Rildean Pty Ltd v TJF Scaffolding Maintenance & Hire Pty Ltd;TJF Scaffolding Maintenance & Hire Pty Ltd v Rildean Pty Ltd [2002] NSWSC 605

New South Wales Supreme Court

CITATION : Rildean Pty Ltd v TJF Scaffolding Maintenance & Hire Pty Ltd;TJF Scaffolding Maintenance & Hire Pty Ltd v Rildean Pty Ltd [2002] NSWSC 605 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4877/01; 5147/01 HEARING DATE(S) : 11/02/02, 12/02/02, 19/02/02, 20/02/02, 05/03/02, 08/03/02 JUDGMENT DATE : 8 July 2002

PARTIES : Rildean Pty Ltd v TJF Scaffolding Maintenance & Hire Pty Ltd TJF Scaffolding Maintenance & Hire Pty Ltd v Rildean Pty Ltd JUDGMENT OF : Bryson J at 1

COUNSEL : P. Finch - Rildean Pty Ltd S.A. Kerr - TJF Scaffolding Maintenance & Hire Pty Ltd SOLICITORS : Dennis & Co. - Rildean Pty Ltd Robinson Legal - TJF Scaffolding Maintenance & Hire Pty Ltd CATCHWORDS : CONTRACT - hire of scaffolding - TJF managed yard from which scaffolding which had been hired to Rildean by Investors was hired out to builders - series of agreements regulated their relationship, recovery of hire charges and return of scaffolding - Rildean claimed that TJF had also converted Rildean's own stock of scaffolding - this claim failed on the facts - TJF claimed return of Investors scaffolding to TJF under contractual agreement between Rildean and TJF to do so - specific delivery was refused and TJF recovered judgment for damages to be assessed. DECISION : Judgment for TJF Scaffolding Maintenance & Hire Pty Ltd for damages - see [70]

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BRYSON J.

Monday 8 July 2002

4877/01 - RILDEAN PTY LTD v TJF SCAFFOLDING MAINTENANCE AND HIRE PTY LTD

5147/01 - TJF SCAFFOLDING MAINTENANCE AND HIRE PTY LTD v RILDEAN PTY LTD JUDGMENT 1 HIS HONOUR: These proceedings relate to entitlements to possession of a substantial quantity of scaffolding used in association with a business of hiring-out scaffolding equipment which was conducted by Rildean from premises which it leased at 6 Grand Avenue, Camelia, New South Wales. Rildean carried on business under the trade name Action Skyline (NSW), and is sometimes referred to in the evidence as Skyline or as Action. It was not the first company which carried on business under that trade name. The principal figure in Rildean's affairs is Mr Brian John Baker its General Manager. Mr Baker's evidence was that with his wife he held beneficial ownership of 90 per cent of the equity of Rildean and that his son Brett Baker held the remaining 10 per cent. Mr Brett Baker was the Director of the company and Mr Brian Baker was not a director. Mr Brian Baker's evidence was that he had been in the scaffolding hire industry for more than 20 years. Prior to 1995 he owned scaffolding, Ochar Pty Ltd which he described as "my family company" also owned scaffolding, and the scaffolding was hired out through a company called Action Scaffolding and Building Services Pty Ltd (ASBS). ASBS entered into an agreement on 1 May 1995 with Sunblest Plant Hire Pty Ltd to provide scaffolding equipment on hire for 50 months; there was an option to purchase the equipment at the conclusion of the lease for $360,000, and the option was exercised in June 1997. At some time which is not clear but appears to have been in 1995, Rildean, as well as ASBS, carried on the business of hiring out equipment, using scaffolding obtained from these various sources. 2 Mr Brian Baker also gave evidence that over the five years from 1997 he (meaning Rildean) purchased boards and timber from various sources, and that in 1999 Rildean purchased scaffolding equipment which it had earlier hired from and was owned by Girraween Scaffolding and Plant Hire Pty Ltd, paid $1.25m for the equipment purchased and leased other equipment. Between 1995 and 1999 Rildean and ASBS purchased equipment through Tower International Pty Ltd, the principal of which was Mr Frank Fentie; these purchases were financed through Esanda Finance. Rildean and ASBS also purchased equipment, mainly boards and accessories, from Brooker Pty Ltd, purchased boards from Phoenix Pty Ltd, and also purchased equipment from AKA Stage and Seating Pty Ltd. ASBS also acquired equipment in 1994 from a company called Dumebuild Dunabold Pty Ltd in lieu of payment of a debt, and acquired 6000 boards in 1995 from sources referred to as "Greg Fuller / McKenna". As I understand paras. 6 and 14 of his affidavit taken together, BAK Investments Pty Ltd purchased scaffolding from Girraween Scaffolding and Plant Hire Pty Ltd between 1995 and 1999 for about $1.5m which was advanced by way of loan by Kimberley Securities Ltd. The effect of his evidence then is that by 2000 Rildean had acquired from many sources and also had possession and control of equipment owned by Ochar Pty Ltd, forming a substantial stock of scaffolding equipment. Rildean did not however attempt to give in evidence any inventory in detail of the stock which it owned and controlled, or any calculation of the value of that stock, other than in the summary way to which I have referred. 3 It was also Mr Brian Baker's evidence that Mr Fentie of Tower International Pty Ltd arranged for ASBS to be introduced to Investor Partnerships managed by Mr Andrew Robinson and Mr Garry Parker, and the Investor Partnerships hired scaffolding to ASBS in 1996. The investors were brought together, Mr Brian Baker says, "through structures designed around the 100 per cent taxation depreciation for scaffolding items". At one time, which apparently included 1996, taxation law enabled a business which purchased scaffolding to obtain a 100 per cent depreciation allowance in the first year. The Investor Partnerships managed by Mr Andrew Robinson were named Omega and Omega Hunter Valley and the partnerships managed by Mr Garry Parker were referred as the Churchill Partnerships. These hired scaffolding to ASBS in 1996. From 1996 onwards Mr Fentie of Tower International had some part as a representative of the investors in obtaining and delivering the scaffolding so hired. 4 Mr Brian Baker's evidence was that in 1998 the operations of ASBS were reorganised into Rildean, "as part of the acquisition and merger of Skyline NSW Pty Ltd." These arrangements were not explained in detail by evidence. Mr Brian Baker said that the transfer of hire arrangements to Rildean was agreed to by Investor Partnerships. ASBS was wound-up on 21 March 2001. 5 Rildean began to fall behind in hire payments, negotiated lower rates with the Investor Partnerships and then, on 30 June 2000, entered into an agreement with TJF Scaffolding Maintenance and Hire Pty Ltd, the other party to these two proceedings. TJF was formed in the early months of 2000. Before it entered into the agreement of 30 June 2000 it did not have any significant business or own any stock of scaffolding. Mr Brian Baker's evidence was that Mr Fentie introduced Rildean to Mr Fakhoury of TJF. 6 A Deed of Agreement of 30 June 2000 established arrangements under which TJF was to manage and operate Rildean's yard at Camelia. Recitals to the Deed referred to Rildean's current trade under the name Action Skyline NSW the business of which was to supply, erect and dismantle scaffolding and to hire it out. The recitals also said "(g) Rildean agrees to assign the management and operation of the Yard to TJF following an initial transitional period of thirteen (13) weeks from 1 July 2000 to 30 September 2000 … " and went on to contemplate further documentation. By the first clause it was agreed that "As of 30th June 2000, the Parties agree that [TJF] shall enter into possession of that part of the Business situated at 6 Grand Avenue Camelia, NSW … as manager/operator." Other provisions of the first clause were: "(b) TJF shall exercise operation, management and control in a manner that is consistent with the conduct of the business, and in no way adverse, prejudicial nor prohibitive to [Rildean] …" "(c) That TJF shall remain at liberty to enter into such agreements as it sees fit with current staff employed by the Business for the purposes of conducting scaffolding hire from the Yard; (d) That TJF IMMEDIATELY undertake a full stock-take and inventory of all scaffolding equipment (both in-situ and stored at the Yard), materials, plant, equipment, fixtures and or chattels currently under the control of Rildean and used by the Business as at the date of this Agreement with such stock-take to be updated on 1 October 2000; ". 7 Clause 2 is entitled "Financial Arrangements". By cl.2(b) TJF was to meet all running costs (which were defined) for 13 weeks. By cl.2(c) Rildean was to see that invoices with a minimum total value for $4,200,000 should have been issued within the 13 weeks, by cl.2(d) TJF was to pay Action at least $1m at the conclusion of 13 weeks, and by cl.2(e) Rildean warranted that TJF was to receive a payment from a financier. Clause 2(f) contained a provision which is difficult to follow but seems to be directed to ensuring that all payments on invoices came to TJF, and by cl.2(g) each invoice was to provide for payment to an account controlled by TJF. 8 Overall, the intended operation of the Deed of 30 June 2000 is difficult to see, and was not explained in evidence. As far as it can be understood, it seems to have been directed to putting the management of Rildean's business into the control of TJF, at least for 13 weeks, directing all the flow of payments on invoices into the control of TJF, and for TJF to meet the running costs (which as defined included unpaid hire charges owed under leases of scaffolding equipment from the Investor Partnerships and others). Rildean was to see that at least $4,200,000 was invoiced and TJF was to see that Rildean received at least $1m. 9 A later agreement set aside these provisions and their significance now is the context they provide for what was done towards preparing the full stocktake and inventory of all scaffolding equipment both at building sites and stored at the yard referred to in para.1(d). 10 Rildean and TJF made another Deed of Agreement on 13 September 2000 (or on 18 September; both dates appear). The recitals refer to the parties' previous legal relations and their wish to revoke and supersede all existing arrangements and legal relations. By cl.1 all previous agreements were terminated, by cl.2 all previous legal relations were revoked and by cl.3 there were mutual releases. 11 Clause 4 contained many provisions under the heading "Financial Arrangements" which appear to be related to the termination of the previous legal relationship. Provisions of cl.4 which appear to have continuing significance are these: "(c) Rildean acknowledges the legal ownership and control of TJF over all material leased by Omega, Churchill and Prime that is currently subject to lease arrangements with TJF and agrees to pay hire charges to TJF IN PROPORTION to the percentage of any such equipment hired by TJF to Rildean trading as Action Skyline, no later than 37 days after presentation of a monthly hire invoice. (d) Rildean agrees that TJF shall be entitled to employ its own yard labour (in addition to any labour employed and paid for by Rildean) and TJF agrees to be responsible for payment of wages, insurances, taxes, levies or any other cost. TJF agrees it will seek the consent of the Lessor prior to any employment and the Lessor agrees that it will not unreasonably withhold such consent. (e) Rildean agrees to provide any and all transport as reasonably required to TJF on commercial terms as agreed between the parties." 12 There were further provisions relating to adjustment of liabilities and claims under the previous arrangement. 13 An understanding of the acknowledgement in cl.4(c) requires some understanding of the circumstances. The Investor Partnerships referred to as Omega Churchill and Prime had, or claimed to have terminated their leases of equipment to Rildean with effect on or earlier than 30 June 2000. TJF did not, so far as appears from any evidence or from any contention made before me, ever acquire ownership of the equipment the subject of the equipment leases by Omega Churchill and Prime to Rildean, and TJF did not ever lease or agree to lease that equipment to Rildean. The effect of the acknowledgement in cl.4(c) is that Rildean agreed with TJF to treat TJF as the legal owner of and entitled to control all the equipment which had earlier been hired from Omega Churchill and Prime. Clause 4 (c) also contemplates that there were to be arrangements in the future for TJF to hire the stock of scaffolding, or a proportion of it, to Rildean, referred to as Action, for which Rildean would pay hire charges. 14 Clause 6 provided for Rildean and TJF to enter into a joint venture with respect to the operation, management and control of a part of the business at Camelia. There were many provisions regulating the joint venture, including provision for Rildean to grant a sublease of the yard to TJF (and this does not appear to have been carried out), and for sharing lease outgoings. By cll.6(b)(4), (5) and (6) provisions were made which show that it was contemplated that TJF would have access to and use the yard at Camelia to store and maintain scaffolding equipment "owned or pledged to the TJF group of companies". 15 While the Deed of Agreement of 13 September 2000 is obscure in expression and creates a legal relationship which it is difficult to classify, my understanding is that it was contemplated and the deed provides for both Rildean and TJF to operate scaffolding businesses out of the yard, TJF with scaffolding which included the scaffolding which had at earlier times been hired to Rildean by the Investor Partnerships, while cl.4(c) seems to show in an obscure way that it was contemplated that by future arrangements Rildean might hire some of this stock from TJF and would incur hire charges for it. Clause 6(d) showed contemplation that the parties might agree to pool scaffolding stock where required, showing that in their understanding the scaffolding stock was not already pooled. The agreement established a contractual relationship in which Rildean was bound to treat TJF as the legal owner and entitled to the control of the stock formerly leased from the Investor Partnerships, notwithstanding that, for anything that appears, TJF was not actually the legal owner; their legal relationship were to be conducted upon the convention that TJF was the legal owner and entitled to control. 16 There was no provision for any stocktake in the agreement of 13 September 2000. TJF gave no commitment that any scaffolding would be kept in or hired out from the yard. The joint venture related to occupation and use of the yard; the joint venture did not relate to owning, controlling or hiring out stocks of scaffolding, except to the extent to which the parties later made pooling arrangements. There is no evidence that they ever did make pooling arrangements. 17 It will be seen that (if there ever had been any restriction on TJF's right to remove and dispose of stock which had earlier been hired by Investor Partnerships) there was under the Agreement of 13 September 2000 no restriction on the right of TJF to remove from the yard and dispose of scaffolding stock which had earlier been the subject of hire arrangements to Rildean. The importance of this is that it deprives of any force evidence and claims, not carried to identifying any particular stock as stock owned by Rildean, and not carried to identifying the quantities of the stock or the destinations, that large quantities of stock were moved out of the yard while it was under the control of TJF and that in some way TJF is liable to Rildean or is obliged to account to Rildean for that stock. While there may well have been scaffolding stock owned or controlled by Rildean in the Camelia yard, or otherwise in use in Rildean's business but out on hire, the evidence does not establish in any reliable way what that stock was, or how much of Rildean's stock was ever in the yard while TJF was operating there. Evidence that large quantities of stock were moved out of the yard under the control of TJF without accounting for the stock or giving an explanation to Rildean for its movement goes no distance whatever towards establishing that TJF has dealt wrongly with stock owned by Rildean or is accountable to Rildean. Rildean bears the onus of proof that stock removed from the yard by TJF and consigned to distant places or otherwise dealt with was stock owned by Rildean with which TJF was not entitled to deal; TJF was, as against Rildean, entitled to deal with large quantities of stock in the yard and associated with Rildean's business, namely the Investors stock formerly hired to Rildean. Rildean does not discharge any onus of proof, or go any distance towards discharging it, merely by showing that there were large unquantified movements of unidentified stock. 18 The parties made a further agreement which does not bear date but from its terms appears to have been made early in November 2000. Clause 1 of this Agreement contained agreements by Rildean, including agreements to pay for hiring scaffolding during September and October 2000, and regulating the means of ascertaining the amount of hire payments; and agreements that: "Action shall … (iv) Ensure and acknowledge the control and ostensible authority of TJF over scaffolding material managed by Vanepe Pty Ltd and owned by Omega, Churchill and Prime Partnerships. (v) Meet any request to progressively return scaffolding equipment belonging to any or all of the above entities to a premises other than Camelia as so requested by TJF." 19 Clause 2 contained agreements which seem to show that TJF was to send invoices to customers for hire charges for moneys due to Rildean for hire of Rildean's scaffolding during July, August, September, October and November 2000. Clause 2 also contained provisions regulating requirements for Rildean to return stock. These provisions recognise that not all of the stock at the Camelia yard was available to Rildean as it includes a handwritten provision "TJF DOES NOT guarantee that Action can or will acquire gear from alternative suppliers if TJF material is removed." 20 Then on 2 May 2001 two agreements were made to which Rildean and TJF were parties. There were six parties to the Compromise Agreement of 2 May 2001 Exhibit C. The first two parties were Rildean and Ochar Pty Ltd. Rildean was referred to as "Action." Three parties to the Compromise Agreement were or were a representative of Investor Partnerships which until 30 June 2000 were lessors of scaffolding to Action. These were Omega Scaffolding Pty Ltd, Omega Scaffolding (Hunter Valley) Pty Ltd (which themselves were lessors) and Vanepe Pty Ltd which was the manager of the Churchill Partnerships and had power to bind them. Recital B established that Omega, Hunter Valley and Vanepe's principals were lessors of scaffolding to Rildean until 30 June 2000, and (Recital C) Rildean owed amounts totalling $3,243,153.90. The lease agreements were terminated and TJF was appointed managers for the scaffolding of the lessors (Recital D), TJF advanced Rildean $1,600,000 for working capital and other purposes (Recital E) and there was an agreement to compromise claims (Recital F). 21 By cl.1(a) Rildean acknowledged the indebtedness set out. By cl.1(b) "Action and TJF acknowledge and represent that they remain in control of the entire stock … and are in a position to return this stock in accordance with this Agreement and without any claim against this stock by any third party." 22 Clause 2 provided for compromise of Rildean's debts. By cl.3(a) Rildean and/or Ochar were to procure the transfer to TJF of $1m in value of second-hand scaffolding on the date of the agreement, valued on the basis of the purchase price paid by Omega between 1996 and 1998 for its stock. By cl.2(b) Rildean was to pay TJF $50,000, with a further $50,000 in one month's time cl.2(c) and by cl.2(d) Rildean was to pay TJF $1,500,000 within six months by cash or transfer of second-hand scaffolding equipment valued in the same manner. 23 Rildean was to provide a fixed charge over $1,500,000 in value of scaffolding stock as security for its obligation in cl.2(d). By cl.4 Rildean was to have an option of re-purchase (which has not been exercised). By cl.5 there were releases and by cl.6 TJF was given an election to terminate the agreement which has not been exercised. 24 The significant effects of the operative parts then are these: