New South Wales Supreme Court CITATION : Rapid Metal Developments (Aust) Pty Ltd v Rildean Pty Ltd (No 3) [2010] NSWSC 7 HEARING DATE(S) : 16 December 2009 JUDGMENT DATE : 10 February 2010 JUDGMENT OF : R A Hulme J DECISION : Defendants to pay Plaintiff outstanding hire charges, interest on unpaid hire charges, damages for conversion and interest pursuant to s 100 of the Civil Procedure Act CATCHWORDS : CORPORATIONS - receivers, controllers and managers - duties and liabilities - DAMAGES - liability of receivers and managers - s 419A Corporations Act - assessment of damages payable by agents for mortgagee in possession in respect of rent and other amounts accruing under prior agreement - TORTS - conversion - assessment of value of goods converted - INTEREST - recoverability of interest - interest on unpaid hire charges - interest pursuant to s 100 Civil Procedure Act LEGISLATION CITED : Corporations Act 2001 (Cth) Civil Procedure Act 2005 Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 Deputy Commissisoner of Taxation v Clark (2003) 57 NSWLR 113 Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd & Anor (1993) 32 NSWLR 175 Kuwait Airways Corpn v Iraqi Airways Co (No.s 4 and 5) [2002] 2 AC 883 CASES CITED : Quazi v Quazi [1980] AC 744 Rapid Metal Developments (Aust) Pty Ltd v Rildean Pty Ltd [2009] NSWSC 571 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 199 Re Nardell Coal Corporation (In Liq) v Hunter Valley Coal Processing [2003] NSWSC 642 Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 PARTIES : Rapid Metal Developments (Australia) Pty Limited (Plaintiff) Anthony De Vries and Riad Tayeh as joint administrators of Rildean Pty Limited (Defendants) FILE NUMBER(S) : SC 13806/05 COUNSEL : Mr V Gray (Plaintiff) Mr M Ashhurst SC (Defendants) SOLICITORS : JGP Lawyers (Plaintiff) PMF Legal (Defendants) - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION R A Hulme J 10 February 2010 13806/05 Rapid Metal Developments (Aust) Pty Limited v Anthony De Vries & Riad Tayeh as joint administrators of Rildean Pty Limited JUDGMENT 1 HIS HONOUR: On 26 June 2009 I gave judgment for the plaintiff on the question of liability: Rapid Metal Developments (Aust) Pty Ltd v Rildean Pty Ltd [2009] NSWSC 571 ("the principal judgment"). I have now received and heard submissions on quantum. Relevant findings of fact 2 In the principal judgment I made the following findings of fact which are relevant to the present issue. 3 On 19 September 2001, the plaintiff ("RMD") entered into an agreement ("the contract") with Rildean Pty Limited ("Rildean") which set out various terms and conditions of trade between the two. 4 Pursuant to that agreement, RMD hired numerous items of scaffolding to Rildean on various occasions between 21 September 2001 and 16 March 2002. 5 On 18 July 2002 ("the date of appointment") the defendants were appointed as agents for the mortgagee in possession of the assets of Rildean whereupon they entered into possession and took control of the property of Rildean for the purpose of enforcing a charge previously given by Rildean to Navmost Pty Limited ("Navmost"). 6 Rildean was in possession of 26,731 items of RMD scaffolding as at the date of appointment. 7 On and from 19 July 2002, RMD demanded the return of its scaffolding. 1,058 items were returned to RMD after a meeting at Rildean's premises on 23 July 2002. A further 33 items were returned (or taken to have been returned) after another such meeting on 25 October 2002. The net quantity of 25,640 items have never been returned to RMD. 8 On 8 August 2002, Rildean, the defendants and others entered into a licence deed with Action Constructions Services Pty Limited ("ACS"). Relevant terms of the licence deed appear in the principal judgment at [40]. In short, the intention was that ACS would continue to perform Rildean contracts and enter into new contracts for the purpose of generating revenue and recovering debts owed to Rildean for the overriding purpose of maximising the prospect of the Navmost debts being paid. All scaffolding in the possession of Rildean was thereby made available for use by ACS for these purposes. 9 On 18 November 2004 the defendants entered into an agreement for the sale of scaffolding in the possession of Rildean to ACS. That sale was completed on 3 December 2004. Relevant conclusions 10 In the principal judgment I drew the following conclusions from the facts as found. 11 The defendants came into possession of the scaffolding belonging to RMD upon the date of their appointment. 12 The defendants did not give notice pursuant to s 419A(3) Corporations Act 2001 (Cth) within seven days of their appointment and so they became liable under s 419A(2) which is in the following terms: (2) Subject to subsections (4) and (7), the controller is liable for so much of the rent or other amounts payable by the corporation under the agreement as is attributable to a period: (a) that begins more than 7 days after the control day; and (b) throughout which: (i) the corporation continues to use or occupy, or to be in possession of, the third party property; and (ii) the controller is controller of the third party property. 13 The liability of the defendants under this provision is from 25 July 2002. (I considered and rejected the contention that the defendants should be excused from liability pursuant to s 419A(7)). 14 The licence agreement of 8 August 2004 constituted an act of conversion and the sale agreement completed on 3 December 2004 constituted a further act of conversation. Overview of the claim 15 There is no issue that the starting point for the assessment of damages is my finding that the quantity of scaffolding in issue is that which I found to be in the possession of Rildean, and hence the defendants, as at 18 July 2002, less the quantities returned following the meetings on 23 July and 25 October 2002. 16 The plaintiff's claim is for the following which I will deal with in turn but in a slightly different order: (a) hire charges from 25 July 2002 until 3 December 2004; (b) interest on hire charges pursuant to clause 15(d) of the contract; (c) a sum equivalent to the value as at 3 December 2004 of scaffolding not returned; and (d) interest under s 100 Civil Procedure Act 2004 from 3 December 2004 on the total of (a), (b) and (c) Hire charges 17 There is no issue that the defendants are liable for the payment of hire charges under the contract. There is, however, an issue as to the period in which the defendant is so liable. The plaintiff contends that it is as set out in the preceding paragraph and that the amount involved is $1,358,257.16 plus GST. The defendant contends that it is for the period 25 July to 8 August 2002 and so the amount is $22,470.30 plus GST. 18 The defendants contend for the shorter period because the liability under s 419A(2) is only in respect of "use" of the property by the defendants. From 8 August 2002, the entity that was using the property was not the defendants but ACS. On the other hand the plaintiff relies, inter alia, upon the terms of the licence agreement which included that ACS was to perform the Rildean contracts, and to enter into new contracts, thus generating revenue with profits being returned and applied to the reduction of the debt owed to the defendants' principal. Accordingly, so it was submitted, there was a continued "use" of the property by the defendants. 19 I was referred to Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246; Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd & Anor (1993) 32 NSWLR 175; and Kuwait Airways Corpn v Iraqi Airways Co (No.s 4 and 5) [2002] 2 AC 883 but none of those decisions provides a definitive answer to the competing contentions. 20 I am satisfied that the entry into the licence agreement by the defendants did not bring about an end to the "use" by Rildean of the RMD property and thereby end the liability of the defendants under s 419A(2). Up until 8 August 2002 Rildean clearly had use of that property. After that date they still had use of it but in a different way. That is by authorising ACS to do the actual work in performing existing contracts, entering into new contracts, and recovering sums due under such contracts. The "corporation" (Rildean) continued to use the "third party property" (RMD's property) and it achieved a benefit for such use. That benefit being the continuation of the business of Rildean and the return of money to go towards the reduction of Rildean's debts. Putting it a little more succinctly, RMD's property was still being used by the corporation and for the benefit of the corporation 21 It is just in these circumstances that RMD should be compensated in proportion to the hire charges for which Rildean, and in turn through s 419A(2) the defendants, were liable from 25 July 2002 until the date of completion of the sale agreement, 3 December 2004. Value of scaffolding not returned as at 3 December 2004 22 This part of the plaintiff's claim arises from clause 22 of the contract, particularly cl 22(b). Clause 22(a) is said to be relevant to an understanding of cl 22(b). They are in these terms: 22. In addition to and without derogating from the generality of the preceding terms where the goods are HIRED out by RMD to the Customer, the Customer is granted a licence to use the Goods on the following further terms and conditions: (a) The Goods must be returned to RMD cleaned and oiled and in a condition at least equal to when they were despatched from RMD's depot, fair wear and tear excepted, the assessment of which condition shall be made solely by RMD. The customer will be responsible for the cost of any repairs and/or cleaning. (b) At the end of any period of hire, the Customer will be responsible for replacing all lost or damaged Goods at RMD's ruling list prices at the time of replacement or repair, in addition to hire charges already rendered. … 23 A number of submissions were made on behalf of the defendants. First it was submitted that the defendants were not bound by cl 22(b) as it is a "personal covenant given by Rildean to RMD". Secondly, it was submitted that it did not fall within the meaning of "rent or other amounts payable by the corporation under the agreement" for which a controller may be liable under s 419A(2). The defendants adopted the construction of that term made by Campbell J (as he then was) in Re Nardell Coal Corporation (In Liq) v Hunter Valley Coal Processing [2003] NSWSC 642 and argued that it was not ejusdem generis with rent. The third submission was that the clause was not engaged because the scaffolding had not been "lost or damaged", but had been converted. 24 The personal covenant point has no merit. It is no more "personal" than the obligation to pay rent under the contract. The defendants accept that there can be liability under s 419A attached to a controller to pay rent. There seems no logical basis to distinguish between rent and "other amounts payable by the corporation under the agreement" on the basis that one might be "personal" and the other not. 25 The ejusdem generis point also has no merit. In the phrase in s 419A(2), "rent or other amounts payable by the corporation under the agreement", rent is clearly not a genus. 26 In Nardell Coal, Campbell J said: 97 Section 419A(2) imposes on the controller, in certain circumstances, liability to pay " so much of the rent or other amounts payable by the corporation under the agreement " as is attributable to certain periods of time. Section 419A(2) is to be applied by enquiring, of any particular amount which is in question, whether it is part of the " rent or other amounts payable by the corporation under the agreement ". The " other amounts " are to be identified by whether they are eiusdem generis with " rent ". It is a notorious fact that leases can provide a variety of types of payment which are payable by a lessee as consideration, payable periodically, for the rights conferred on the lessee by the lease. The consideration can take the form, for example, of a fixed money payment, a money payment which fluctuates by reference to some index factor (including one personal to the lessee, like the lessee's turnover or profits) or, an amount which is dependent upon actual expenses incurred by the lessor (as is the case with a common type of covenant to pay outgoings of the leased premises). All these amounts are " rent or other amounts payable by the corporation under the agreement ". Construing section 419A in this way accords with the purpose of section 419A as being that a receiver ought not be able to permit a company to continue to obtain the benefit of occupation or use of the leased property without being liable for the payments which the company is liable to make for that continued occupation or use. 98 The covenant for Nardell to indemnify HVCP against its liability to pay GST in Clause 12.3 of the lease of the Plant, is part of the periodical consideration which the lessee is to pay for the use of the leased property. Thus, amounts which fall due under that covenant are amounts which fall within section 419A(2). Hence, in the present case, the receivers are liable to pay those amounts unless excused. 27 Campbell J was concerned with a provision that required the lessee corporation to not only pay rent but also, under clause 12.3 of the lease, to pay the GST relevant to each of those periodical rental payments. It was clearly a matter that fell within "other amounts payable" within s 419A(2) and, with respect, did not require recourse to the ejusdem generis rule of statutory interpretation in order to reach that conclusion. 28 In Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113 at 143, Spigelman CJ referred to it as being "essential for the application of the ejusdem generis rule that some common characteristic capable of being described as a genus is able to be identified". He agreed with Lord Diplock in Quazi v Quazi [1980] AC 744 at 807-808 that "unless at least two different species are identified it is not possible to determine a relevant genus which may be used to read down the general words which follow. 29 In the passage from Nardell Coal set out above it appears that Campbell J identified from the single word "rent" the genus, "payment[s] which are payable by a lessee as consideration, payable periodically, for the rights conferred on the lessee by the lease". For myself I see no warrant for reading down the words "other amounts payable". They should be understood by their ordinary meaning in the context in which they appear. That context includes the statement in s 419A(1) as to the circumstances in which the section applies. The "agreement" in s 419A(2) is obviously an agreement made before the control day pursuant to which the corporation continues after the control day to use, occupy or be in possession of property owned or leased by some other entity. The liability of the controller under s 419A(2) is, in my view, quite clearly for amounts payable by the corporation under that agreement in respect of the use, occupation or possession of that property. In the present case, part of what is payable in respect of the use or possession of the plaintiff's scaffolding is the amount specified by cl 22(b). 30 To adopt the construction of "rent of other amounts payable" for which the defendants contend could lead to absurd results. Not all amounts under a lease for which a lessee is liable to pay can be classified as amounts "payable periodically for the rights conferred on the lessee by the lease". For example, in the case of a lease which required the lessee to repaint a leased building midway through the lease period, the defendants' construction of s 419A(2) would have it that if that liability arose during a period in which a controller was the controller of the lessor's building, the controller would be liable for the periodical payments of rent but not for the cost of repainting the building that the relevant corporation continued to use, occupy or possess. 31 In my view, "rent" in s 419A(2) may be regarded as surplusage or a pleonasm. The provision should be construed in such a way as to render the defendants liable for all amounts payable to the plaintiff under the contract in respect of the use or possession by Rildean of the plaintiff's scaffolding. Part of that is to pay for items that are lost or damaged in the course of such use or possession. 32 The final point raised by the defendants was that the scaffolding was not "lost or damaged". It was, simply, converted. I reject this submission as well. Clause 22(b) should, quite obviously in my view, be understood and construed as providing that the "Customer" will reimburse RMD for items either not returned, or returned in a damaged state. The overall effect of clauses 22(a) and (b) is that the customer will restore the goods to RMD in a fit state for them to be re-hired and to make good by way of compensation any failure of the customer to perform that obligation. The words "replacement or repair" clearly point to the purpose of the clause being that the customer will compensate RMD if any items required either replacement or repair. 33 "Lost" must, in the overall context in which this clause appears (a commercial contract for the hire of scaffolding) be construed broadly to the effect of items being lost to the use of RMD. It would be absurd to construe the clause to render the customer liable to pay for replacement if an item was lost in the sense of being misplaced or having disappeared but not liable if an item was not returned for some other reason. In short, to construe this clause in the manner for which the defendants contend would not be to give it a sensible commercial operation. No reasonable person would construe the clause in the manner suggested. See Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 199 per Beazley JA at [47] – [48] and McColl JA at [105]. 34 Mr Ashhurst SC conceded (16.12.09 at T17.3) on behalf of the defendants that if they are held to be liable on the s 419A(2) and clause 22(b) basis, the sum should be assessed in the manner described in that clause. Interest on hire charges 35 The defendants appear to concede that they could be liable for the payment of interest on unpaid hire charges pursuant to clause 15(d) of the contract but contend that they are not so liable because the plaintiff did not raise any such interest charge. 36 Clause 15(d) is in these terms: 15. Payment is required 30 days from the date of the invoice unless otherwise agreed in writing. Should payment be in arrears then RMD reserved the right to: … d) raise interest charges of 1.5% per month on any overdue balance at the end of a month. 37 From the day after the date of appointment there was a succession of communication from RMD to the defendants seeking the return of its scaffolding. Accompanying a letter of 19 July 2002 were a list of outstanding items, the hire charge rates and a copy of the contract which included the abovementioned clause. The defendants were clearly informed that RMD regarded them as liable for hire charges until such time as the scaffolding was returned. The position adopted by the defendants was to the effect that they were unable to make any payments for hire charges, nor return items, until such time as there was acceptable identification of the property that belonged to RMD. 38 There was no communication from RMD to the defendants which specifically demanded the payment of interest on hire charges. It was put that this would have been a waste of time because of the stance taken by the defendants that I have just referred to. 39 It was submitted on behalf of the plaintiff that the absence of any formal demand for payment of interest on hire charges was not fatal to this part of the claim. Mr Gray pointed out that there was no temporal component to cl 15(d). Part of the relief claimed in the amended statement of claim is "interest on all moneys payable by the defendants to the plaintiffs in accordance with any relevant contract". That, it was submitted, was sufficient to "raise interest charges". In my view that submission should be accepted. 40 At the very end of oral submissions on 16 December 2009 Mr Ashhurst added to the defendants' argument against them being held liable to pay for interest on hire charges. He indicated that the argument was essentially the same as the argument advanced in respect of the topic of liability under clause 22(b). It was submitted that interest on hire charges is not within the term "rent or other amounts payable by the corporation under the agreement" for which the defendants could be liable under s 419A(2). I reject this contention for the same reasons I gave when dealing with the clause 22(b) liability topic. Indeed, the argument is even more tenuous in relation to a liability so closely aligned with the liability to pay "rent". Double interest 41 It was submitted on behalf of the defendants that the plaintiff is not entitled to interest pursuant to clause 15(d) as well as pursuant to s 100 of the Civil Procedure Act because a claim for interest on interest is expressly prohibited by s 100(3)(a). The relevant provisions of s 100 are: (1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. … (3) This section: (a) does not authorise the giving of interest on any interest awarded under this section, and (b) does not authorise the giving of interest on a debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise, and (c) does not authorise the giving of interest in any proceedings for the recovery of money in which the amount claimed is less than such amount as may be prescribed by the uniform rules, and (d) does not affect the damages recoverable for the dishonour of a bill of exchange. 42 The defendant's submission was concerned with s 100(3)(a). However, the plaintiff is not seeking "interest on any interest awarded under this section". It is seeking interest upon the total sum claimed to be due to the plaintiff as at 3 December 2004. No part of that sum is "interest awarded under this section". I uphold the plaintiff's claim in this respect. Damages in conversion 43 Notwithstanding the defendants' opposition to damages being awarded on the clause 22(b) basis, they do concede that for the act of conversion they are liable to damages to the value of the goods. In making that concession they referred to the statement of Denning LJ in Strand Electric (supra) at 255 in support of a submission that the plaintiff is entitled to the value of the goods not returned but not to hire charges: If the goods are retained by the wrongdoer up till judgment, the hiring charge runs up to that time, and in addition the owner will get the return of the goods or their value at the time of judgment … but if the goods have been disposed of by the wrongdoer the hiring charge will cease at the time of such disposal, but the owner will get in addition damages for the loss he has sustained by the conversion, which is usually the value at the time of conversion. 44 In my view this supports the contrary of the defendants' contention. That is, that they are liable for hiring charges up until the time of conversion and at that point in time became liable for the value of the goods. There is no need to dwell upon this. I have already determined that the defendants are liable for hiring charges from 25 July 2002 until 3 December 2004. They are also, pursuant to s 419A(2) and cl 22(b) of the contract, liable to pay for the goods at the value of RMD's ruling list prices. 45 As an alternative to liability under s 419A, however, liability for conversion would be assessed according to the common law and not according to the provisions of the contract. The assessment of the quantum of such liability may not necessarily be the same. 46 The defendants contend that no reliance can be placed upon a list of prices of scaffolding which is part of the evidence for the plaintiff because it indicates retail prices of new items as at 1 January 2002 and does not provide a value of second hand hire scaffolding or of wholesale rather than retail value as at the date of conversion (which the defendants contend is 8 August 2002 but I have earlier held should be taken to be 3 December 2004). It was submitted that regard should be had to the valuation by O'Maras Valuers and Auctioneers (see principal judgment at [42]). After carrying out a stocktake, a value of the various items of scaffolding that were sighted was made based upon sale at auction and on a going concern basis. The auction sale basis, it was submitted, provided a more realistic indication of the replacement value of the items, albeit that was a valuation ascribed to the items in August 2002 rather than December 2004. 47 I accept the submission of the plaintiff that damages should be assessed upon a consideration of the position the plaintiff would have been in if no tort had been committed: Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 at 190-191. With this in mind, it would be appropriate that the plaintiff be compensated with reference to what the value would have been to RMD if the scaffolding had been in its possession as at 3 December 2004. 48 It could be arguable that the plaintiff would also be entitled to be compensated for the loss of profits that it would have derived from the hire of such scaffolding from that date until the present. However it has not sought damages in this respect. I note as well in this regard that the plaintiff will be compensated by the order for interest to be paid by the defendants upon the value of the goods from 3 December 2004 until the present pursuant to s 100 Civil Procedure Act. 49 Mr Gray referred me to the evidence of Mr Baker which was to the effect that RMD sold scaffolding as well as hired it and in both cases the scaffolding had RMD's distinguishing paint markings. From that he invited me to infer that RMD was not selling "mint condition" scaffolding but scaffolding that had been previously hired. 50 The evidence on this subject is somewhat lacking in precision but I have come to the view that the appropriate and just way of resolving the issue is to consider that if the defendants' had not committed the act of conversion but had returned the goods to the plaintiff, the plaintiff would have been in a position to not only hire the goods out but also to sell them. It would have sold them at its prevailing list price. That seems to be an appropriate measure of what the plaintiff lost by the act of conversion, the ability to realise a sale of the goods at that price. 51 Accordingly the quantum of the liability of the defendants is identical, whether it be by reference to s 419A and clause 22(b) or by reference to its liability for damages for conversion. Conclusion 52 The defendants are liable for the following: A. Hire charges, including GST, from 25 July 2002 until 3 December 2004 B. Interest on unpaid hire charges from 25 July 2002 until 3 December 2004 C. Value of equipment not returned, including GST, at RMD's list prices as at 3 December 2004 D. Interest under s 100 of the Civil Procedure Act on A, B and C from 3 December 2004 until the date of this judgment 53 Subject to any special costs orders being sought by the parties, the defendant should pay the plaintiff's costs of these proceedings. 54 I direct the parties bring in agreed short minutes of orders to reflect these conclusions and proposed orders within 7 days. 55 There will be liberty to apply upon 7 days notice. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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