper reconciliations were not made, with the result that “By February 2007, Santos was paying CHEP for 1,067 ‘missing’ empty pallets.” [3] Santos sought to recover outstanding hire charges on these “missing” pallets from Direct. One of the questions which her Honour had to determine was “Was there bailment? Was there conversion or detinue of the pallets?” [6] Her Honour referred to the same line of authorities as to the requirement if there were to be a bailment for the bailee to be required to redeliver the relevant goods either in specie or in some altered form. [14] Her Honour noted that “the contract between Santos and Direct reserved for Santos neither property in the pallets nor a right to immediate possession.” Santos’s entitlement was only to a return of an equivalent number of pallets. [17]
128 In those circumstances, her Honour concluded that there was no bailment of pallets by Santos to Direct. He concluded that, even if he were wrong on that point, merely to “lose” pallets in the system, as Direct had, would not constitute conversion. [19]-[21] As a result, her Honour dismissed the claim by Santos for detinue or conversion.
129 In BIS Cleanaway (trading as Chep) & Anor v Tatale & Ors [2007] NSWSC 378, McDougall J of the Supreme Court of New South Wales considered a claim for detinue and conversion by CHEP. The defendants were not participants in the CHEP system, but incidentally received CHEP pallets with the delivery of goods to their businesses. They had refrained from becoming participants in the CHEP system because then “they would be liable for hire charges whilst the pallets were in their possession”. [14] According to his Honour’s finding, “The defendants retained pallets for a period ranging, on average, from 14 to 30 days.” (Ibid) The case was complicated by the fact that there had been a corporate reorganisation in the Brambles Group, the proprietors of the CHEP business, leading to a novation of relevant contracts. Having considered those matters, his Honour concluded:
“… the plaintiffs or some of them at all relevant times have had the right to immediate possession of any CHEP pallets in the possession of the defendants … it is plain that the defendants have unlawfully detained, and have converted, those pallets. This follows necessarily from the premise, and from the numerous demands made by the plaintiffs on the defendants for delivery up of the pallets.” [91]
130 In the Santos case, Judge Murrell said that this case stood in contrast to the dispute before her because:
“… under the terms of hire, CHEP retained property in the pallets and the right to immediate possession. Both against a hirer who wrongfully disposed of the pallets and against a third party to whom the pallets were wrongfully delivered, CHEP could claim title to and the right to immediate possession of the pallets.” [2008] NSWDC 235 [16]
131 These authorities support the argument put by Mr Bongiorno, and adopted by Mr Whelen on behalf of Swan Hill, that in the circumstances of the present dispute, there was no bailment by Redox as bailor to Swan Hill as bailee because there was no arrangement between them whereby there was an obligation on Swan Hill to return the same pallets to Redox. Tatale’s case and Bunnings’ case stand in contrast to this, because in both cases the plaintiff was the operator of the CHEP system and could rely in support of its title to bring a conversion claim upon its holding the general property in the relevant CHEP pallets, and indeed all CHEP pallets. The alleged distinction relied upon by Mr Lucarelli as rendering Santos’s case different from the present is not material. The relevant Chep condition here, clause 4 “Ownership” states:
“CHEP remains the owner of the Equipment at all times. No person is entitled to deal with Equipment in any way that is inconsistent with CHEP’s ownership…” (CB 630)
132 The claims for detinue and conversion against Swan Hill must therefore fail.
133 Similar reasoning dictates the failure of the claim for detinue and conversion as against Olam.
Disposition
134 There should be judgment for the first and third defendants as against the plaintiff.
Costs
135 I have heard no submissions on the question of costs, so that issue will be reserved.
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