New South Wales Supreme Court CITATION : Pedelty v Mineral Wealth Pty Ltd & Ors [2005] NSWSC 1331 HEARING DATE(S) : 12 December 2005 JUDGMENT DATE : 13 December 2005 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Judgment for the defendants. CATCHWORDS : DETINUE AND CONVERSION – Whether plaintiff had established a title to the subject matter of the dispute – issues of credit. Gerald Pedelty – Plaintiff Mineral Wealth Pty Ltd – First Defendant PARTIES : Gregory Winfield Hall – Second Defendant Philip Patrick Carter – Third Defendant FILE NUMBER(S) : SC 3814/04 A.C. Canceri – Plaintiff COUNSEL : S. Docker – Defendants G.J. Byles & Associates – Plaintiff SOLICITORS : Kemp Strang – Defendants LOWER COURT JURISDICTION : Ex tempore 1 The Plaintiff, Mr Pedelty, sues the First Defendant ("Mineral Wealth") and the Second and Third Defendants who are its receivers, for damages for the detinue or conversion of a certain machine which the receivers have sold in the course of their receivership. 2 The Defendants say that the machine was at the time of its sale the property of Mineral Wealth. Alternatively, they say that if it was not the property of Mineral Wealth, then Mr Pedelty has failed to prove that at any relevant time he was the owner of, or entitled to possession of the machine. 3 The assessment of damages has been reserved to await determination of the issue of liability. 4 The background facts are as follows. Mineral Wealth carried on a business of producing bottled water for the retail market. Part of that business required the manufacture of plastic bottles to contain the water. The managing director of Mineral Wealth was Mr Jim Pegios. Mr Pedelty carried on a business as a sales agent and consultant in the packaging business. 5 In about August 2000, Mr Pegios and Mr Pedelty had discussions about acquiring a blow moulding machine for the production of plastic bottles from a manufacturer in Taiwan. They travelled together to Taiwan and had discussions with the manufacturer of the machine, Chum Power Machinery Corporation ("Chum"), and with a seller and exporter called Jon Wei. 6 In early 2001, Mr Pegios decided on behalf of Mineral Wealth to acquire from Chum a blow moulding machine capable of producing 4,000 plastic bottles per hour. For the sake of convenient reference, I will refer to the machine as a Series 4000. At about this time, Mr Pegios agreed to engage Mr Pedelty to organise the installation of the manufacturing plant, including the Series 4000, and to hire and train the necessary staff. 7 In October 2001, Mineral Wealth was invoiced by Jon Wei for the acquisition of the Series 4000 machine, together with other machinery. 8 In December 2001 the machinery, including the Series 4000, arrived from Taiwan and in January 2002 it was installed in Mineral Wealth's premises. Soon after installation, the Series 4000 began to malfunction and did not produce to its capacity of 4,000 bottles per hour. 9 Mr Pedelty's pleaded case is that in or about February 2002 he agreed with Chum to purchase a blow moulding machine called a Series 2000S which was capable of producing 2,000 bottles per hour and he agreed to lend that machine to Mineral Wealth. The particulars to paragraph 4 of Mr Pedelty's Statement of Claim allege that the loan agreement was oral and that its terms were that Mineral Wealth would be permitted to use the Series 2000S until such time as Mr Pedelty had found a purchaser for it. It is this Series 2000S machine which the receivers sold and which Mr Pedelty says was his property. 10 Mr Pedelty's case, as it was finally framed in closing submissions, was somewhat different from the pleaded case. It was that Mr Pedelty had agreed with Chum in February 2002 to purchase the Series 2000S machine and that he had then agreed to lend that machine to Mineral Wealth while repairs were made to the Series 4000 to enable it to regain full manufacturing capacity. Mr Pedelty says that in or about January 2001 (sic) he had a conversation with Mr Pegios in which he said: "In or about January 2001 I recall having a conversation with Jim Pegios about the 4000S Machine and about me loaning a 2000S PET Stretch Blow Moulding Machine to Mineral Wealth Pty Limited. I said to Jim Pegios words to the effect of: 'That I, through Chumpower in conjunction with Jon Wai, will loan a CPSB 2000s machine to be used on site for around 3 months, after this time if you would like to keep it longer it must be taken as a leased machine otherwise I will have to sell this machine to re-coup my costs.' Jim replied words to the effect of: 'That's fine'. " 11 Mr Pegios agrees that at some time, probably in early 2002, there was a discussion with Mr Pedelty in which a loan of a Series 2002 machine was agreed. However, Mr Pegios denies that Mr Pedelty told him that if the machine was not leased to Mineral Wealth, Mr Pedelty would have to sell it to recoup his costs. 12 Mr Pedelty says that the Series 2000S was delivered and installed in February 2002. However, he says, he did not pay Chum for the machine until 6 November 2002 when he caused the sum of $87,500 to be transmitted to the account of Chum. 13 There is no written evidence of the alleged agreement for loan between Mr Pedelty and Mineral Wealth. The documents upon which Mr Pedelty relies in proving his title to the subject machine contain some disturbing discrepancies, to which I will come shortly. In the result, whether one accepts Mr Pedelty's evidence as to the circumstances in which, he says, he acquired title to the Series 2000S machine depends to a large degree on his credit. I am unable to place reliance on Mr Pedelty as a witness of credit for the following reasons. 14 First, in paragraph 8 of his affidavit Mr Pedelty said that in May 2001 he had entered into a consulting agreement with Mineral Wealth and he annexed a copy of what he said that was that consulting agreement. The annexed agreement, which was not executed by either party, provided that Mr Pedelty would be engaged as consultant for a period of two and a half years commencing from May 2001 at a remuneration of $65,000 per annum. 15 In cross examination Mr Pedelty conceded that Mr Pegios had never agreed to the terms of the consulting agreement and that it had never been executed by Mineral Wealth. Mr Pedelty's evidence in paragraph 8 of his affidavit was not true and he must have known it was untrue at the time that he swore his affidavit. 16 Second, Mr Pedelty changed his evidence in a critical way during the course of cross examination. At first he said that a pro forma invoice dated 8 January 2001 from Chum for the Series 2000S machine was not a document evidencing a sale but was issued by Chum only as a record of the dispatch of the machine on loan to Mineral Wealth to make up production capacity while the Series 4000 machine was being repaired. He was questioned closely about the document and he had insisted that this was its purpose. 17 However, later in cross examination Mr Pedelty said that the pro forma invoice evidenced an outright sale by Chum to him of the machine and that his earlier evidence as to the nature and purpose of the document had been wrong. The two versions of the purpose and nature of the document were totally inconsistent. Mr Pedelty gave no explanation as to how he could have been mistaken in his earlier evidence. The manner in which he gave the second version of his evidence was highly unconvincing. 18 Third, in Mr Pedelty's Statement of Claim, which was verified on oath, it is pleaded that the terms of the loan of the Series 2000S to Mineral Wealth were that Mineral Wealth was permitted to use the machine until such time as Mr Pedelty had found a purchaser for it. It is then alleged that Mr Pedelty had inquiries from possible purchasers and on occasions brought them to the premises of Mineral Wealth to inspect the machine. Nowhere in Mr Pedelty's evidence on affidavit or in the witness box was this version of the alleged agreement between the parties even suggested. 19 Fourth, Mr Pedelty said that although he agreed to purchase the Series 2000S in February 2002, he did not pay the purchase price, $87,500, until 6 November 2002 when he drew a cheque for that amount and caused the proceeds to be transmitted to Chum. As corroboration, he annexed to his affidavit a copy of a cheque butt showing an amount of $87,500 drawn on 6 November 2002. 20 However, in cross examination Mr Pedelty conceded that in late 2002 he had been engaged in a transaction with Chum for the purchase and supply of a number of blow moulding machines for a project in China called the An-Shan Project, which had nothing to do with Mineral Wealth. The cheque butt attached to Mr Pedelty's affidavit showed in Mr Pedelty's handwriting the purpose of the cheque as "blow moulder costs - An Shan" . When this was pointed out to Mr Pedelty, he said that this was a mistake and that the cheque was not for the An-Shan project. 21 Mr Pedelty did not explain how he could have made a mistake when filling out the cheque butt at the time of drawing the cheque if the cheque was for the purpose of purchasing the Series 2000S machine which had gone to Mineral Wealth. His evidence as to the cheque butt and the manner in which he gave it were highly unconvincing. 22 I come now to the disturbing features about the documents upon which Mr Pedelty relies. The first is a pro forma invoice dated 8 January 2002 which was Annexure F to Mr Pedelty's affidavit. As I have noted, Mr Pedelty said at first that this invoice was merely a record of a loan of a Series 2000S machine by Chum while the Series 4000 machine was being repaired. He later said that the document evidenced an outright sale of the machine to him. 23 Mr Pedelty said that the pro forma invoice was sent to him as an attachment to an e-mail. However, although served with a subpoena requiring him to produce the e-mail and the original invoice, he did not produce either. Annexure F is a photocopy. There are several disquieting features about it. 24 The first is that Annexure F is identical to another pro forma invoice from Chum which was in Mr Pedelty's possession, save as to the date and reference number. The second invoice is dated 9 February 2002. Mr Pedelty says that the second invoice was for a different Series 2000S machine. Yet, apart from the date, the two documents are obviously identical. They even reproduce the same error in that the weight and dimensions of the two machines are misdescribed. 25 Mr Pedelty also relies on a document entitled "Commercial Invoice" dated 7 February 2002. It is Annexure G to Mr Pedelty's affidavit. The document shows as invoiced to him the Series 2002 machine described by its serial number. Again, Annexure G is only a photocopy. The typeface in which the serial number of the subject machine is shown on Annexure G is noticeably different from the typeface in the rest of the document. At the top of Annexure G is a facsimile transmission notation reading "Feb 18 02 11. 06 P.01". 26 Another document has been produced from the possession of Mr Pedelty. It is identical to Annexure G except that in this document the serial number of the subject machine does not appear. This second document even has at the top the same facsimile transmission notation as Annexure G. When Mr Pedelty was asked to explain how two supposedly different documents could have had the same facsimile transmission notation, he was unable to do so. His evidence in this regard was highly unconvincing. 27 A forensic document examiner, Mr Anderson, has given a report concerning the authenticity of Annexure G when compared with two other documents in Mr Pedelty's possession which appear to be the same or to relate to the same transaction. Mr Anderson cannot come to any firm conclusion as to the authenticity of Annexure G because the documents made available to him were only photocopies and he says that he would need to inspect the originals to form a definite view. However, Mr Anderson has drawn attention to several highly suspicious features of the document in question, Annexure G. 28 In the light of Mr Anderson's observations and in light of the observations which I have made above concerning Annexure G, I regard that document as highly suspect. 29 Mr Anderson's report was made available to Mr Pedelty's solicitors in July 2005. They must then have appreciated that the Defendants put in issue the authenticity of documents apparently emanating from Chum upon which Mr Pedelty relied in order to prove his title to the subject machine. The solicitors procured an affidavit from a Ms Lee of Chum dated 30 September 2005 which went to the authenticity of the document. The Defendants' solicitors notified Mr Pedelty's solicitors that Ms Lee was required for cross examination. Ms Lee is now said to be resident in China. There is no evidence that Mr Pedelty's solicitors made any endeavour to procure Ms Lee to give evidence, either by attending in court or by video link. I have dealt with the admissibility of Ms Lee's affidavit in a separate judgment. However, I think that the failure to ensure Ms Lee was available for cross examination is a significant aspect of the credibility of Mr Pedelty's case generally. 30 In summary, I regard the documents upon which Mr Pedelty relies as corroborating his title to the subject machine as so clouded by suspicion that I would not rely upon them unless I could rely upon Mr Pedelty as a witness of credit to explain away the suspicions. For the reasons which I have given, I do not regard Mr Pedelty as a witness of credit. 31 Accordingly, I accept neither the documentary evidence tendered by Mr Pedelty, nor his own evidence as establishing, on the balance of probabilities, that Mr Pedelty was at any material time the owner of the subject machine or entitled to its immediate possession. 32 Mr Pegios has given evidence that at a meeting in October 2002 attended by Ms Lee and another representative of Chum and by himself and Mr Pedelty, he expressed dissatisfaction with the performance of the Series 4000 machine. He gave the following evidence about the discussion which then ensued. "On about 20 October 2002 Lee and Bush came to Sydney and inspected the 4000S machine. Pedelty was present during this inspection. During this inspection Lee said to Pedelty and I words to the effect: 'We will give you another 2000 machine to make up for the problems you have had. We are not interested in taking the 4000 machine back with us. Would you be interested in keeping both 2000 machines by way of replacements for your 4000 machine?' I replied with words to the effect: 'Yes, we want the two 2000 machines as replacements for the 4000 machine. I don't care what happens with the 4000 machine.' " 33 A second Series 2000S machine was, in fact, sent by Chum in November 2002. There is no issue that that machine was a permanent replacement for the Series 4000 machine. 34 Mr Pegios was not challenged in his evidence about the October meeting and Mr Pedelty did not contradict that evidence in his own evidence. In view of the undoubted difficulties which Mineral Wealth was continuing to experience with the Series 4000 machine in October 2002, I regard Mr Pegios' evidence as inherently probable. 35 I am not satisfied that Mr Pedelty has established his own title to the Series 2000S machine. In light of the evidence as to the meeting with the Chum representatives in October 2002, I think it more probable than not that title to the subject 2000S machine, having remained with Chum from the time of its delivery in February 2002, was passed to Mineral Wealth in October 2002. 36 However, it is not strictly necessary for the purposes of this case to determine whether Mineral Wealth had a good title to the subject machine as against the world. All that I have to decide is whether Mr Pedelty had a sufficient title to sustain an action for detinue or conversion at the time that the machine was sold by the receivers. For the reasons which I have given, I conclude that Mr Pedelty has failed to show such a title. 37 Accordingly, there will be judgment for the Defendants on the Plaintiff's Statement of Claim. The Plaintiff is to pay the Defendants' costs of the proceedings. 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