IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) NO. NG 3298 OF 1995 GENERAL DIVISION ) IN THE MATTER OF HARRINGTONS METALLURGISTS LIMITED (Receivers and Managers Appointed) and the Corporations Law BETWEEN: TENNANT LIMITED Applicant AND: DEAN ROYSTON McVEIGH First Respondent KENNETH JOHN RENNIE Second Respondent JOHN RAYMOND GIBBINS Third Respondent CORAM: SACKVILLE J. DATE: 23 JUNE, 1995 PLACE: SYDNEY THE COURT ORDERS THAT: 1. The notice of motion filed by the applicant on 21 June 1995 be dismissed. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) NO. NG 3298 OF 1995 GENERAL DIVISION ) IN THE MATTER OF HARRINGTONS METALLURGISTS LIMITED (Receivers and Managers Appointed) and the Corporations Law BETWEEN: TENNANT LIMITED Applicant AND: DEAN ROYSTON McVEIGH First Respondent KENNETH JOHN RENNIE Second Respondent JOHN RAYMOND GIBBINS Third Respondent CORAM: SACKVILLE J. DATE: 23 JUNE, 1995 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction The Applicant ("Tennant") is a trader in gold and silver. Its activities include purchasing what is known as gold dore and silver dore and engaging a company known as Harringtons Metallurgists Ltd ("Harringtons") to undertake toll refining to produce purer gold or silver from the dore by removing impurities. The second and third respondents are the receivers and managers of Harringtons, appointed on 25 May 1995 pursuant to a deed of charge. I shall refer to them as "the receivers". In the principal proceedings, Tennant seeks a declaration that certain silver and gold, specified in the schedule to the application is its property. The schedule is as follows: "SCHEDULE TO APPLICATION DATED 16.06.95 A. Silver 1. 200 kilograms of silver purchased by the Applicant from Harringtons Metallurgists Limited for which payment was made of AUD 47,968.84 on 20/04/95 now allocated to the Applicant's account. 2. 200 kilograms delivered by the Applicant to Harringtons Metallurgists Limited for toll refining on 23/05/95. 3. 200 kilograms of silver purchased by the Applicant from Harringtons Metallurgists Limited for which payment was made in the sum of AUD49,757.13 on 22 May 1995. B. Gold 1. 904.294 grams of gold. 2. 2059.500 grams of gold." The application also seeks orders for the delivery up of the silver and gold identified in the schedule. It is to be noted that Harringtons is not a party to Tennant's application. The Proceedings On 22 June 1993 Tennant moved the Court on notice for interim orders restraining the receivers from dealing with or disposing of the property described in the schedule to the application. As the argument developed, it became clear that Tennant could not identify a precise quantity of silver and gold in the possession of Harringtons or the receivers, corresponding exactly to the items described in the schedule. Mr Laughton, on behalf of Tennant, said that the applicant sought to restrain the receivers from disposing of the quantities of silver and gold specified in the schedule, insofar as they formed part of larger quantities of silver and gold in the possession of the receivers on behalf of Harringtons. After reading the affidavits filed by Tennant and the receivers, respectively, and hearing argument, I stated that I would dismiss the application for interim relief. I did so on the ground that, in my opinion, Tennant had failed to show an arguable case that it had a sufficient title to the claimed silver and gold to support a claim for injunctive relief. No other basis was put forward by Mr Laughton for the restraining orders. I indicated that I would deliver brief reasons today, 23 June 1995. I now do so. The fundamental difficulty facing Tennant is that, on the evidence, Harringtons had not physically allocated the gold and silver in order to satisfy any purchase by, or other contractual arrangement with, Tennant. In these circumstances, Tennant, in my opinion, has not been able to establish a bailment or other title that would support a proprietary claim to particular silver or gold held by Harringtons, or by the receivers on behalf of Harringtons. The Transactions As the schedule to the application indicates, there were five transactions in respect of which Tennant put forward a claim. I shall deal briefly with each. Transaction A1 On about 18 April 1995 Tennant agreed to purchase 200 kilograms of silver from Harringtons at $7.46 per ounce, allocation of the silver granules to the purchase to take place before 31 May 1995. In accordance with a pre-existing agreement, Tennant effected payment of the price of $47,968.84 to Harrington on 20 April 1995. A so-called "unallocated metals account" maintained by Harringtons recorded the sale to Tennant of the silver. However, there was no physical allocation of any quantity of silver by Harringtons in order to satisfy the sale prior to the appointment of the receivers. It appears that Harringtons, upon receipt of the order from Tennant, placed its own order with a supplier of photographic waste in the Philippines, for delivery to a subsidiary of Harringtons known as MRI Aust Pty Ltd ("MRI"). The waste was to be refined by MRI with a view to producing sufficient silver to satisfy Tennant's order by 31 May 1995. It appears that the waste from the Philippines was in fact received by MRI and was mixed with waste from a variety of other sources and processed into silver granule form. The silver granules in turn were stored in a storage facility in drums. The material stored at the time of the appointment of the receivers on 25 May 1995 could not be identified as emanating from any particular batch of processed photographic waste. Nor had any portion of the silver been marked for Tennant or otherwise identified as dedicated to Tennant's order. In these circumstances Mr Laughton was unable to suggest how Tennant had acquired a proprietary or other interest in the silver stored at Campbellfield sufficient to warrant the grant of interlocutory injunctive relief. Doubtless Tennant has an action against Harringtons for breach of contract and it may have other claims for the recovery of the money paid to Harringtons. But in the absence of some act by Harringtons allocating silver to the pre-paid purchase, it is difficult to discern how Tennant could have an interest in the mass of silver granules forming the stock from which Tennant's order ultimately would have been satisfied. Transaction A2 On 19 May 1995, Tennant purchased 200 kilograms of silver bars from Photo Waste Management. The silver, which was of 99.5% purity, was delivered to MRI on about 24 May 1995, for the purpose of granulating and upgrading the silver to 99.8% purity. The silver bars supplied by Tennant were processed by MRI into the form of anodes, being flat pieces of silver. These anodes were then stored by MRI, together with many other anodes produced from silver supplied by other sources. The anodes were subsequently processed into the form of silver granules, which were stored in storage drums. These drums contained silver granules from various sources, including the silver supplied by Tennant. At some stage, a credit was made to Tennant's "allocated metal account" of 200 kilograms of silver in granule form. This was a paper entry, indicating an entitlement in Tennant to receive that quantity of silver. However, there was never any allocation of silver granules in physical form to meet Harrington's obligations to Tennant. As far as the evidence shows, the silver granules were simply held in storage drums and it was not possible to identify which drums contained granules derived from the 200 kilograms supplied by Tennant on about 24 May 1995. There was evidence that about 250 kilograms of silver in granule form had been shipped from MRI to Harringtons on about 26 May 1995. It was apparently intended that 200 kilograms of this quantity would ultimately be allocated to Tennant, but this allocation never took place. In these circumstances, Mr Laughton submitted that Tennant was the bailor of 200 kilograms of silver granules held by Harringtons. He accepted, as I understood him, that no dedication of any portion of the larger mass of silver granules had been made to Tennant. Mr Laughton also accepted that he was unable to cite authority in support of his proposition that Tennant held title to 200 kilograms of the larger mass of silver granules as bailor. Mr Bathurst QC, who appeared with Mr Svehla for the receivers, referred to Chapman Bros v Verco Bros & Company Ltd (1933) 49 CLR 306, in which the relevant principles were stated. That was a case where bags of wheat were delivered to a wheat merchant for storage, but on terms whereby the merchant was not required to return the identical wheat. Stark J. (at 316) said that: "[i]f 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: it is a transfer of property, and the title to the thing originally delivered vests in the transferee." See also at 319-320, per Dixon J. Having regard to the evidence, I do not think that Tennant has established an arguable case that it has title as bailor to the silver granules held in storage drums by Harringtons. No other basis for relief was suggested by Mr Laughton. Transaction A3 This transaction involved a purchase by Tennant of 200 kilograms of silver on 19 May 1995, for which pre-payment was made by Tennant on 22 May 1995. Mr Houghton accepted that this fell into the same category as transaction A1. Transaction B1 This claim referred to a series of offsetting transactions between Tennant and Harringtons, which produced a net balance on an "allocated metal account", suggesting that Harringtons was obliged to deliver to Tennant a quantity of gold in satisfaction of the balance in the account. However, these were paper transactions only and there was no physical allocation or segregation of gold to meet Harrington's obligation to Tennant. Transaction B2 This transaction involved the purchase of gold and silver dore by Tennant for toll refining by Harringtons. Mr Laughton agreed that it raised the same issues as transaction A2. Parties I should add that Mr Bathurst also argued that the proceedings were defective because of the failure to join Harringtons as a party. I am inclined to the view that this submission is correct, having regard to the fact that Tennant contends that it is entitled to claim specific quantities of gold and silver held by or on behalf of Harringtons. Since Harringtons is under administration, any joinder of that company would require the consent of the administrator or the leave of the Court, pursuant to s.440D of the Corporations Law. Conclusion It follows that in none of the circumstances dealt with in argument do I consider that Tennant has made out an arguable claim for relief. For the reasons I have given, Tennant's application for interlocutory relief will be dismissed. I certify that this and the preceding 9 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville. Associate: Dated: 23 June, 1995 Heard: 22 June, 1995 Place: Sydney Decision: 23 June, 1995 Appearances: Mr G. Laughton, instructed by Aitken & Magney, Solicitors, appeared for the applicant. Mr T. Bathurst QC, with Mr J. Svehla, instructed by Sly & Weigall, Solicitors, appeared for the second and third respondents. There was no appearance for the first respondent.