New South Wales Supreme Court CITATION : Chep v Bunnings [2010] NSWSC 301 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 8/03/10, 9/03/10, 10/03/10, 11/03/10, 12/03/10 JUDGMENT DATE : 7 May 2010 JURISDICTION : Equity Division Commercial List JUDGMENT OF : McDougall J at 1 DECISION : Direct entry of judgment for the plaintiff against the defendant for damages to be assessed. CATCHWORDS : TORTS – conversion and detinue – where defendant was in possession of a substantial number of the plaintiffs' pallets – whether demands made on defendant for return of pallets – whether defendant failed to comply – whether defendant is liable for conversion or detinue – whether plaintiffs had a right to immediate possession of pallets – whether the defendant had implied licence to use pallets - whether plaintiffs estopped from contending that any wrong was committed by the defendant by acquiescing in any holding and use of pallets by the defendant. - DAMAGES – whether loss suffered – proper measure of damages for any conversion or detinue – quantum of damages. LEGISLATION CITED : Trade Practices Act 1974 (Cth) CATEGORY : Principal judgment Armory v Delamirie (1722) 1 Strange 505; 93 ER 664 Baud Corp, NV v Brook (1973) 40 DLR (3d) 418 BIS Cleanaway v Tatale [2007] NSWSC 378 Brambles Australia Ltd t/as Chep Australia v Tatale Pty Ltd (2004) Aust Torts Reports 81-759 Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 Butler v Hobson [1838] 4 Bing. N.C. 290 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Reports 81-244 Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 Gould v Vaggelas (1985) 157 CLR 215 Henry Berry & Co Pty Ltd v Rushton [1937] St. R. Qd. 109 CASES CITED : Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 IBL Ltd v Coussens [1991] 2 All ER 133 John F Goulding Pty Limited v The Victorian Railways Commissioners (1932) 48 CLR 157 Kahler v Midland Bank Limited [1950] AC 24 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 McKenna and Armisterd Pty Ltd v Excavations Pty Ltd [1957] SR (NSW) 515 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 Penfolds Wines Pty Limited v Elliott (1946) 74 CLR 204 Screenco Pty Ltd v R L Dew Pty Ltd (2003) 58 NSWLR 720 Smith New Court Securities Limited v Citibank NA [1997] AC 254 Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 CHEP Australia Limited (First Plaintiff) PARTIES : CHEP Equipment Australia Pty Ltd (Second Plaintiff) Transpacific Cleanaway Limited (Third Plaintiff) Bunnings Group Limited (Defendant) FILE NUMBER(S) : SC 2007/266437 COUNSEL : T F Bathurst QC / N J Kidd (Plaintiffs) R M Garratt QC / D A Priestley (Defendant) SOLICITORS : Allens Arthur Robinson (Plaintiffs) Ligeti Partners (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST McDOUGALL J 7 May 2010 2007/266437 CHEP AUSTRALIA LTD & ORS v BUNNINGS GROUP LTD JUDGMENT 1 HIS HONOUR: The plaintiffs' distinctive "Chep" pallets are widely used for the carriage, storage and display of manufactured goods. At all times relevant to these proceedings, one or other of the plaintiffs (to whom it is convenient to refer collectively as "Chep") carried on the business of making those pallets available to hirers pursuant to a "pooled pallet" system. In its simplest form, a hirer takes a quantity of pallets on hire from Chep and uses them until the immediate purpose of their use is fulfilled. The hirer then returns the pallets (not necessarily in specie, but an equivalent number to those hired) from Chep. The hirer remains liable for hire charges until the pallets are passed onto another hirer who accepts responsibility for that hire, or until the pallets are, in the language of the trade, "de-hired": returned to Chep or written off on payment of a "loss fee". 2 The defendant (Bunnings) carries on throughout Australia a retail hardware business. It is not, and (with some irrelevant exceptions) never has been, a hirer from Chep. Nonetheless, for many years up until October 2007, Bunnings was in possession of a substantial number of Chep pallets. After a series of demands made by Chep, Bunnings has returned, either to hirers from whom it obtained them or to Chep, all the Chep pallets that it held. The essential question for decision in these proceedings is whether Bunnings, by such use as it made of Chep pallets in its possession from time to time, is liable for the conversion of those pallets; or alternatively, whether, by reason of its failure to comply (until October 2007) with demands made upon it, it is liable in detinue. The issues 3 The parties agreed that the real issues for decision were as follows: 1. Did the plaintiffs have a right to immediate possession of CHEP pallets in the possession of the defendant in the period January 2002 to October 2007 (the Relevant Period ) ? 2. In the Relevant Period, did the defendant have possession of CHEP pallets not the subject of a contract for hire between the first or third plaintiffs and their customers (Non Commercial CHEP Pallets) ? 3. In the Relevant Period, what use did the defendant make of Non-Commercial CHEP pallets? 4. In the Relevant Period, did the defendant receive and keep possession of Non-Commercial CHEP Pallets and refuse to either hire or deliver up Non-Commercial CHEP Pallets? 5. In the Relevant Period, did the defendant convert Non-Commercial CHEP Pallets? 6. If so, approximately what quantities of Non-Commercial CHEP Pallets did the defendant unlawfully convert and over what period? 7. In the Relevant Period, did the defendant unlawfully detain Non-Commercial CHEP Pallets? 8. If so, approximately what quantities of Non-Commercial CHEP Pallets did the defendant unlawfully detain and over what period? 9. Whether the plaintiffs gave their customers an implied licence in respect of pallets contrary to an immediate right to possession? 10. If so, whether that implied licence is an answer to the plaintiffs' claims relating to Non-Commercial CHEP Pallets. 11. Whether the plaintiffs are estopped from contending that any wrong was committed by the defendant by acquiescing in any holding and use of CHEP pallets by the defendant? 12. If so, whether that estoppel is an answer to the plaintiffs' claims relating to Non-Commercial CHEP Pallets. 13. What loss, if any, have the plaintiffs suffered by any conversion or detention of pallets by the defendant? 14. If damages are appropriate, what is the proper measure of damages for any conversion and/or detinue of the CHEP pallets? 15. Applying the proper measure, what is the quantum of damages (if any) to which the first and third plaintiffs are entitled? Note: The defendant contends that the "Relevant Period" for the purpose of this Statement of Issues is 16 May 2002 to October 2007. Factual background 4 Chep is the market leader in Australia in the pallet hire market, and is a major competitor in the worldwide pallet hire market. Its wooden pallets are painted blue and are branded in white with the "Chep" logo. 5 No Chep pallet is uniquely identifiable. Any Chep pallet is interchangeable for any other. No Chep customer is obliged to return in specie any pallet that has been hired to it; its obligation is to return pallets equal in number to those hired, or to pay daily hire charges until the pallets are returned or otherwise de-hired. 6 Chep does not sell, nor has it ever sold, branded Chep pallets to any user. For many years, Chep pallets have been hired pursuant to the pallet pooling scheme to which I have already referred. Hirers obtain and return pallets according to their needs. Where the pallets are passed from one hirer to another, there is a scheme for documenting the transfer so that each hirer is liable for hire charges only for the time that pallets are in its possession. When pallets are no longer required, they are returned to a Chep depot. 7 As pallets are damaged, Chep repairs them. When pallets are deemed to have reached the end of their useful life, they are broken up and recycled or "defaced" (by removal of the Chep logo and other means) and disposed of. 8 From time to time, hirers sell or ship goods to non-hirers. Chep's terms of trade permit that to happen, on terms including that the hirer remains liable for hire charges until the pallets are passed on to another hirer, or returned to Chep, or otherwise dehired. 9 As I have said, Bunnings operates a chain of retail hardware stores throughout Australia. Increasingly, those stores are what is known as "warehouse" stores. Those stores, which are usually of substantial size, give the impression of being warehouses. Goods for sale, and goods held in stock, are displayed on steel racking. Some goods are offered for sale from pallets. This is usually done at conspicuous places such as at the ends of aisles, adjacent to registers and entrances, and in the garden section of each store. Further, goods not required for immediate sale may be from time to time stored on pallets placed on top of the steel racking on which other goods are displayed for sale. 10 At least until October 2007, many of Bunnings' suppliers delivered goods to it loaded on Chep pallets. When a loaded pallet was delivered to a Bunnings store, it might be dealt with in one of three ways: (1) the pallet might be unpacked shortly after delivery; the goods placed onto racks; and the pallet made available for return to the supplier or its carrier; (2) the pallet might be placed on the floor of the store so that goods could be offered for sale from it; or (3) the pallet might be stored on top of the steel racking (or, in the jargon of the trade, in "high rise") until needed. 11 Where the suppliers to Bunnings were customers of Chep who had entered into a hire contract with Chep, those customers remained liable for the hire and well-being of Chep pallets whilst those pallets remained in Bunnings' possession. The suppliers would only cease to be liable when, having regained possession of the pallets, they either transferred them in the course of business to another Chep customer who accepted responsibility for the pallets, or returned them to a Chep distribution centre and thereby de-hired them. 12 Further, Bunnings imports goods directly. Those goods are usually brought in containers, but in some instances on pallets. Once the goods have cleared customs, they are taken (still in their container or on their pallet) to a Bunnings distribution centre. The consignments are then broken down and repackaged for distribution to individual stores. 13 Bunnings has always held a substantial number of its own branded pallets, which it replenishes by purchase from time to time. In addition, it has entered into terms of hire with Loscam, which is Chep's major competitor in the pallet hire business. When goods are despatched from Bunnings' distribution centres to stores, they are loaded onto pallets (or, again in the jargon of the trade, "palletised") and shipped out. Bunnings' evidence was to the effect that when this was done, the distribution centres sought to use Bunnings' own pallets or Loscam pallets; but that, from time to time, it was necessary for any Chep pallets that were on hand to be used for this purpose. 14 Bunnings' evidence was also to the effect that, when goods were delivered to stores on Chep pallets, the supplier either: (1) took back, in exchange for the loaded pallets, an equivalent number of empty Chep pallets; or (2) took an "IOU" for the number of unrequited pallets, which IOU would be redeemed on a later occasion. 15 Thus, Bunnings said, all Chep pallets in its possession from time to time were pallets on hire to its suppliers who were Chep customers, and Chep was receiving hire charges for those pallets (or, if it were not, that had nothing to do with Bunnings). 16 Bunnings began to make pallets available for collection by Chep, in circumstances to which it will be necessary to return in more detail, on about 1 October 2007. Before then, Bunnings had advised its suppliers to collect any pallets owed to them by way of unredeemed IOUs. Bunnings had also instructed its stores to ensure that all IOUs were honoured. Nonetheless, it is agreed, Chep collected in total 82,216 pallets from Bunnings on and after 1 October 2007. 17 Chep then asked all its customers whom it knew to be suppliers to Bunnings to make a claim for any unrequited IOUs. According to Chep, that process established that, of the 82,216 pallets recovered from Bunnings, some 17,526 were owed to Chep's customers who were Bunnings' suppliers. 18 Thus, Chep said, the pallets held by Bunnings that were not the subject of any current hire agreement between Chep and a customer numbered at least 64,690. Chep claims damages for the conversion or detention of that number of pallets, and for lesser numbers (pro-rated in a way that is essentially non-contentious) for previous periods. Chep's terms of hire 19 It was common ground that at all relevant times Chep's standard terms of hire for Chep equipment included provisions to the following effect (to the extent that the terms of hire varied over the period from 2002 to 2007 with which these proceedings are concerned, those variations are immaterial): 1 DEFINITIONS In these terms: … CHEP means CHEP Australia Limited ABN 11 117 266 323 (and its successors and assigns); … Equipment means items of property lent or hired out by CHEP from time to time; … Hirer means any person, firm or corporation to whom Equipment is lent or hired by CHEP, and its legal personal representatives, successors and permitted assigns; … Quantity on Hire means, in respect of any day, the quantity of Equipment lent or hired by CHEP to the Hirer; … 2. HIRE 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 as returned until the whole of the item is returned or compensation is paid under clause 4. … (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. … 4. OWNERSHIP, LOSS, CONDITION AND REPOSSESSION OF EQUIPMENT The Hirer acknowledges that each item of Equipment has a special value to CHEP in that, as part of CHEP Australia, CHEP repairs, maintains, handles and otherwise administers the circulation of all Equipment. The Hirer expressly agrees to all the following matters as a condition of CHEP agreeing to lend or hire Equipment to the Hirer: (a) Despite any other clause in these terms, CHEP remains the owner of the Equipment at all times. No person is entitled to use, dispose of or otherwise deal with Equipment in any way that is inconsistent with CHEP's ownership or these terms. Payment of compensation, or any other circumstance or event, does not constitute or result in any transfer of property or interest in the Equipment from CHEP. (b) (1) If the Hirer establishes to CHEP's satisfaction that Equipment on hire is destroyed (Destroyed Equipment), the Hirer must pay CHEP compensation in an amount equal to the then current value, as determined by CHEP, of that quantity of new Equipment. The Hirer remains liable to CHEP for hiring charges in respect of Destroyed Equipment until payment of the compensation required by this clause. (2) If the Hirer establishes to CHEP's satisfaction that Equipment on Hire is lost (Lost Equipment), the Hirer must pay CHEP compensation in an amount agreed between the Hirer and CHEP or, if they do not agree, at CHEP's posted Last Equipment Compensation Rate from time to time. … (3) If the Hirer subsequently recovers possession of Lost Equipment in respect of which compensation has been paid, or if CHEP retakes possession of Equipment for which CHEP considers that the Hirer has paid compensation, CHEP will refund to the Hirer the amount of compensation paid for the Lost Equipment, after deducting any costs of recovery or retaking possession and an amount equal to the amount of hiring charges not paid by the Hirer and which would otherwise be due and owing if CHEP has not agreed to treat the Equipment as Lost Equipment. … (d) CHEP has the right to immediate possession of all CHEP Equipment, whether on hire or not, and may take possession of any Equipment immediately and without notice to any person. The Hirer gives CHEP an irrevocable licence to enter property occupied by the Hirer at any time and take any steps CHEP considers reasonably necessary or appropriate to obtain possession of Equipment. The Hirer must pay CHEP's actual costs of obtaining possession of Equipment. CHEP may credit the Hirer's account with Equipment so recovered. If CHEP takes possession of any Equipment which the Hirer demonstrates to CHEP's satisfaction was then on hire to the Hirer, CHEP will, at the Hirer's request, make available the same quantity of Equipment to the Hirer, if the Hirer demonstrates to CHEP's satisfaction that the Hirer would then have no more Equipment than its Quantity on Hire. … 14. TERMINATION CHEP may at any time give the Hirer written notice terminating the hire of Equipment and further or alternatively any licence granted under these terms. On receipt of a notice terminating the hire of Equipment, the Hirer must deliver to CHEP (at no cost to CHEP) within 7 days of the date notice is given, or by any later date specified in the notice, all Equipment held by the Hirer. CHEP may treat any Equipment not so delivered as Lost Equipment for the purposes of clause 4(b) (2), or may seek to recover the Equipment from the Hirer. If CHEP chooses to recover the Equipment, the Hirer must indemnify CHEP's [sic] for its costs of recovery, including legal costs on a solicitor and own client basis. The Hirer's obligations under this clause survive termination of the hire of the Equipment. … The witnesses in the case 20 Chep called the following witnesses: (1) Mr Phillip James Austin, who is Chep's vice president of business development. Mr Austin gave evidence of: Chep's business over the years; the lifecycle of a Chep pallet; Chep's terms of hire and the fees payable for and in respect of hire; Chep's asset management program (which includes the methods used for tracking Chep equipment as it is used in trade, conducting audits of customers and recovering lost hire equipment); lost pallets (including what happens when a pallet is written off as lost or destroyed); Chep's competitors; and communications to Bunnings that were said to demonstrate withdrawal of consent for Bunnings to hold Chep pallets. No challenge was made to Mr Austin's credibility, and I accept his evidence as truthful. (2) Mr Robert Nies Gerrard, who is the group company secretary of Chep's holding company and its associated companies, and was formerly a corporate lawyer in the group. Mr Gerrard gave evidence of the transfers of the Chep business, and property in or the right to possession of pallets, between the various plaintiffs over the years as the business of the group was reorganised. He was not required for cross-examination and his evidence was not contentious. I accept it. (3) Mr Glenn Reginald Hammond, who was first (from 2001 until 2005) Chep's asset manager for New South Wales and thereafter (from late 2005 until January 2007) Chep's national asset security manager for major accounts. Mr Hammond gave evidence of: a number of investigations conducted to ascertain how many Chep pallets might be in Bunnings' possession in its stores across Australia; meetings with representatives of Bunnings in an attempt to persuade Bunnings to become a customer of Chep and thus (as Chep would see it) "legitimising" Bunnings' possession of Chep pallets; and what were said to be demands made by Chep on Bunnings for Bunnings either to become a Chep customer or to return Chep pallets to Chep. No attack was made on Mr Hammond's credibility. In my view, he is a truthful and reliable witness and his evidence should be accepted. I note, in particular, that his evidence of various meetings and conversations was supported by contemporaneous records. No attack was made on the authenticity or accuracy of those records; and in some cases, Bunnings' witnesses who were party to the relevant events agreed with the substantial accuracy of important parts of those records. (4) Mr Anthony Graham Pearman, Chep's national security manager. Mr Pearman's evidence covered what he called a "black market" for Chep pallets. In addition, Mr Pearman was involved in the process of identifying the numbers of Chep pallets held by Bunnings from time to time and in the process of recovering those pallets from Bunnings. There was no challenge to Mr Pearman's evidence. On the contrary, the only cross-examination of Mr Pearman seemed to have been directed, for reasons that I must say I do not understand, at introducing into evidence a portion of his affidavit that had been rejected on objection taken by Bunnings. I accept Mr Pearman's evidence. (5) Mr Kim Dudley Poole. Mr Poole was Chep's Western Australian state manager, and then Western Australian state sales manager, from 1992 until 2006. He gave evidence of negotiations with Bunnings which were directed to persuading Bunnings to become a Chep hirer, and of a "stocktake" of Chep pallets in Bunnings' stores in Western Australia. There was no challenge to his evidence, and I accept it. (6) Ms Rachel Dominique Welch. Ms Welch is employed by Chep as manager, asset protection recoveries and audits. She gave evidence of the process by which Chep recovered pallets from Bunnings following the orders of this Court made on 24 August 2007, and of a process undertaken by Chep (which she described as the "Reconciliation Process" – a useful label which I shall adopt) to identify, from the number of pallets returned by Bunnings to Chep, those pallets that might be the subject of IOU claims by Chep's customers who were hirers to Bunnings. In essence, it was Ms Welch's evidence from which the figures set out at [16] to [18] above are derived. There was no challenge made to Ms Welch's credibility, and I accept her as a witness of truth. Mr Rodney Garratt of Queens Counsel, who appeared with Mr Dominic Priestley of counsel for Bunnings, suggested that there were shortcomings in her evidence, although these shortcomings were said to flow not from any want of truthfulness on her part but, rather, from deficiencies in her methodology. I shall return to these criticisms when dealing with issues 6 and 8. 21 Bunnings called the following witnesses: (1) Mr Peter John Charles Davis. He was managing director of Bunnings from 2002 to 2004, and has been its chief operating officer since. He has been a director of Bunnings since 1996. Mr Davis gave evidence of: Bunnings' business model and growth; the way in which pallets were used in Bunnings' business; and approaches by Chep seeking to persuade Bunnings to become a hirer of pallets from Chep. No attack was made on Mr Davis' credibility, and I accept him as a witness of truth. (2) Mr Jeffrey Hugh Doyle, who is, and for some time has been, employed by Bunnings as a project manager in its finance and administration team. Mr Doyle has worked for Bunnings and its predecessors (businesses taken over directly or indirectly by Bunnings) for more than 20 years, including (from 2002 to 2007) as a store support manager. Mr Doyle gave evidence of Bunnings' operations, including the way that it dealt with pallets and goods delivered on them, and of the exchange system that operated in respect of deliveries on Chep pallets. No attack was made on Mr Doyle's credibility, and I accept him as a witness of truth. (3) Mr Michael John Gilsenan, who worked for Bunnings as a consultant and then as national supply chain manager from mid 2004 until 2008. Mr Gilsenan gave evidence of the way in which goods moved through the Bunnings distribution network, and of the way that pallets were dealt with. Mr Gilsenan was involved in discussions with Mr Hammond and others from Chep, and he gave evidence of those discussions. Further, Mr Gilsenan was involved in the process of making Chep pallets available for collection from 1 October 2007. In general, I accept Mr Gilsenan's evidence. However, to the extent that it conflicts with the evidence of Mr Hammond, I prefer the evidence of Mr Hammond. I do so for three reasons. The first is that, in crucial respects, Mr Hammonds' evidence was (as I have said) supported by unchallenged contemporaneous records. The second is that Mr Gilsenan conceded the accuracy of crucial parts of those contemporaneous records. The third is that, in the residual areas of disagreement, Mr Hammond's evidence impressed me as being given in a forthright and direct manner, whereas Mr Gilsenan from time to time sought to evade the point of simple questions, and to answer in a non-responsive manner. See, for example, Mr Gilsenan's cross-examination on the last sentence of paragraph 22 of his affidavit (which asserted that "Chep pallets were not used within the Bunnings' supply chain") at T159.47-162.36. Mr Gilsenan's refusal to concede what was, on his own evidence, an obvious error in that sentence did not impress me. See, also, his evidence on "double dipping" (Bunnings' justification for its stance was that for it to pay hire to Chep for pallets that were already on hire to its suppliers would amount to double dipping) at T168.10-.41. (4) Mr John William Judd, who was Chep's South Australian state manager, and then national general manager with responsibility for the automotive and produce industries, from 1984 until about 2000, and Chep's general manager for New Zealand from 2000 until 2003. Mr Judd gave evidence (initially on the voir dire following objection, but substantially admitted in the proceedings over that objection) dealing with Chep's attempts to gain new customers so far as he was aware of those procedures. Mr Judd's knowledge was not detailed, and his evidence was given at a level of generality. Nonetheless, he was not cross-examined. So far as his evidence goes (which is not a great distance), it should be accepted. (5) Mr Raymond Juhani, who has been a manager of Bunnings' stores (and stores run by its direct and indirect predecessors) for more than 25 years. Mr Juhani gave evidence of the way in which pallets moved through the Bunnings supply chain and were used in stores. He was not required for cross-examination. I accept his evidence. (6) Ms Angela Kim McDonald, who is currently the manager of Bunnings' national invoice processing centre, and was previously a project manager, business improvement. Ms McDonald gave evidence of Bunnings' operations and, in particular, of the process undertaken by Bunnings to gather and make available to Chep all Chep pallets in Bunnings' possession, after ensuring so far as possible, that IOUs given to Bunnings' suppliers were honoured. There was no challenge to Ms McDonald's credibility, and I accept her as a witness of truth. (7) Mr Lucas Walker McNiece, who is currently employed by Bunnings as a project manager in Western Australia, and who before that worked as an area manager and national store support manager. Mr McNiece gave evidence of Chep accounts conducted by some BBC Hardware stores (BBC Hardware was a business taken over by Bunnings, or its parent, in 2001). He was responsible for reviewing those accounts and closing them. Mr McNiece was not required for cross-examination and I accept his evidence. (8) Mr William George Pearce, who is presently the business development manager for Northern Australia employed by Bunnings. Before that, and since 2005, he was Bunnings' state operations manager for Western Australia. Mr Pearce gave evidence of Bunnings' operations in Western Australia, of the way in which pallets were used in those operations, and of approaches by Chep representatives seeking to persuade Bunnings to become a Chep customer. No attack was made on Mr Pearce's credibility, and I accept him as a witness of truth. (9) Mr Philip Albert Skermer, who is Bunnings' national distribution centre manager. Mr Skermer gave evidence of the operation of Bunnings' distribution centres: in particular, of the way in which stock moved into those centres (in containers, or on pallets) and out of those centres (on pallets), and of the various kinds of pallet used by Bunnings from time to time. He gave evidence also of Bunnings' purchase of new pallets in 2007, which he said was accelerated to enable the Chep pallets to be returned to Chep. There was no challenge to Mr Skermer's credibility, and I accept him as a witness of truth. (10) Mr David Neal Wilkinson-Beards, who is Bunnings' company secretary, but was formerly its general manager for business improvement. Mr Wilkinson-Beards gave evidence of dealings with Chep's representatives who wanted to persuade Bunnings to become a customer of Chep. No attack was made on Mr Wilkinson-Beard's credibility, and I accept him as a witness of truth. First issue: right to immediate possession Relevant legal principles 22 I dealt with a very similar question, in relation to Chep pallets, in my judgment in BIS Cleanaway v Tatale [2007] NSWSC 378. In that case, the defendants raised a defence of "ius tertii": that they had obtained the pallets from sources that had a right to possession of those pallets. I set out the relevant principles, both in relation to an owner's right to recover bailed goods and in relation to ius tertii, at [38] to [44] and [46] and [47]. Since the parties in this case accepted that what I there said was correct (at the level of principle), I shall take the liberty of incorporating those paragraphs, with very minor amendments, as the following four paragraphs of these reasons. 23 Chep sues in detinue and conversion. Those are possessory remedies. To succeed, Chep must show that it had at the relevant time – the date of demand - the right to immediate possession of the pallets. That right is an incident of ownership, or title; but ownership and possession may be separated. 24 Lord Radcliffe said in Kahler v Midland Bank Limited [1950] AC 24 at 56 that "in the case of a bailment which is terminable at the bailor's will the law will give the right of action to the bailor as well as to the bailee; but then such a bailor has nothing less than a right to immediate possession." In other words, where a stranger to a bailment terminable at the bailor's will is in possession of goods, both the bailor and the bailee could maintain conversion, because each has, as against the stranger, the right to immediate possession. In the bailee's case, the right flows from the bailment. In the bailor's case, it flows from the right to terminate the bailment at will: equivalent to the right to immediate possession. 25 It is clear, and was not controversial, that the defence of ius tertii may be set up against an owner (or bailee) who is not in possession of the goods. See Henry Berry & Co Pty Ltd v Rushton [1937] St. R. Qd. 109. It is equally clear that for the defence of ius tertii to succeed, the third party must have a better right to possession than the plaintiff. See, for example, Vaughan J in Butler v Hobson [1838] 4 Bing. N.C. 290 at 300; 132 E R 800 at 804. 26 In Henry Berry, Henchman J (with whom Webb J and, on this point, E A Douglas J agreed) said at 119 that a defendant "may, under a plea of not guilty or not possessed, show that the plaintiff has no right to immediate possession, because that right is in some other person." I think it follows from what his Honour said, and in any event from the more general proposition that one who asserts must prove, that the defendant bears the onus of identifying the third party and proving that the third party has a right to possession superior to that of the plaintiff. 27 There may be a question as to whether the entrusting of possession of a chattel to another, on terms that what must be returned is not necessarily that particular chattel but an equivalent (i.e., fungible or substitutable) chattel, amounts to a bailment. It is not necessary to pursue, let alone resolve, that question. If, as a matter of strict language, Chep did not bail pallets to its customers, on any view it hired them. And either as bailor or as hirer, the question of whether Chep has the right to immediate possession of those pallets depends, at least in the first instance, on the proper construction of the terms of hire. The parties' submissions 28 In BIS Cleanaway, I concluded at [59] that if Chep's terms of hire (which were not relevantly, if at all, distinguishable from the terms of hire relevant to these proceedings) applied to a contract for hire of Chep pallets then Chep at any given time had the right to immediate possession of pallets thus hired. This followed, I said, from cl 4(d) which made any hiring terminable at the will of the relevant plaintiff (there was some dispute in that case, which is not repeated in this case, as to which "Chep" entity was the relevant plaintiff at any given time). 29 Mr T F Bathurst of Queens Counsel, who appeared with Mr N J Kidd of counsel for Chep, relied on what I had said in BIS Cleanaway at [59]. Mr Garratt submitted that what I had there said paid insufficient attention to the structure of cl 4(d). He submitted that the right to immediate possession given by the first sentence of that sub-clause applied only to chattels in the possession of the hirer. That followed, he said, from the second sentence, which augmented the right to immediate possession given by the first by giving Chep an irrevocable licence to enter property without notice and recover hired chattels. 30 Mr Bathurst submitted, in reply, that in circumstances where the terms of hire expressly contemplated that the hirer could part with possession of pallets in favour of a non-customer (cl 2(c)(3)), cl 4(d) could not be read down in this way. Decision 31 I remain of the view that I expressed in BIS Cleanaway at [59]. Clause 4(d) operates in the context of a contractual relationship between Chep and its customers, pursuant to which customers take pallets on hire from Chep. However, cl 4(d) is not limited to pallets on hire. The first sentence stipulates that the right to immediate possession for which it provides applies to Chep Equipment "whether on hire or not". Further, the contractual context includes recognition that (at least, conditionally) hirers may part with possession of equipment in favour of non-hirers. 32 It is correct to say that the irrevocable licence given by the second sentence of cl 4(d) can only operate as between Chep and hirers. It is not easy to imagine real-life factual situations where hirers could authorise Chep to enter upon the property of non-hirers, who are not parties to the contract between Chep and the hirer, for the purpose of recovering pallets. But the balance of cl 4(d) is not limited to the position as between Chep and hirers. 33 In my view, the second and following sentences of cl 4(d) are in aid of the right to immediate possession given by the first sentence, and should not be read as derogating from the width of that right. I do not think that the right to immediate possession given by the first sentence of cl 4(d) is limited to pallets (whether on hire or not) in the possession of a hirer in a contractual relationship with Chep. It is difficult to understand why Chep would stipulate for such a right in the case of hirers, but waive it where (either in a manner contemplated by the terms of hire or otherwise) the hirer has parted with possession of the pallets in favour of a non-hirer. 34 It follows, in my view, that Chep (it is not necessary to distinguish between the particular plaintiffs) did have the right to immediate possession of Chep pallets in the possession of Bunnings during the Relevant Period. Second issue: Non-Commercial Chep Pallets 35 It was not in issue that, at all times during the Relevant Period, Bunnings did have Chep pallets in its possession. The question was whether Chep had proved that any of those pallets were Non-Commercial Chep Pallets. The evidence The Reconciliation Process 36 It is convenient to start with the position between 30 May 2007 (when on any view Chep made demand on Bunnings for return of all Chep pallets) and October 2007 (when Bunnings complied with that demand). 37 As I have said already, it is agreed that, after this Court made orders on 24 August 2007, and on and from 1 October 2007, Bunnings returned to Chep (or made available for collection by Chep) some 82,216 Chep pallets. Ms Welch gave evidence of a process whereby Chep concluded that, of those 82,216 pallets, some 17,526 pallets were owed to Bunnings' suppliers who were Chep customers. Ms Welch's evidence should not be examined in isolation. 38 On 19 June 2007, Mr Ward, who was Bunnings' general manager, operations, at the time (and who was not called to give evidence) sent a memorandum to, among other recipients, "All Stores". That memorandum referred to Bunnings' intention to have stock delivered to its stores on pallets other than Chep pallets. It said, among other things, that "[f]rom 1 October 2007 Bunnings will no longer "swap" Chep pallets". It stated further that, as part of that process, "it is important that Chep pallets currently in stores are returned to suppliers as soon as possible under existing IOU arrangements" and that the aim was "to have returned all IOU Chep pallets by 15 October 2007". 39 The memorandum stated further (in bold print and underlined) that "[u]nder no circumstances should any Chep pallets be returned to Chep, or transport companies representing Chep". Although that emphasised warning is particularly relevant to Chep's case on demand, it seems clear enough that the direction not to return pallets to Chep was given to ensure that Bunnings' stores had sufficient Chep pallets in their possession to enable them to satisfy IOUs. 40 Finally, for present purposes, the memorandum referred to the "need to manage the return of existing Chep pallets to suppliers". It said that if a store still held Chep pallets on 1 October 2007, it should contact Ms McDonald "who will direct which supplier the pallets are to be returned to". 41 Thus, after demand was made but before this Court ordered pallets to be returned, Bunnings put in place a system for ensuring that IOUs were satisfied before any unclaimed pallets were returned to Chep. 42 Also on 19 June 2007, Bunnings sent a letter to the "National Sales Manager" of each of its suppliers. That letter referred to Chep's demand for the return of its pallets and said that, as a result, "Bunnings would prefer that, should you deliver goods on hired pallets, they are Loscam pallets going forward [sic]". Further, the letter advised, Chep pallets would not be accepted or swapped from 1 October 2007, and as a result any goods delivered on Chep pallets after that date would have to be unloaded on the spot at a cost of $15.00 per pallet (to be borne by the supplier). 43 On 19 July 2007, Bunnings sent another letter to its suppliers. It confirmed that "Bunnings will cease all swap arrangements relating to Chep pallets from 1 October". It then stated: [i]n the meantime, we would like to satisfy all our IOU obligations to you in relation to Chep pallets. Therefore, please calculate and notify us of the quantity of Chep pallets that you believe Bunnings holds which are on hire from Chep to your organisation. Please forward this information via email to Angela McDonald … by the end of business on Tuesday 26 th July 2007. (emphasis in original) 44 Mr Davis, who "believed" that he had become aware of the letter of 19 July 2007 (T136.10), said that he could not "recall any response whatsoever. Certainly not at a senior level such as myself" (T137.5). It is fair to note that (as one might expect) Mr Davis said that the detail of the return was something handled by "the logistics people" (T137.42). 45 There was no evidence of any response from suppliers to the letter of 19 July 2007, and it appears to be common ground that no such responses (if they existed) were discovered. Nor is there any evidence of complaint by any supplier to Bunnings that it had unredeemed IOUs for Chep pallets. 46 Further, although a number of witnesses (including Mr Juhani, Ms McDonald and Mr Pearce) suggested in their affidavits that Bunnings kept IOU records for Chep pallets received from suppliers, no such records were produced in evidence. There was some suggestion that the IOU records had been destroyed, although why this would have been done when they were required at least up until 1 October 2007 - after these proceedings had been commenced – is difficult to understand. I can understand that, as pallets were returned to suppliers, the IOUs might have been regarded as pointless; but once demand had been made on 30 May 2007, and a fortiori once these proceedings had been commenced, one would expect any such perception to have changed. 47 Mr Wilkinson-Beards said that between June and September 2007, Bunnings' stores were instructed to return as many Chep pallets to their suppliers as possible. He said that efforts were made to do so in an orderly manner, so as not to disrupt Bunnings' business. Mr Garratt, submitted that Mr Wilkinson-Beard, in performing the duties of his employment, was not dealing with IOUs. Nonetheless, Mr Wilkinson-Beard had given that evidence without objection. Further, although Ms McDonald (who was dealing with IOUs) gave her oral evidence after Mr Wilkinson-Beard, Mr Garratt did not ask her any questions in chief about the instructions of which Mr Wilkinson-Beard had given evidence. Mr Garratt drew attention to the failure to cross-examine Ms McDonald on this point. In my view, if there is a criticism to be made, it applies equally to the failure to lead evidence in chief from Ms McDonald on the point. See Handley JA, with whom on this point Kirby P agreed, in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 – 419. 48 Ms McDonald sent a memorandum to the "Receiving Team" on 8 August 2007 (after these proceedings were commenced). The memorandum referred to the commencement of proceedings. It stated, among other things, that "[i]t is important that you start to send back to your State Imports Distribution Centre any Chep pallets which you do not need to fulfil IOUs. … Please ensure all Chep pallets are removed from your premises by the end of September 2007. In the meantime, you should continue to swap out pallets and fulfil all IOUs". 49 Mr Wilkinson-Beards was taken to that memorandum. He said that he read it before it was issued, and was part of the group who approved it. (That evidence, in itself, would seem to be a little inconsistent with the proposition that he was not involved in the IOU process.) He was referred in particular to the instructions to send surplus Chep pallets back to distribution centres by the end of September 2007, and "to swap out pallets and fulfil all IOUs" in the meantime. He said that he understood that those instructions would have been complied with, and that "the 80,000 were those left over after all IOUs had been fulfilled" (T148.50; the reference to "80,000 pallets" is clearly, in context, a reference to the total number of pallets recovered by Chep from Bunnings). 50 Against that background, Ms Welch gave evidence of the following steps. Her evidence was not challenged, although the detail and sufficiency of some of the actions that Ms Welch undertook were. 51 Ms Welch caused Chep's sales executives to identify, from among the customers of Chep for whom they were responsible, those whom they thought might be Bunnings' suppliers and who might have outstanding IOUs for Chep pallets from Bunnings. Each of those customers was contacted by letter and asked to contact Chep if it had legitimate IOUs. It was told that any legitimate IOUs would be credited to its account as at 1 October 2007. 52 A number of customers responded. The process was handled by the sales executive who had responsibility for that account. If the IOUs were established to Chep's satisfaction (and this process involved completion and submission of a claim form, with supporting documentation, and an audit) then the customer was credited with the appropriate number of pallets. 53 Mr Garratt criticised this process on a number of grounds. First, he said, the time allowed by the letter (approximately a month) for customers to respond was too short. Secondly, he said, the requirement that the customer submit to an audit to have its claim verified (this requirement was stated in the letter and confirmed in discussions with the customer) might dissuade customers from submitting claims if they feared that the audit might establish that they were holding more Cheap pallets than those in respect of which they were paying hire. Thirdly, he submitted, the requirement that the claim be supported by documentation in accordance with the terms of hire was excessively onerous. 54 Ms Welch said that some degree of tolerance was applied during the assessment process, both in respect of the time within which a claim should be made and the degree of precision of the documentation supplied. That may be so; but it does not undo the apparent effect of the strict limits and requirements stated in the letter. 55 Nonetheless, when the letter is put into context, I do not think that the steps that were taken were insufficient to flush out any remaining legitimate IOUs. That is because Bunnings itself had taken steps to ensure that all pallets that it owed to its suppliers were returned. The whole point of the process undertaken by Bunnings was to ensure that IOUs were redeemed before the handover deadline (fixed by Bunnings, not by Chep) of 1 October 2007. 56 It was in Bunnings' interest to ensure that as many pallets as possible were returned to suppliers who had legitimate claims to them. That is because Bunnings well understood that, as Chep had been alleging for the past five years at least, it was Chep's case that Bunnings held far more Chep pallets than could be accounted for by legitimate IOUs. Further (and I return to this evidence at [86] and following below), Mr Gilsenan seems to have appreciated, since 17 November 2005, that if a national audit were to be performed on Chep pallets held by Bunnings, "it would show that not all pallets [that Bunnings holds] are owed to suppliers", and that he feared "that Chep would want the surplus back which would leave them short and therefore create a cost to Bunnings". (The quotation comes from an email sent by Mr Hammond to a colleague, Mr Adam Pfeiffer, on 21 November 2005, in which Mr Hammond reported on his meeting with Mr Gilsenan of 17 November 2005.) 57 Thus, it is reasonable to conclude, as I do, that Bunnings took appropriate steps to ensure that its IOU obligations were satisfied, so as to minimise the number of pallets that would have to be returned to Chep, in circumstances where it could be inferred (as, clearly, Chep would do) that those pallets were, in the language of the Agreed Issues, Non-Commercial Chep Pallets. 58 The matters to which I have referred suggest that, on balance, the Reconciliation Process undertaken by Ms Welch and her colleagues can be accepted as reliable, and as having achieved its purpose of ensuring that any remaining legitimate IOU claims, by Chep's customers who had used Chep pallets in their dealings with Bunnings, were satisfied. 59 However, Ms Welch undertook a further step. Among the records discovered by Bunnings were lists of its suppliers between 1 July 2002 and 30 November 2007. Ms Welch analysed those lists to identify Chep customers who had been suppliers to Bunnings in the period following this Court's orders on 24 August 2007, but who had not been contacted as part of the Reconciliation Process. The additional customers thus identified were contacted, told that Chep had received a quantity of Chep pallets from Bunnings, and asked to contact Chep if they had any legitimate outstanding IOUs from Bunnings. They were told that any legitimate IOUs would be credited to their account as at 1 October 2007. No customer contacted Chep as a result of this additional program of notification. Historical counts 60 There was evidence of attempts made by Chep from time to time to estimate the number of its pallets in Bunnings' stores; and there was also some evidence from Bunnings' employees of the number of Chep pallets held from time to time in various locations. 61 In July 2002, Chep undertook an informal count of pallets in four Bunnings stores in Victoria. That count showed that there were 2,374 Chep pallets in the four stores where the count was undertaken. On the basis that there were then 33 Bunnings stores in Victoria, Chep estimated that there would be approximately 20,000 Chep pallets in Bunnings' stores across Victoria. Chep made inquiries of its customers who were major suppliers to Bunnings, and concluded that, of those pallets, 3,000 to 4,000 would be the subject of IOUs. 62 Mr Skermer said that, in 2002, Bunnings' distribution centres held about 2800 Chep pallets. Most of those pallets would have been sent from Bunnings stores to a distribution centre because they were not being used at the store, and were not needed for exchanges. 63 Chep undertook preliminary counts of its pallets in Bunnings stores in Western Australia, as a result of which it put a hire proposal to Bunnings in Western Australia for a pool of 5,000 pallets. 64 Chep undertook an informal, although detailed, audit (so far as it was able to do) in November 2005, in an attempt to estimate the number of its pallets that might be held in Bunnings' stores across Australia. Extrapolating from physical counts that were undertaken at 17 Bunnings' stores, and allowing for different holdings at warehouse stores and ordinary hardware stores, Chep concluded that there might be some 86,422 pallets held in Bunnings' stores across Australia. 65 In February 2006, Chep undertook a survey of its customers who were among the major suppliers to Bunnings. The results of that survey indicated that about 8,700 pallets were the subject of IOUs. 66 The figures from the informal audit of November 2005 and analysis of IOUs in February 2006 were discussed at the meeting of 3 March 2006 between representatives of Chep and representatives of Bunnings. Bunnings' representatives at that meeting did not accept that (in round figures) only about 10% of the Chep pallets held by Bunnings nationally were the subject of legitimate IOUs to Bunnings' suppliers. 67 Chep undertook a further informal audit in July and August 2006. Based on physical counts at 42 Bunnings' stores in New South Wales, Chep estimated that there were about 72,000 Chep pallets held in Bunnings' stores nationally. A further count was undertaken at 162 Bunnings stores across Australia (there were then more than that number of stores), which showed that some 56,000 Chep pallets were held. The pro-rating process 68 Mr Davis said in his affidavit that there was a "close correlation" between the number of Bunnings' warehouse stores from time to time, and the number of Chep pallets held by Bunnings during the Relevant Period. Based on the assumption that Bunnings held 64,690 Non-Commercial Chep Pallets during the period 1 April to 1 October 2007, Chep undertook a pro-rating exercise for previous periods. In essence, the number of Non-Commercial Chep Pallets assessed to be held in a particular period was multiplied by a fraction the numerator of which was the number of warehouse stores in that period and the denominator of which was the number of warehouse stores in the subsequent period. A cross-check was undertaken, using Bunnings' sales data. The results obtained by that cross-check correlated closely to the results obtained by the calculation based on numbers of warehouse stores. 69 Thus, Chep said that: (1) for the period 1 April 2007 to 1 October 2007, the number of Non-Commercial Chep Pallets held by Bunnings nationally was 64,690 (in other words, the number obtained through Ms Welch's Reconciliation Process); (2) for the previous 12 month period, from 1 April 2006 to 31 March 2007, the number was 59,264 (this and all subsequent numbers being obtained by pro-rating back based on warehouse stores numbers); (3) for the period from 1 April 2005 to 31 March 2006, the number was 54,673; (4) for the period from 1 April 2004 to 31 March 2005, the figure was 52,169; (5) for the period from 1 April 2003 to 31 March 2004, the figure was 48,413; (6) for the period from 1 April 2002 to 31 March 2003, the figure was 46,326; and (7) for the period from 1 January 2002 to 31 March 2002, the figure was 46,326. The parties' submissions 70 Mr Bathurst submitted that the results obtained through Ms Welch's Reconciliation Process should be accepted as accurate. He relied on the preceding steps undertaken by Bunnings to ensure that outstanding IOUs were satisfied, and on what he said was the corroboration provided by historical counts. 71 Mr Bathurst submitted also that, in circumstances where Bunnings had consistently refused to participate in, or permit, any formal audit, then the Court should not be quick to draw inferences in its favour, and should be slow to accept its criticisms of the sufficiency of Chep's evidence. 72 Finally, and in the alternative, Mr Bathurst submitted that, in so far as Bunnings was relying on the proposition that Chep pallets held by it were the subject of hiring agreements between its suppliers and Chep (and, thus, that it was legitimate for those suppliers to give possession of the pallets to Bunnings – cl 2(d) of the terms of hire), it was Bunnings that bore the onus of proof. Mr Bathurst relied on what I had said in BIS Cleanaway as to the onus of proof in relation to the defence of ius tertii. 73 Mr Garratt submitted, as I have noted, that there were defects in the Reconciliation Process undertaken by Ms Welch. The way in which the process was designed (including the relatively short time frame for submission of claims, the requirement to submit to an audit and the requirement to supporting documentation) were likely, he submitted, to dissuade Chep's customers from claiming pallets. I note that Bunnings did not adduce evidence from any supplier to the effect that it had been so dissuaded. 74 Mr Garratt submitted further that the stringency of the process meant that legitimate claims might have been disregarded. That may be so in relation to the process as designed; but Ms Welch's evidence, which in substance was not challenged, was to the effect that a degree of latitude, or tolerance, was applied in establishing whether claims were made out. 75 Mr Garratt did not accept that the further process undertaken by Ms Welch, using Bunnings' discovery, verified the Reconciliation Process. On the contrary, he submitted, the later process undermined the earlier. He noted that some 12 out of 149 suppliers contacted in the Reconciliation Process made a claim (that low percentage itself suggested, he said, that it was not attractive to suppliers to make a claim). By contrast, as he noted, approximately 300 (different) suppliers were contacted in the follow-up process, but none of those made a claim. It was inherently unlikely, Mr Garratt submitted, that some 12 suppliers had 17,526 unsatisfied IOU claims, and that 430 or more other suppliers had not one claim between them; and that none of the 300 did. 76 Further, Mr Garratt submitted, it was inherently unlikely that Bunnings would have so many Non-Commercial Chep Pallets in its possession, given its evidence that the majority of pallets were exchanged either on delivery of the goods or within a short time thereafter. Mr Garratt did not explain how this submission fitted with Mr Skermer's evidence, referred to at [62] above; it is an available inference from that evidence that in fact Bunnings stores did hold, from time to time, more Chep pallets then were needed to satisfy their IOU obligations. 77 Mr Garratt submitted that it would be unlikely that a little under 80% of the pallets returned by Bunnings to Chep would be Non-Commercial Chep Pallets, given that earlier estimates had suggested that such pallets might form 10%, not almost 80%, of the total held by Bunnings. 78 Further, Mr Garratt attacked the proposition that an audit, if undertaken, would have determined with some degree of accuracy how many Non-Commercial Chep Pallets were held by Bunnings at any given time. He submitted that Chep had confused pallets not on hire at a particular point of time with its customers' inability to account for pallets on hire at the same point of time. Decision 79 I have come to the conclusion that, on balance, the Reconciliation Process undertaken by Ms Welch and her colleagues should be accepted as providing a reliable indication of the number of Non-Commercial Chep Pallets held by Bunnings as at, and returned on and after, 1 October 2006. 80 I do not find it surprising that there is an apparent disparity between the Reconciliation Process and the subsequent check based on Bunnings' discovery. It is inherently likely that Chep's sales executives would have had a good understanding of the businesses of the customers for whom they were responsible. The evidence suggested that, in effect, each sales executive had a group of customers whom he or she managed, and was aware of the details of each customer's business. It is therefore inherently likely that the process undertaken by Chep at the outset, to attempt to establish which of its customers were suppliers to Bunnings, would have identified at least the principal suppliers. 81 Thus, I think, whilst the later exercise was an important one to undertake, as a check on the validity of the Reconciliation Process, the fact that it flushed out no further claimants should not be taken as undermining the Reconciliation Process, or as inconsistent with inferences that might be drawn from that process. 82 Nor do I find it surprising that the number of Non-Commercial Chep Pallets held by Bunnings as at 1 October was so high, compared to the number apparently subject to legitimate IOUs. It was in Bunnings' interest to ensure that as many IOUs as possible were satisfied before 1 October 2007. No doubt, the steps that it undertook to achieve this were prosecuted efficiently. Thus, one would expect that the majority of the pallets that remained would not be the subject of legitimate IOU claims. 83 Although the sheer number of Non-Commercial Chep Pallets held by Bunnings as at 1 October 2007 (according to the Reconciliation Process) seems high, it is necessary to remember that Bunnings is (and then was) a very large organisation, with some hundreds of retail stores (ordinary and warehouse) across Australia selling a vast array of goods to a multitude of consumers. It is also clear that, regardless of the arrangements for exchange that might have been in place, Bunnings did accumulate surplus Chep pallets from time to time. This is apparent from the evidence of Mr Skermer referred to at [62] above, and also from the evidence to which I refer at [86] to [92] below. 84 I do not accept the proposition that an audit was unlikely to have established, with reasonable accuracy, the real position. An audit carried out with Bunnings' cooperation would have indicated the total number of Chep pallets held by Bunnings' stores and distribution centres across Australia. It would also have identified those of Bunnings' suppliers who were Chep customers. It would have been, at least in methodological terms, a simple exercise for Chep to analyse the records of those customers to ascertain how many outstanding IOU claims could be demonstrated. Although, no doubt, such a process would have been laborious and time consuming, it was something that Chep was equipped to do. Thus, I think, an audit was likely to have produced a reasonable estimate of the true number of Non-Commercial Chep Pallets held by Bunnings at any given time. 85 Further, whilst I accept that Bunnings could not have been forced to undertake or to participate in an audit process, its refusal to do so does not do it much credit. Bunnings' stated position (to Chep) at all times was that all Chep pallets held by Bunnings from time to time were the subject of legitimate hire arrangements between Bunnings' suppliers and Chep. However, it is clear from the evidence of Bunnings' witnesses that Bunnings had never attempted to satisfy itself on this point; it had never undertaken any investigation, or made any inquiry. The statement repeatedly made to Chep seems to have been, if not an article of faith, then in effect an unreasoned statement of position. 86 In this context, it is significant that Mr Gilsenan (who had every reason to know) was concerned, as long ago as November 2005, that an audit of Chep pallets held by Bunnings would show that in fact not all of them were the subject of current hire arrangements between Chep and those of its customers who were Bunnings' suppliers. 87 Mr Hammond said that his primary objective, in meeting with Mr Gilsenan on 17 November 2005, was to undertake an audit to identify the number of Chep pallets that Bunnings held, and the number of those pallets which were on hire to Chep's customers. Based on that, Mr Hammond said, he could estimate the number of pallets that Bunnings required to run its business. No doubt, that was of interest to Mr Hammond (and Chep) because Bunnings might be persuaded to open an account with Chep. Certainly, Mr Gilsenan thought that the thrust of the meeting was to persuade Bunnings to open an account with Chep. 88 As I have said, Mr Hammond sent an email to his colleague Mr Pfeiffer on 21 November 2005, in which he reported on the meeting with Mr Gilsenan four days earlier. Mr Hammond said in his affidavit that this email summarised the discussions that took place. 89 Mr Hammond's account of this aspect of the meeting is corroborated not only by his email but by a handwritten note that he made immediately after the meeting. 90 According to the email, Mr Gilsenan said the following things: (1) "he and the Bunnings Board are against having a Chep account but … they will always have an ongoing need to use Chep hire pallets in their business"; (2) "future discussions could be amicable up to a point where Chep insist they have a Chep account or return any pallets not legitimately owed, then …"it could get ugly""; (3) "Michael … was quite adamant that they [Bunnings] would never allow Chep to do a National stocktake in the future. He added that if we did a National audit it would show that not all pallets they have are owed to suppliers and that Chep would want the surplus back which would leave them short and therefore create a cost to Bunnings by forcing them to replace the recovered Chep's [sic] with plain pallets". 91 Mr Gilsenan agreed in cross-examination that he did say words to the effect that he and the Bunnings Board were against having a Chep account. He did not agree (nor did he deny) that he said that Bunnings would always have an ongoing need to use Chep pallets, but he appeared to accept that if Mr Hammond had written this in his email, then it was likely to have been said. Mr Gilsenan could not remember, but again did not deny, that he had said "it could get ugly". 92 The following questions and answers ensued (T170.17-.42): Q. And did you then say to Mr Hammond, "If we did a national audit it would show that not all pallets Bunnings have are owed to suppliers and CHEP will want the surplus back, which would leave them short and therefore create a cross to Bunnings by forcing it to replace the recovered CHEP's with plain pallets." A. I don't recall saying that. Q. You certainly wouldn't deny saying that, would you? A. I'm not so sure about that. Q. Because you had to replace CHEP pallets ultimately with plain pallets, didn't you? A. I'm sorry, I'm just reading the paragraph. The way I read that is what I was saying to Glenn is if CHEP's pallets were withdrawn from the Bunnings business then Bunnings would have a task ahead of them to replace them. Q. It was important because you would have regarded the withdrawal of the CHEP pallets as causing, at least for a period, difficulties and disruption to the Bunnings business; correct? A. Not difficulties with disruption, it's change. Change can be managed, as it was when CHEP exited the business. There was no disruption. Q. I want to suggest to you that you did say that an audit would reveal that not all CHEP pallets in Bunnings' possession were owed to suppliers. Do you agree or not with that proposition? A. I honestly can't recall. 93 In circumstances where Mr Gilsenan did not deny the words attributed to him, I accept Mr Hammond's email according to its terms. Further, given my preference for the evidence of Mr Hammond over that of Mr Gilsenan to the extent that the two are in conflict; that Mr Hammond in his affidavit expressly stated that the email summarised the discussions; and that Mr Gilsenan in his affidavit (sworn later) did not dispute either that assertion or the substantial accuracy of the email, I accept that Mr Gilsenan did use words to the effect of those attributed to him in the email. 94 The significance of this is two-fold. First, it undermines Bunnings' repeated assertions (both in its discussions and correspondence with Chep and, indeed, in these proceedings) that all Chep pallets in its possession from time to time were on hire to Chep's customers who were Bunnings' suppliers. Secondly, and of immediate significance, it suggests that Bunnings, at least in the person of Mr Gilsenan, had good reason to oppose any audit. That reason was of course an audit was likely to give the lie to Bunnings' stated position, and on the contrary to confirm Chep's stated position. In short, I think, Mr Gilsenan at least perceived, and understood, that an audit was likely to show that not all Chep pallets in Bunnings' possession would be shown to be "owed to suppliers": that is, the subject of legitimate hiring arrangements between Chep and its customers who were Bunnings' suppliers. 95 In short, I conclude, based on this evidence, that by 17 November 2005 at the latest, Bunnings through at least Mr Gilsenan knew and understood that it had accumulated more Chep pallets than could be accounted for by IOU arrangements with its suppliers. Thus, Bunnings had every reason (at least, in a commercial sense) to be "adamant" that it would not permit Chep to undertake an audit. In my view, it is legitimate to take those matters into account in assessing the reliability of the inferences to be drawn, from such evidence as Chep has been able to marshall, of the number of Non-Commercial Chep Pallets among the 82,216 that were returned by Bunnings to Chep on and from 1 October 2007. 96 I do not accept the proposition (advanced by Bunnings in its written summary of final submissions at para 68) that an audit would have been "not an ascertainment of pallet numbers, but in reality only an investigation into the record keeping and administration of Chep's customers "(emphasis in original). Whilst it is correct to say (leaving to one side, for the moment, Bunnings' defences based on implied term/collateral agreement/estoppel) that the express contractual right to part with possession of equipment to a non-hirer was conditional on the keeping of appropriate records, it does not follow that Bunnings should be able to take advantage of any deficiency in its suppliers' records. Bunnings was aware of the detail of Chep's terms of hire from at least March 2006. That is because, following the meeting of 3 March 2006, Chep sent a "Hire Equipment Proposal" to Bunnings on 16 March 2006. That proposal included, as Appendix 4, Chep's Terms and Conditions of Hire as they then stood. Bunnings either knew or had the means of knowledge, at least from March 2006, that the terms of hire regulated (or purported to regulate) the terms on which a Chep customer could give possession of Chep equipment to a non-Chep customer. If Bunnings chose to deal with its suppliers without maintaining adequate records of "exchanges" (which seems to be the industry term for the passing of possession from a Chep customer to a non-Chep customer), it did so at its own risk. 97 Equally, if Bunnings chose not to keep adequate records of exchanges (or IOUs) then, again, it did so at its own risk. In this context, I repeat that although Bunnings claimed that it kept records of IOUs, no such records were discovered or proved. As Latham CJ observed in Penfolds Wines Pty Limited v Elliott (1946) 74 CLR 204 at 210, "any person interferes with the chattels of another person at his risk". I do not think that the force of his Honour's observation is diminished by the fact that he dissented in the outcome; the difference between his Honour (and Williams J) on the one part and the majority (Starke, Dixon and McTiernan JJ) on the other was not as to the relevant principles but as to their application to the facts of the case. Indeed, the words of Latham CJ that I have quoted were repeated in substance by Williams J at 239. His Honour said "that persons deal with the property in chattels or exercise acts of ownership over them at their peril". 98 Bunnings chose, for some years, to deal with Chep's pallets in circumstances where it knew that Chep maintained that not all those dealings were authorised by Chep's contracts with its suppliers. Bunnings chose not to investigate the right of its customers to deal as they did, and chose not to keep (at least, so far as the discovery and evidence in these proceedings shows) adequate records of those dealings. For at least the last 18 months or so of the time when Bunnings used Chep pallets, it had actual notice of the terms on which Chep's customers were entitled to part with possession of the pallets in Bunnings' favour. In those circumstances, I think, Bunnings dealt with the pallets at its peril; and it is not now open to Bunnings to assert that such means as Chep had available to it to ascertain the true position (in relation to pallets on hire and pallets not on hire) were inadequate to achieve that end. 99 Further, although Chep called a number of witnesses who were or had been involved in the audit process, Bunnings adduced no evidence, either from those witnesses in cross-examination or otherwise, to make good, or even lend some factual support to, the proposition advanced at para 68 of its written summary final submissions. 100 As I have said, I am satisfied that, of the 82,516 pallets returned by Bunnings to Chep, 64,690 were, in the language of the agreed issues, Non-Commercial Chep Pallets. In reaching that conclusion, I take into account not only the matters to which I have referred above but also that, although Bunnings offered criticisms of Chep's methodology and evidence, it did not support those criticisms by evidence of its own: for example, from suppliers who might have said that they were deterred from responding to the Reconciliation Process because of the constraints on that process imposed by the terms of Chep's correspondence initiating it. 101 That leaves for decision the position in prior periods. There was no substantial challenge to the methodology used by Chep to derive numbers, working back from the figure ascertained through the Reconciliation Process. The challenge was, rather, to the starting assumption: the number of Non-Commercial Chep Pallets as ascertained by the Reconciliation Process. 102 As I have pointed out, Chep's methodology is consistent with the evidence of Mr Davis, to the effect that there was a close correlation between the number of warehouse stores from time to time open and the intensity of Bunnings' use of Chep pallets. Further, and again as I have pointed out, the analysis is supported by a check based on annual sales from year to year. It seems reasonable to think that there would be a close correlation between the volume of sales achieved by a business and the volume of goods (stock in trade) delivered to the business for the purposes of sale. Where substantial quantities of those goods are delivered to the business on pallets, and in the absence of any reason to think that the ratio of deliveries on Chep pallets would have varied over the years (at least, until after 19 June 2007, when Bunnings warned its suppliers that it was proposing to discontinue receiving goods on Chep pallets except on terms that the suppliers pay an unloading fee of $15.00 per pallet), it is reasonable to accept the check as providing acceptable corroboration of the methodology based on number of warehouse stores. 103 There was no dispute as to the application of Chep's methodology: that is to say, as to its arithmetic accuracy. 104 Accordingly, I conclude that in the periods from 1 April 2006 / 31 March 2007 to 1 January 2002 / 31 March 2002, the number of Non-Commercial Chep Pallets used by Bunnings in each period was as set out at [69(2) – (7)] above. I accept that the specificity of the numbers produced by application of Chep's methodology gives an appearance of precision to these figures that may not be entirely authentic, but that is simply the consequence of the application of the methodology. It does not mean that the figures should be rejected. Nor does it mean that they should be rounded off, in circumstances where there is no rational basis to suggest how any such rounding process should be effected. Third issue: Bunnings' use of Non-Commercial Chep Pallets 105 The evidence on this issue was not controversial. 106 For present purposes, stock delivered into Bunnings' stores over the relevant period may be divided into four principal categories: (1) stock required immediately to re-stock the shelves on which goods are exposed for sale; (2) stock not required for immediate display; (3) heavy stock, such as bagged cement or potting mix; and (4) other stock (for example, promotional items) sold from pallets from time to time. 107 When palletised goods were received into a Bunnings store, they were dealt with as follows: (1) stock in the first category was transferred from the pallet to shelves. Initially, this was done during the day. However, for safety reasons, the practice was adopted of re-stocking the shelves at night, after normal trading had ceased. Either way, as I understand it, loaded pallets would be moved onto the floor of the store and Bunnings' staff would unpack items of stock from the pallets and place them onto the shelves or racks. (2) Pallets of stock in the second category were stacked into "high rise": on top of the steel racking. Again, as I understand it, this was done after hours as it involved the use of machinery to transport the pallets and lift them into position. (3) Stock in the third category comprised stock that was typically sold direct from pallets. It was apparently undesirable to attempt to unload those pallets and to reload the goods onto other pallets. The individual items were heavy, and difficult to move. The pallets were loaded by special machines, which distributed the weight of the items evenly and guarded against slippage. If attempts were made to move the stock onto other pallets, there was the risk of slippage. Accordingly, the goods were sold direct from the pallets. (4) The fourth category is self-explanatory. 108 As pallets were emptied (either in the process of re-stocking or as goods were sold from them), they were taken back to the receiving area of the store, to await exchange. As I have noted already, it was Mr Skermer's evidence that when individual stores had more Chep pallets than they needed (for the purpose of exchange), they would send those surplus pallets to Bunnings distribution centres. 109 Mr Wilkinson-Beards said that approximately 80% of the goods received on pallets in Bunnings' stores were unloaded immediately, and 20% were retained on pallet either for sale off the pallet or in high rise. 110 Mr Juhani said that, on occasion, seasonal stock that was left over at the end of its selling season (for example, heaters unsold at the end of winter) might be placed onto a pallet with other goods (not necessarily those delivered on the pallet). The pallet would then be shrink-wrapped and placed in high rise. Mr Juhani said that this was usually done with Bunnings' own or plain pallets, but I infer that it was also done from time to time with Chep pallets. 111 In addition, from time to time, Bunnings' distribution centres used Chep pallets for the movement of goods. Most goods were received into distribution centres in containers, and were unpacked from those containers. They were then loaded onto pallets for dispatch to individual stores. Generally, Mr Skermer said, Bunnings' own pallets or Loscam pallets were used. However, he said, when supplies were low, Chep pallets were used for this purpose. Mr Skermer said that only 1% to 2% of pallets used by the distribution centres for sending stock to stores were Chep pallets; and that this use was against Bunnings' policy. 112 Mr Wilkinson-Beards gave evidence to the like effect: that distribution centres would use non-Chep pallets where possible to send goods to stores, but that they did on occasion use Chep pallets. 113 There was in evidence an email dated 27 February 2007 from Ms Chris Raftery, the manager of Bunnings' imports distribution centre in Queensland, copied to what appear to be all Bunnings' stores in that state. The email, which was said to be of "high" importance, read: Hi all, Qld D.C is in need of pallets. In the month of February we paid $22,000.00 for Loscam rental (19,500 plts) for one month. We are unable to de-hire any as they are full of stock. We are reluctant to hire more. Could all stores please send back to the D.C. ASAP any empty Loscam or Chep that they do NOT owe to any other suppliers. We also still use all plain/Bunnings standard hardwood pallets that don't belong to anyone else. Your prompt action on this matter would be appreciated, thanks. 114 In short, as Chep submitted, Bunnings' use of Chep pallets over the Relevant Period included the following: (1) The display of goods for sale in promotional displays and displays at aisle-ends registers etc. As Chep submitted, the display of goods on pallets was an integral part of the warehouse retail concept. (2) For storing in high rise stock not immediately needed. (3) For storing heavy goods until needed, so as to avoid the safety and cost issues associated with unloading, handling and restacking those goods. (4) For swapping with suppliers who delivered goods on Chep pallets, so as to avoid the time, cost and other problems of unloading goods delivered on pallets from those pallets forthwith upon delivery. (5) For transporting surplus stock (on the pallets on which it was delivered) between stores or between stores and delivery centres. (6) From time to time, for palletising and delivering to stores imported goods received at distribution centres. 115 As I have said, the evidence to that effect was not contentious. Its consequences were, and that dispute arises in connection with later issues: in particular, issues 5 and 7. Issue 4: receipt, possession and refusal to hire or deliver Non-Commercial Chep Pallets 116 Whilst Mr Doyle had been employed by BBC Hardware (which Bunnings took over in August 2001), he received a letter from Chep dated 25 August 2000. That letter referred to a "recent stocktake and reconciliation of Chep assets at BBC NSW stores" and presented two alternative hire arrangements for Mr Doyle's consideration. The letter stated plainly that if neither of those suggested options were suitable, "we would need to plan with you for the return of Chep equipment not currently "on hire" with Chep customers." Mr Doyle understood that the letter demanded that BBC either take on hire the "unclaimed" at its stores in NSW or make arrangements for the redelivery of those pallets to Chep. 117 Mr Doyle was asked whether the understanding of Chep's position that he gained from this letter informed his understanding, as to Chep's position, whilst he was employed by Bunnings. His answer was non-responsive (T194.32 – "[i]n my role with Bunnings I would have no role to do with anything to do with Chep or with pallet control"), but it cannot seriously be suggested that if Mr Doyle had turned his mind to the subject, he would have thought that Chep's position had changed over the years. 118 It is interesting to note, by way of aside in relation of Mr Garratt's submissions referred to at [76] and [77] above, that the stocktake carried out in respect of BBC stores in NSW showed that about 2,000 pallets had been identified as being on hire to two of BBC's major suppliers and, of the remainder (unidentified in total), some 6,586 were unclaimed by any supplier. It is possible to infer from this that hardware businesses generally tend to accumulate pallets, notwithstanding the existence of "swap" or IOU arrangements with suppliers. 119 In May 2002, Chep presented a hire proposal to Bunnings in Western Australia. The proposal suggested that Bunnings should enter into a hire agreement so as not to receive demands for the return of pallets. Mr Pearce instructed the recipient of that proposal, a Mr Andrew Hinton, to reply using the Bunnings' party line that Chep pallets were a matter between Chep and its customers who were suppliers to Bunnings. 120 I have referred above to the meeting of 17 November 2005. It is clear, from what I have found (based on Mr Hammond's evidence and his email of 21 November 2005 to Mr Pfeiffer) that Mr Gilsenan well understood that an audit would show that not all pallets in Bunnings possessions could be accounted for by existing hire arrangements, and that Chep would want the surplus pallets back. 121 On 16 March 2006, Chep sent a hire proposal to Bunnings. That proposal was sent following the meeting of 3 March 2006. In that proposal, Chep stated its view that: Bunnings has accumulated over time, a currently estimated "floating pallet pool" (where no Chep customer is responsible for hire charges) of 80,000 to 100,000 Chep pallets. Analysis identifies that only 10-20% of this total are identified and traceable as IOU pallets for redemption by parties known to Bunnings. 122 After referring to some other matters, the document stated that "Chep cannot allow the current situation to continue" and continued: Whilst a number of elements can be considered in effecting a transition, Bunnings are faced with two fundamental choices: 1. For Bunnings to have active Chep Hire Accounts with all Chep pallets in your possession (less legitimate IOUs) placed on, and then to engage within the transfer hire pool, or 2. Alternatively, all Chep pallets would need to be made available for collection within a scheduled draw back program. 123 Mr Davis was questioned on this hire proposal. He said that Chep's statement of its position (the two alternatives just quoted) was not "a new demand" (T132.5) and that to his knowledge, from his personal involvement, "they had attempted this back in the early 2000's" (T132.14). 124 I note that, in contrast to earlier demands, Chep's stated position in the proposal of 16 March 2006 was that if Bunnings did not open a hire account in relation to pallets other than those which were the subject of legitimate IOUs, Chep would demand that all pallets, and not merely Non-Commercial Chep Pallets, be returned to it. 125 Bunnings' response to the proposal of 16 March 2006 was to state (in a letter written by Mr Gilsenan) that it did not agree with the methodology and conclusions in the proposals and would continue to deal with its supplies "using the model that is currently in place". Notwithstanding the apparent certainty of the belief asserted by Bunnings, that all Chep pallets in its possession were the subject of hire arrangements between Chep and its customers, Mr Gilsenan acknowledged that he had not bothered to check on whether in fact this was so. Mr Gilsenan did not appear to be concerned by his failure to make any check, or indeed by the understanding that he had evinced in the meeting with Mr Hammond on 17 November 2005. He wrote again to Mr Hammond on 10 April 2006, stating that the matter was one between Chep and its customers. 126 On 24 May 2006, Chep's solicitors Allens Arthur Robinson made written demand on Bunnings to do one of two things: (1) negotiate in good faith the terms of a commercial hire arrangement with Chep; or (2) arrange with Chep for all Chep pallets other than those on hire to Chep's customers to be removed from Bunnings' stores and distribution centres. 127 Further correspondence followed between the parties, including between senior management of Chep and Bunnings, and between senior management of their respective holding companies, Brambles and Wesfarmers. It is unnecessary to go to the detail of that correspondence, which culminated with Chep proposing, and Bunnings refusing, an audit. As a result, Chep wrote to Bunnings on 30 May 2007, demanding that Bunnings deliver up to Chep by 20 June 2007 all Chep pallets in Bunnings' possession. 128 Bunning's response to that demand betrayed no sense of urgency. As I have noted at [38] above, Mr Ward sent out a memorandum on 19 June 2007, stating that under no circumstances were Chep pallets then to be returned to Chep or its representatives. On the contrary, it was Bunnings' intention to manage the process of return of Chep pallets to suppliers over the period up until 1 October 2007. It is plain that this was to suit Bunnings' convenience, and to enable it to obtain replacements or substitute pallets for those that were to be returned to Chep. 129 It was not until 18 September 2007 that Ms McDonald first made contact with Chep to discuss the collection of Chep's pallets. That is so notwithstanding that, on 24 August 2007, this Court ordered "that the defendant move promptly to deliver those Chep pallets that it intends to deliver to the plaintiff. Such delivery to be concluded by 5 October 2007". Bunnings appears to have taken an expansive view of what was meant by "promptly". On 28 September 2007, after Ms McDonald had contacted Chep (on 18 September 2007) to discuss the return of the pallets, a memorandum was sent to Bunnings stores. Whilst it suggested that pallets should be removed from inside the store and the "receival area" by 30 September 2007, it also noted that stores should "not put your team at risk of injury by re-stacking pallets of heavy products (e.g., potting mix, cement, pavers or swimming pool salt)". It promised that "more guidance" would be provided on how to deal with those products and suggested that all such pallets "are brought to the front of the display so that they sell through first". That may explain why, as at 1 November 2007, there were still (according to Ms McDonald, in an affidavit sworn for interlocutory purposes in these proceedings) "approximately 3570 pallets in Bunnings' stores which have yet to be delivered to the distribution centres for collection by Chep". Ms McDonald estimated that "approximately 80%" of those pallets were under load and that "[t]he remaining 20% (approximately)" would be returned to distribution centres within a week. Ms McDonald repeated the Bunnings' party line, stating "I assume they [the suppliers] are paying hire fees to Chep for those pallets". 130 For the reasons I have given in relation to the second issue, Bunnings did have possession of Non-Commercial Chep Pallets during the Relevant Period. Further, as the history that I have just recounted shows, Bunnings did refuse either to hire or to deliver up to Chep such Non-Commercial Chep Pallets as from time to time it held during the Relevant Period, until the process of return to Chep began on 1 October 2007. Issues nine to twelve: implied licence; estoppel 131 Logically, since these defences are relied on in answer to Chep's claims in conversion and detinue, it is necessary to interrupt the numerical sequence of issues and deal with them before dealing with the issues relating to conversion and detinue (issues 5 to 8). The "pleaded" case 132 Bunnings' "pleading" (an inaccurate but convenient term) of its case on implied licence and estoppel is found at paragraph 28 of its list response and in the particulars to that paragraph: [28] In answer to the Summons as a whole, the Defendant further says that the Defendant is not liable to the Plaintiffs by reason that: (a) the Plaintiffs have at all times known of and acquiesced in the Defendant holding CHEP pallets delivered to and left with it by or on behalf of its suppliers (being customers of the Plaintiffs) for the purposes of their businesses, for later return in accordance with the swap arrangements or IOU system, which conduct would not otherwise have been permitted by the Defendant. In consequence, the Defendant will contend that the Plaintiffs are estopped from contending that any wrong was thereby committed by the Defendant or loss was thereby suffered by the Plaintiffs; and (b) the customers of the Plaintiff left CHEP pallets with, or caused CHEP pallets to be left with, the Defendant for periods convenient to those customers in the course of their businesses, pursuant to an implied licence from the particular Plaintiff to do so, in consequence whereof that Plaintiff was not entitled as against the Defendant to the immediate possession of pallets so left by or on behalf those customers at the time any such demand was made. PARTICULARS It is expressly contemplated by the Plaintiffs' Terms of Hire, and accepted by the Plaintiffs by their conduct, that pallets would be used by customers of the Plaintiffs to deliver goods to entities including the Defendant and that those pallets could remain in the possession of the Defendant for a period convenient to the customer. The practice or system employed, to the knowledge of the Plaintiffs for the convenience of their customers, was for the Defendant to swap an empty pallet to the customer in return for a pallet delivered to the Defendant carrying goods; where an empty pallet was not available to be swapped, the Defendant would issue an IOU to the supplier (customer of the Plaintiffs), which would be discharged by the subsequent delivery of an empty pallet to the customer at a later date. This practice or system was widespread and notorious in the retail industry and well known to the Plaintiffs. 133 Mr Bathurst submitted that the pleaded case, even if good in law, could be no answer to the claim based in conversion or detinue, because that claim related to Non-Commercial Chep Pallets (i.e, pallets not at any relevant time on hire to a Chep customer), whereas the pleaded case either expressly or by necessary assumption was restricted to pallets that were the subject of a current hire agreement. That is so, necessarily, as to the defence based on implied contractual licence. Such a licence could only be implied (if – a matter of some doubt – implication is really what Bunnings is seeking to raise) in respect of pallets that were from time to time hired on the terms of (or, on Bunnings' case, including) the terms of hire. 134 That analysis is confirmed, in relation to estoppel, by the way that Bunnings articulated its case in its written summary of final submissions at para 48: Estoppel 48. By reason that: (a) Chep distributed pallets which it owned to hirers who were suppliers of goods to Bunnings for use in their businesses ('the Suppliers'); (b) Chep knew and intended that the Suppliers would deliver laden pallets to Bunnings stores where they would be left; (c) Chep knew and intended that empty pallets would be taken in exchange for those left under load; (d) The exchange of pallets in this way was a central feature of the Chep system, and its required Bunnings to have 'a stock of unused Chep pallets' from which to make exchanges which might or might not be pallets on hire at the time; (e) Goods in Bunnings stores were stored in readiness for sale on pallets in high-rise, and displayed for sale on the delivered pallet, which was beneficial to the Suppliers; (f) Where goods were to be sold from the pallet it was not intended by the Supplier or Bunnings that they be first transposed to another pallet, and it was in many cases not feasible or was dangerous to do so; Chep represented by its conduct to Bunnings that Bunnings had permission to retain: (1) A stock of unused pallets from which to effect exchanges of empty pallets for laden pallets ("Representation 1"). (2) Laden Chep pallets for the period necessary to sell through the goods standing on them, before making those pallets available for exchange or collection ("Representation 2"). 135 The estoppel is said to arise through the hiring system, and the known and intended use of Chep pallets that were from time to time on hire to Bunnings' suppliers. 136 Accordingly, neither the implied licence case nor the estoppel case can be an answer to a claim in relation to Non-Commercial Chep Pallets. However, in case others should disagree with that conclusion, I shall deal with the evidence on which those aspects of the defence are based. The evidence 137 Chep's terms of hire were identified in, and formed part of, the form of "application for commercial credit" that was completed by each hirer before equipment was hired to it. The form provided for a statement of "estimated monthly requirements" for pallets and other equipment, and for a statement of "anticipated monthly usage". At about the middle second page of the application form, the following appeared: THE APPLICANT ACKNOWLEDGES THAT HE/SHE HAS RECEIVED A COPY OF THE CHEP TERMS AND CONDITIONS PRIOR TO HIM/HER SIGNING THIS APPLICATION. THE PERSON(S) SIGNING THIS APPLICATION HEREBY WARRANTS THAT HE/SHE HAS READ AND FULLY UNDERSTANDS THE NATURE AND EFFECT OF THE CHEP TERMS AND CONDITIONS AND: There followed, in much finer print, a statement of various matters. 138 Following that statement, and immediately before the space provided for signatures, the following appeared: ALL TRANSACTIONS WILL BE SUBJECT TO THE TERMS OF HIRE AND/OR TERMS OF SALE ATTACHED (WHICH CONTAIN RELEASES, INDEMNITIES AND GUARANTEES IN FAVOUR OF CHEP) WHICH I HAVE READ AND AGREE WITH. 139 Mr Garratt submitted that the application form, even when signed, did not contain all the terms of the contract that came (or would come) into existence between Chep and the applicant. He submitted that it contained no provision for the number of pallets or items of other equipment to be taken from time to time, or of the rate of hire to be paid from time to time. That is correct, as a matter of fact. No doubt, some applicants paid Chep's standard rates of hire as published from time to time. Equally, the evidence shows, other applicants (including Bunnings' parent company Wesfarmers) paid a substantially lower rate: no doubt, reflecting their usage and bargaining power. 140 However, Mr Garratt's submissions went further. He submitted that, in addition to the terms that might be found in the terms of hire and terms as to the number of pallets and the price to be paid, there were oral terms. Mr Garratt emphasised (based on Mr Austin's evidence) that it was only after the essential commercial terms had been negotiated between Chep and the prospective hirer that the application form was signed. 141 It does not follow from all this that there were terms of the contract between Chep and any individual hirer other than those set out in the terms and conditions (I leave aside, for the moment, terms negotiated as to a discounted hire rate in individual cases), let alone terms inconsistent with the printed terms and conditions. 142 There was no evidence of the content or detail of negotiations between any individual customer and Chep, let alone evidence sufficient to support the conclusion that some separate or collateral contract was agreed, which survived the customer's execution of the application form and the formation of a contract upon Chep's acceptance of that application. Indeed, the evidence did not show how that acceptance was communicated. Presumably it was, at the least, acceptance by conduct, being the provision of pallets or other equipment to the customer. 143 Such evidence as there was of pre-contractual dealings was cast at a level of extreme generality. It came from Mr Judd, who during his employment by Chep had become aware (so he said) of what Chep's sales representative did in seeking to recruit new customers. In essence, Mr Judd said, the sales patter involved the following elements: (1) Chep's representative would establish how the prospective customer used pallets (for example, in the supply or delivery of goods) and whether the prospective customer's sales costs included the costs of hire or return of the pallets; (2) the sales representative would explain to the prospective customer that if it took pallets on hire from Chep, it would need, overall, fewer pallets to conduct its business, and would not have to arrange for the return of the pallets if they were transferred to another Chep customer; and (3) by those means, the prospective customer could achieve significant cost savings. 144 In oral evidence, Mr Judd explained the basis on which, he said, he was able to speak as to Chep's sales practices. I do not think that I am being unjust to him if I say that his knowledge came from things that he learned in attending state and national management meetings, which were attended by, among others, senior sales staff. Mr Judd was not himself involved in sales, nor did he participate in sales meetings between Chep's sales representatives and prospective customers. However, he said, he played some (unexplained) part in the formulation or implementation of sales training, and this was the subject of discussion "on numerous occasions in management meetings and/or sales meetings" (T200.10). 145 Taking Mr Judd's evidence at its highest, it gives no indication of the content, as opposed to the theme, of discussions between Chep's sales representatives and perspective customers. More importantly, it gives no indication of anything being said in those discussions which could be viewed as inconsistent with the terms of hire. 146 Bunnings did not call any customer (or prospective customer) of Chep to give evidence of the actual "sales pitch" used; nor did it point to any documentation that could have given specificity to Mr Judd's outline. 147 Mr Austin accepted that Chep's sales representatives were given a course of instruction. They were, apparently, instructed to explain the ways in which Chep pallets could be transferred to other customers, thereby (in ordinary circumstances) transferring the liability to pay hire fees; and also the way in which pallets could be exchanged with non-customers. Sales representatives were also instructed to discuss with prospective customers "EDOs" – an acronym for "Equipment Days Off". That was a practice whereby hirers could agree, as between themselves, that even if hirer A transferred a pallet to hirer B, the responsibility to pay hire would remain with hirer A for a stipulated number of days. It seems that if two hirers agreed between themselves that one would have the benefit, and the other the burden, of EDOs, Chep would recognise this in its accounting for the pallets in question. (As an aside: when Chep's representatives sought to persuade Bunnings to become a customer, they explained the practice in relation to EDOs, and said that if Bunnings became a Chep customer, the agreements that it presently had in place with its suppliers for them to be responsible for hire charges on pallets whilst those pallets remained in Bunnings' custody could be continued through the mechanism of EDOs.) 148 Again, that evidence may be accepted. But nothing in it is inconsistent with the terms of hire. Specifically, in so far as Chep's sales representatives were instructed to mention to prospective hirers that pallets could be exchanged with non-hirers, there is nothing to suggest that they were authorised, or encouraged, to tell prospective customers that this could be done otherwise than in accordance with cl 2(c)(3) of the terms of hire. 149 No doubt, Chep's representatives knew, in general terms, that its customers from time to time exchanged Chep pallets with non-customers. No doubt, Chep's representatives knew that this was essential, in a practical sense, for its customers to carry on their business with those non-customers. Specifically in the case of Bunnings, I have no doubt that Chep's representatives appreciated at all material times how Bunnings and those of its suppliers who were Chep's customers dealt with Chep pallets. It is clear that Chep was aware, at least at all times throughout the Relevant Period, that Bunnings used Chep pallets in the ways that I have summarised at [114] above. 150 Equally, at least since May 2002, Chep considered, and asserted to Bunnings, that not all the Chep pallets that Bunnings had in its possession from time to time were on hire to a Chep customer. The gravamen of Chep's complaints and requests to Bunnings was that the Chep pallets used by Bunnings included Non-Commercial Chep Pallets. 151 There is no evidence of any oral representation made by Chep, either to its customers (or perspective customers) or to Bunnings, that is inconsistent with the terms of hire or with the stance that Chep has taken, vis-a-vis Bunnings, in these proceedings. To the extent that Bunnings relies on an estoppel case, the estoppel is said to be founded on representations to be inferred or implied from Chep's conduct. The conduct is the matters referred to above, and what Bunnings characterises as Chep's conduct in standing by and allowing Bunnings to continue to use Chep pallets, including what Chep knew were Non-Commercial Chep Pallets. 152 There is no evidence of express or actual reliance by Bunnings on such representations as may be spelled out of Chep's conduct. Mr Garratt submitted that this did not matter, because reliance could be inferred from conduct: Gould v Vaggelas (1985) 157 CLR 215. 153 There is however the evidence, to which I have referred already, of the understanding of Mr Davis and others that, from at least the early 2000s, it was known that Chep's position was that Bunnings should either take on hire or send back all Chep pallets in its possession that were not the subject of current hire agreements between Chep and its customers. The parties' submissions 154 Since these issues are raised by Bunnings in its defence, I will start with the submissions put on its behalf. 155 Mr Garratt submitted that the application for commercial credit was signed and submitted only after the essential negotiations between Chep and the prospective customer had been completed. Thus, he submitted, it was necessary to take those discussions into account in establishing what was the contract; and that it was apparent that the contract was partly oral and partly written. 156 When one looked at the arrangements in whole and in context, Mr Garratt submitted, there was some implied licence given by Chep to its hirers authorising them to part with possession of pallets to non-hirers other than in circumstances contemplated by the terms of hire. That was so, Mr Garratt submitted, at least because cl 2(c)(3) did not cover the situation where a hirer who delivered goods on a pallet to a non-hirer took an empty pallet in exchange. In those circumstances, the hirer had no interest in the pallet handed over, because its position conformed with the state of its account. As Mr Garratt submitted, Mr Austin acknowledged that this was at least the commercial sense, or essence, of cl 2(c)(3). 157 Further, Mr Garratt submitted, "[m]uch of that which is promised and represented to a prospective customer in the course of the negotiation of his contract with Chep is inconsistent with any right of immediate possession in Chep, in the absence of default or notice" (written summary of final submissions, para 41). Mr Garratt did not descend to the detail of the evidence that was said to show what "is promised and represented to a prospective customer in the course of the negotiation of his contract". 158 Mr Garratt submitted that there was a further misrepresentation of the position, as between Chep and prospective customers, because they were, he submitted, "discouraged" from reading the terms of hire; on the contrary, those terms "were misrepresented to him as only part of what was "merely an application for credit"… a potent fiction" (ibid, para 43). The submission referred to Mr Poole's evidence at T101, in the course of which Mr Poole said, of the terms of hire, "[t]his was merely an application for credit" and he agreed "that's what you told the customer wasn't it, this is an application for credit" (T101.38-.43). Mr Poole agreed, further, that the practice within Chep "was to describe this as the document says, as an application for credit" (T101.50). 159 The culmination of Mr Garratt's submissions on implied term or collateral contract was that "[t]he standard terms … cannot displace the substance of the preceding oral agreement …, under which the hirer was entitled to use the pallets taken on hire to conduct his business free of interference from Chep absent default on his part", which "implicit licence … enured for the benefit of those to whom the hirer parted with possession of his pallets, while the hirer was not in default" (ibid, para 46). 160 I have set out at [143] to [150] and [158] above the matters on which Mr Garratt relied to establish the estoppel on which Bunnings relied. He submitted that, in those circumstances, it was unconscientious for Chep to acquiesce in Bunnings' use of Chep pallets in the way that, as Chep well knew, it did, particularly where that use was to Chep's financial advantage. Bunnings suffered detriment, Mr Garratt submitted, by relying on the assumption because it continued to conduct its business in the way that it did in reliance on the implicit representations. 161 Mr Bathurst submitted that there was no evidence of any antecedent oral (or other) contract between a hirer and Chep before acceptance of the offer contained in the signed application, and no evidence of any contract collateral to that contract. Mr Bathurst pointed to the absence of any evidence from any hirer (or prospective hirer) as to the terms offered by Chep. 162 Further, Mr Bathurst submitted, no term could be implied into a contract on the terms of the terms of hire that was inconsistent with those terms. Thus, he submitted, there could be no licence implied, of the kind for which Bunnings contended. 163 As to estoppel, Mr Bathurst submitted that there was no representation, no reliance, and no detriment. On the contrary, he submitted, Bunnings knew that it was using Chep's pallets (at least, those not on hire at any given time) against the wishes of Chep, and chose to do so at its own risk. Decision 164 The evidence falls far short of establishing, either in any individual case or as a matter of general practice, some antecedent oral contract between Chep and prospective hirers (that is to say, antecedent to the contract formed by Chep's acceptance of the offer made by delivery of the signed application form). Equally, the evidence falls far short of establishing any contract collateral to that formed on Chep's acceptance of the offer made by submission of the signed application form. 165 The application form draws the prospective hirer's attention to the terms of hire at least three times. I have set out two of them above. Those statements are displayed prominently on the second page of the form and the second of them, as I have noted, appears immediately before the spaces provided for signature. The first reference to the terms of hire (which I have not set out above) is to be found on the first page of the document, at the top, immediately under the Chep logo and the words: APPLICATION FOR COMMERCIAL CREDIT 166 Those words are followed by the following: (in much smaller print): Including Guarantee & Indemnity, Terms of Hire and Terms of Sale 167 As indicated (three times on the first two pages of the form of application), the terms of hire were indeed attached to, so as to form part of, the document given to, and completed by or on behalf of and signed by, the prospective hirer. 168 Even accepting that the terms of hire are not complete, or exclusive (for example, because they do not deal with EDOs, or do not deal with special hire rates negotiated between Chep and individual customers), it does not follow that any further or additional bargain that was struck, included terms inconsistent with the express provisions of the terms of hire. 169 Once it is accepted, as I have concluded, that the terms of hire form part of the contract between Chep and each individual hirer, it must follow that no term can be implied inconsistent with those terms. I accept that the terms are of no practical significance to a hirer who exchanges pallets with a non-hirer, because the balance of that hirer's account with Chep is not disturbed by the transaction. But the very fact that the non-hirer has surplus Chep pallets available to exchange means that some other hirer has exchanged pallets with it on a basis that must have been regulated (if that other hirer were observing the terms of its contract with Chep) by cl 2(c)(3). It was not in the power of that (or any) hirer to give the non-hirer any greater right to use Chep pallets than the hirer itself had by virtue of its hire agreement with Chep. 170 There could only be an exception to the foregoing analysis if the stock of pallets on hand at the premises of the non-hirer were Non-Commercial Chep Pallets, or pallets drawn from the black pool. Mr Garratt did not put such a case: not surprisingly, given that his client's position at all material times has been (despite the evidence to the contrary, and despite Mr Gilsenan's reservations on the point) that all Chep pallets in its possession at any given time were the subject of hire agreements between Chep and its customers. 171 Thus, I conclude, there is no basis for finding an antecedent or other collateral contract inconsistent with the terms of hire. Nor is there a basis for implying, into a contract made on the terms of, or incorporating, those terms of hire, any licence that is inconsistent with the terms of hire. 172 I do not propose to deal with the submissions based on alleged misrepresentations to prospective customers, in circumstances where: (1) those submissions go nowhere in terms of the real issues in this case; and (2) Bunnings did not call evidence from any hirer of the alleged misrepresentations. 173 I turn to the case based on estoppel. It is impossible to see how there can be spelled, out of Chep's conduct towards Bunnings over the Relevant Period, any representation to the effect that Bunnings was authorised or permitted to use Non-Commercial Chep Pallets for the purposes of its business. On the contrary, as Mr Davis at least well understood, Chep's stated (and oft-repeated) position was that Bunnings should take on hire or return Non-Commercial Chep Pallets. 174 Nor is there any basis for thinking that Bunnings misunderstood this position. Bunnings chose to base its position on an assertion, which it was not prepared to investigate or to permit Chep to investigate, that all Chep pallets in its possession from time to time were the subject of hire arrangements between Chep and its customers. Chep's stated (and oft-repeated) position was that this was not so; and that, on the contrary, Bunnings was at all material times in possession of Chep pallets that were not the subject of any such hire arrangements. 175 There is no pleaded case that Chep ever represented to Bunnings that all the Chep pallets in Bunnings' possession were the subject of hire arrangements between Chep and its customers. Nor was there a shred of evidence to suggest that Chep ever did make such a representation. It follows that Bunnings' stated belief (if, which I do not find, it was in fact held seriously or in good faith) was not one induced by, or responsive to, any relevant representation made by Chep. 176 In short, there is a total disconnect between the state of mind that Bunnings has at all material times asserted and the representation case that it now alleges against Chep. 177 For essentially similar reasons, as well as those stated at [153] above, there can be no question of reliance and, accordingly, no question of any relevant detriment. 178 The estoppel case, were it relevant, would be unsustainable. Issues 5 and 7: conversion and detinue 179 For the reasons that I have just given, these issues fall to be considered on the basis that the contracts between Chep and its customers were made on the terms of the terms of hire, that there was no implied licence given by Chep to its customers of the kind on which Bunnings relied (issue 9), and that Chep is not estopped from contending that Bunnings' holding and use of Non-Commercial Chep Pallets was a legal wrong. The relevant principles 180 The applicable legal principles were not in dispute. As Dixon J explained in Penfolds Wines at 229: The essence of conversion is a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel. It may take the form of a disposal of the goods by way of sale, or pledge or any intended transfer of an interest followed by delivery, of the destruction or change of the nature or character of the thing, … or of an appropriation evidenced by refusal to deliver or other denial of title. … An intent to do that which would deprive "the true owner" of his immediate right to possession or impair it may be said to form the essential ground of the tort. 181 Although Dixon J referred, in the last part of the passage just quoted, to "[a]n intent", it seems to be clear that there may be a conversion without any subjective intention on the part of the converter to convert. The intention to which his Honour referred was, I think, the intention to exercise dominion over the goods in question; it is not necessary that the putative converter should intend thereby to deprive "the true owner" of his or her dominion. As Young J said in Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Reports ¶81-244 at 62,520: … once the degree of user amounts to employing the goods as if they were one's own then a conversion is established. That point may be reached without any subjective intention… 182 In short, conversion is the intentional performance of an act of dominion inconsistent with the rights of "the true owner" (to use the convenient phrase of Dixon J; I shall no longer distinguish it by quotation marks), even if the intention is merely to exercise dominion and not to deprive the true owner of dominion or property. 183 By contrast, the essence of detinue lies in a refusal to deliver up goods to a person having the immediate right to the possession of those goods. It must be shown that the detention of the goods is wrongful. That is normally shown by request or demand for their return, and a refusal to comply. See John F Goulding Pty Limited v The Victorian Railways Commissioners (1932) 48 CLR 157 at 167. But it is not necessary that there should be demand and refusal: it will be sufficient, for example, if a bailee of goods has, without permission and in default or breach of duty, parted with possession of the bailed goods so as to incapacitate itself from returning them in accordance with the terms of the bailment: Goulding at 167 again, and at 169. 184 In some circumstances, even though the bailee remains in possession of the goods, it may not be necessary to show demand before detinue can be established. In Baud Corp, NV v Brook (1973) 40 DLR (3d) 418, the Appellate Division of the Supreme Court of Alberta held that where, in an action of detinue, the defence shows clearly that the defendant would have refused to comply with a demand by the plaintiff for possession of the property, the formal making of such a demand is not a necessary part of the plaintiff's cause of action. See McDermid JA at 422-423. His Lordship concluded by expressing his opinion thus: I am of the opinion where the defence of a defendant shows clearly that if a demand has been made on him for possession of the property, he would have refused delivery, then it should no longer be a defence to an action in detinue that no such demand was made. To require such a formality in circumstances that show it would have been futile is empty of any merit, and is reminiscent of the discarded formalities of the past century. 185 A similar view was expressed, although by way of obiter dictum, by Hodgson JA (with whom McColl JA and Windeyer J agreed) in Brambles Australia Ltd t/as Chep Australia v Tatale Pty Ltd (2004) Aust Torts Reports ¶81-759 at 65,954 [40]. The question was whether a certain letter amounted to a demand for the return of goods, or a withdrawal of consent to those goods being held. His Honour held that it was. He said also "that the evidence could show that the making a proper demand would have been futile. … particularly having regard to the terms of the defence initially put on by the opponents". That could not have been a relevant consideration unless the futility of demand means, as McDermid JA had said in Baud Corp, that it was not necessary to make it. The evidence 186 I have set out what I consider to be the relevant evidence, and my conclusions on it, in dealing with issue 4. The parties' submissions 187 Mr Bathurst submitted that the use made by Bunnings of Non-Commercial Chep Pallets during the Relevant Period amounted to conversion, because it was a use inconsistent with Chep's dominion over those pallets – its right to their immediate possession. He submitted that the evidence showed that Bunnings was more than a mere repository (or depository) of the pallets, and that it actively employed them for its own purposes (as, in dealing with issue 3, I have found it did). That degree of use, Mr Bathurst submitted, amounted to Bunnings' employing the pallets as though they were its own. 188 Further, Mr Bathurst submitted, Bunnings had been aware at all material times during the Relevant Period (or from August 2001, at the latest) that Chep maintained that Bunnings was in possession of Non-Commercial Chep Pallets, and that it required Bunnings either to hire those pallets or to return them. Bunnings refused to accept either alternative, and continued to use the pallets in question for its own purposes. That conduct too, Mr Bathurst submitted, amounted to conversion. 189 For essentially the same reasons as those summarised in the preceding paragraph, Mr Bathurst submitted that, in the alternative, Bunnings was liable for detinue. He submitted that the repeated statements that Bunnings should either hire the pallets in question or return them were effective to amount to a conditional demand for the return of the pallets, and that in circumstances where Bunnings had declined to accept the condition, the demand should be regarded as unconditional. Alternatively, Mr Bathurst submitted, Bunnings' conduct, both over the years in question and in its defence of these proceedings, showed that demand would have been futile. He pointed to the circumstance that, even after what Bunnings conceded was a sufficient demand was made on 30 May 2007, Bunnings had not taken any steps to make the pallets available to Chep (on the contrary, it continued to use them for its own purposes). Further, it was not until after this Court, on 24 August 2007, ordered Bunnings to return the pallets that it started, at its own pace and so as to suit its own convenience, to put in place processes to do so. 190 Mr Garratt submitted that the claims in conversion and detinue must fail, because those were both torts in respect of specific chattels and, at least up until 30 May 2007, no specific chattels had been identified so as to show the requisite degree of interference with Chep's possessory rights (assuming, against his case based on implied term and estoppel, the existence of those possessory rights). That was so, Mr Garratt submitted, because the only demands that were made prior to 30 May 2007 (assuming, against the point to which I shall turn in a moment, that there were in fact demands made before that date) related not to all pallets in Chep's possession but to an unidentifiable fraction of them: namely, pallets not on hire from Chep to one of its customers. 191 In any event, Mr Garratt submitted, there was no conversion or detinue, because his client's use of the pallets in question was either established by the implied licence for which he contended or something that Chep was estopped from disputing. 192 Mr Garratt submitted that there were no effective demands prior to 30 May 2007. That was so, he submitted, because such requests as were made were conditional, and clearly aimed at maintaining Bunnings' use of the pallets but on terms acceptable to Chep. It has to be said that Mr Garratt's understanding of the situation appears to differ from that of Mr Davis and of Mr Gilsenan. As an alternative proposition, Mr Garratt submitted that the demand was ineffective because (as I have indicated earlier) it did not relate to identifiable chattels, but to some part of the pallets held by Bunnings which Bunnings could not identify (there being no relevant means of distinguishing one Chep pallet from another). 193 Further, Mr Garratt submitted, there was no conversion because such use as Bunnings made of the pallets was not inconsistent with Chep's dominion, but was merely transitory use, before the pallets were returned to Chep in the ordinary course of Bunnings' business and of the businesses of its suppliers. 194 In response to the submission based on the lack of identifiable specific chattels to which any demand related, Mr Bathurst submitted that it was not open to Bunnings to rely on the point. He relied on what Latham CJ and Williams J had said in Penfolds Wines: that one who deals with the property of another does so at his or her own risk (see at [97] above). Decision 195 In my view, Chep has made out its case in conversion, in relation to such Non-Commercial Chep Pallets (i.e., Chep pallets not at any time on hire to a Chep customer) as were in Bunnings' possession from time to time over the Relevant Period. That is because, as Mr Davis conceded, Bunnings understood at all material times over the Relevant Period that Chep did not consent to Bunnings' using those pallets for the purposes of its business, unless of course Bunnings entered into a hire agreement: something that Bunnings was not prepared to do. 196 It follows, in my view, that for Bunnings to continue to use the pallets, for the various purposes described above, was a conversion because it was inconsistent with Chep's immediate right to possession of those pallets. Of course, not all the pallets used in that way were Non-Commercial Chep Pallets and not all of that use amounts to conversion. But if, as I have concluded, there were at all material times in Bunnings' possession substantial quantities of Non-Commercial Chep Pallets, the various uses that Bunnings made of those pallets amounted to conversion: particularly in the face of Chep's clear and repeated statements of its position. 197 I accept, of course, that Bunnings could not send people to each store and distribution centre, to look at the Chep pallets there on display and identify those that were, and those that were not, the subject of current hire arrangements between Chep and a customer. But that position could have been established, with reasonable accuracy, had Bunnings agreed to Chep's repeated requests to conduct an audit. (I note that Mr Garratt submitted that an audit would establish no such thing, but I have dealt with that submission at [96] above. I infer, from the evidence relating to Mr Gilsenan's state of mind referred to in detail at [86] to [92] above, that Bunnings' reason for refusing the audit was that it did not want to discover, or be put on notice of, the situation that an audit would reveal. In those circumstances, I think, it is apt to apply the observations of Latham CJ and Williams J in Penfolds Wines, and to conclude that Bunnings, with the knowledge that it had, dealt with Chep's pallets at its peril. Someone who wrongfully uses the goods of another should not be in a better position through ignorance than through knowledge: particularly where the state of ignorance is self-inflicted, because the person suspects, but fears to have confirmed, the truth. 198 Equally, in my view, Chep has made good its case in detinue. That is so for two alternative reasons. The first is that the demands that it made over the years were sufficient. True it is that they were conditional. But the condition was one that Bunnings, upon whom the demands were made, was never prepared to accept. It follows that the alternative was the only option available. As I have said already, it is clear that Mr Davis and Mr Gilsenan understood the position in this way. 199 Alternatively, and even if the requests made by Chep from time to time ought not be so characterised, it is clear on the whole of the evidence that the making of formal demand would have been futile. Bunnings' position was always that it was entitled to use the pallets as it did because they were all the subject of legitimate hire arrangements between Chep and its customers. Bunnings refused to give any credence or weight to the evidence to the contrary put before it by Chep. It refused to participate in a process that would have illuminated the true position. Through Mr Gilsenan, it understood from at least November 2005 that if an audit were undertaken, the true position would be revealed and Bunnings' stated position would be falsified. Issues 6 and 8: numbers of pallets converted or detained 200 For the reasons given in relation to issue 2, the Non-Commercial Chep Pallets that Bunnings converted, and unlawfully detained, over the years are as set out at [114] above. Issues 13 and 14: loss, the proper measure of damages 201 Bunnings contended that the Relevant Period commenced on 16 May 2002. For the reasons that I give at [209] to [215] below, I think that this submission is correct. Accordingly, when I use the expression "Relevant Period" in these reasons, it should be taken to refer to the period from 16 May 2002 to 31 October 2007. However, in case I am wrong in that, I will make such findings of fact as may be appropriate in relation to the period from 1 January to 15 May 2002. 202 By definition, the pallets that were (as I have found) converted or unlawfully detained were Non-Commercial Chep Pallets. Chep claims that it suffered loss in at least three ways: (1) it lost the opportunity to put those pallets out to hire; (2) because those pallets continued to circulate through the distribution network, and from time to time came into Chep's service centres, it incurred the costs of repair; and (3) it was forced to replace those pallets, so as to ensure the sufficiency of stock, before the end of their useful life. The evidence 203 It was not in contest that Chep pallets in circulation pass through a Chep service centre three or four times a year, and that when they go through the service centre they are repaired and repainted as necessary. The average cost of doing so, according to Mr Austin, was about $73.00 per pallet over its 10 year lifespan, or about $7.30 per pallet per year. 204 Likewise, from Chep's records, the average cost of replacing a pallet over the period of five financial years ending 30 June 2007 was $22.14. 205 As Mr Garratt pointed out, Chep had a contractual right to be compensated for "Lost Equipment" (see cl 4(b)(2) of the terms of hire). Since the Non-Commercial Chep Pallets in question all fell within the definition of "Lost Equipment", the appropriate compensation was payable, and one might assume paid, in respect of each such pallet. Over the five financial years ending 30 June 2007, the average loss compensation fee charged by Chep was $21.92 per pallet. 206 Chep always had pallets on hand that were not on hire. Its business could not operate unless there were maintained, in each service centre, a stock of pallets sufficient to meet the day to day needs of existing and new customers. There was some evidence of the proportion, to the total of all Chep pallets, of the number from time to time that were actually on hire. 207 Further, and again as Mr Garratt pointed out, when a "lost" or "black pool" pallet came back into Chep's possession at a service centre, it ceased, by reason of that very fact, to be lost, or unavailable for hire. Yet as I have pointed out, it was Mr Austin's evidence that part of the overall loss suffered by Chep was the ongoing obligation to repair pallets in the black pool. It might be wondered how Chep could lose the hire of a pallet, and yet remain under an obligation to repair it, in those circumstances. Mr Austin explained this apparent conundrum as follows (T91.33-92.3): Q. What is the lost opportunity cost of lost hire fees to which you refer? A. If a pallet is no longer on hire and is no longer under the control of Chep, so when a compensation is paid we cease continuing to earn revenue on that asset. If it was still in control we would still continue to on-hire it. HIS HONOUR Q. When but when it comes into a service centre for repair three or four times a year it comes back into Chep's possession and control, doesn't it? A. The, the difficulty for us is, as I normally do this visually, which may be difficult here, hence the white board. The black pool pallets which are lost to Chep interoperate with the hired pool pallets of Chep, and so a pallet will invariably return to Chep in order to be repaired, but if it has been physically exchanged with a black pool pallet then there is still a pallet out there at an entity C, whilst the previous black pool pallet has come in, so the net position of hireable pallets remains the same, of on-hire pallets remains the same. Q. So is what you're saying that whilst the individual pallets that comprise the black pool change from time to time as they're exchanged the volume of the pool doesn't alter through the exchange mechanism? A. No, that's correct. 208 Finally, there was evidence of Chep's standard hire rate for pallets from time to time. There was also evidence that Wesfarmers paid a substantially lower rate – at one point in time, I think, about 40% of the standard hire rate. The Relevant Period 209 It is convenient at this point to deal with the issue as to the time when the Relevant Period commenced. Mr Bathurst submitted that the evidence showed that Bunnings had used Chep's pallets, in the ways summarised at [114] above, from at least 1 January 2010. I am not certain on the basis on which Bunnings contended that the Relevant Period commenced on 16 May 2010, but I assume that it was because it was on this date that Chep put a written proposal to Bunnings which suggested that Bunnings should either hire Chep pallets that were not on hire to other Chep customers or return them. That proposal, presented to Bunnings in Western Australia, seems to be the first such proposal of which there is evidence. 210 It is clear from business records of Chep identified and reviewed by Mr Hammond that Bunnings had Chep pallets in its possession during 2001 and 2002. An informal audit conducted in New South Wales in 2001 showed that there were approximately 10,000 Chep pallets in Bunnings' stores in New South Wales, of which (on Chep's reckoning) about 5,000 were on hire to, or "legitimately owed" by Bunnings to, Chep customers. 211 A similar informal audit was conducted in 2002 in Victoria. It showed that there were between 20,000 and 30,000 Chep pallets in Bunnings' stores in Victoria. According to Chep, only 3,000 to 4,000 of those were then on hire. 212 There is no reason to think that the experience in New South Wales and Victoria would have been confined to Bunnings' stores in those states, particularly given the evidence of Mr Davis and others as to the Bunnings business model and the "roll-out" of Bunnings' warehouse stores from 1994 onwards. 213 On that basis, I think, Mr Bathurst's submission should be accepted. However, the question is not merely whether Bunnings was using Chep pallets but whether it was doing so in a way inconsistent with Chep's dominion over them (for the purposes of conversion) or in the face of a requirement by Chep to return them (for the purposes of detinue). The first evidence of any request that could be taken as a demand is the hire proposal of 16 May 2002. It was that proposal which should have put Bunnings on notice of Chep's claims, and should have made Bunnings aware that if Chep's position were correct, Bunnings' use of Non-Commercial Chep Pallets was unauthorised. 214 Of course, Chep relied on the demands made to BBC Hardware, of which Mr Doyle gave evidence. However, I do not think that it is correct to attribute to Bunnings knowledge gained by Mr Doyle in the course of his employment by BBC Hardware. There was no evidence of the terms on which Bunnings took over BBC Hardware, and therefore no basis on which it could be concluded that such corporate knowledge or memory as BBC Hardware may have had through employees such as Mr Doyle was acquired by, or should be imputed to, Bunnings. 215 On that basis, I think, Bunnings' submission should be accepted. Accordingly I conclude that, as Bunnings submitted, the Relevant Period commenced on 16 May 2002. The parties' submissions as to the measure of damages 216 Mr Bathurst submitted that Chep had suffered loss in each of the ways outlined at [202] above. However, he submitted, Chep would confine its case to damages based on foregone hire, for the Non-Commercial Chep Pallets from time to time in Bunnings' possession over the relevant period, at the standard rate. 217 Accordingly, Mr Bathurst submitted, it was not necessary to consider the question of premature replacement of the pallets, or the ongoing cost of repair. 218 Mr Bathurst acknowledged that if every head of loss were pursued then it would be necessary to bring to account loss compensation fees actually received over the years in question. However, he submitted, because those fees did not cover the cost of replacement and the ongoing cost of repair, it was not necessary to do so. 219 Mr Bathurst based his analysis of the proper measure of damages on the decision of the English Court of Appeal in Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246, as explained and followed by Giles J in Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175. In each of those cases, the court assessed damages for detinue, of chattels owned and used by the plaintiff for hiring out, by reference to the hire foregone over the period of detention. I will return to those cases when I consider the relevant principles. 220 Mr Bathurst submitted that if there were difficulties in assessing Chep's damages, then the Court should take a robust approach and draw inferences against Bunnings, on the basis that it was Bunnings' wrongful actions that had made it difficult to undertake an accurate assessment. He relied on, among other cases, Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 and Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46. 221 Mr Garratt submitted that Chep had not established any loss. That was so, he submitted, because: (1) at all material times, Chep had available to it more pallets available for hire than it had out on hire, or needed to provide to hirers, so that there was no actual loss of hire; (2) there was no evidence that the pallets might have been hired out, but at most evidence of an "opportunity cost" of not having the pallets available for hire; (3) in any event, once the pallets came back into Chep's possession in the ordinary course of circulation (as he put it), they were available for hire; (4) any claim for ongoing repair costs was misconceived because, by definition, the pallets in respect of which that cost was incurred were pallets in Chep's possession and available for hire; and (5) any capital cost incurred earlier than would otherwise have been the case was amply compensated by the compensation payable in respect of that loss. 222 Further, Mr Garratt submitted, the loss compensation fee fixed by Chep from time to time was in fact lower than the maximum that it could have charged. Thus, he submitted, if Chep chose to charge and recover a fee that was insufficient compensation for its loss, that was not something for which Bunnings should be held liable. In this context, Mr Garratt pointed to what he said was the failure of Chep to lead evidence as to how the loss compensation fee from time to time was fixed, and as to what were its integers or components. 223 In any event, Mr Garratt submitted, the facts in this case did not attract the Strand Electric / Gaba Formwork reasoning. That was because those cases depended on there being something more than mere detention; for damages to be payable on the basis of hire foregone, the defendant must have made use of the goods. In this case, Mr Garratt submitted, such use as Bunnings made of the pallets (holding stock on them, or stacking them ready for exchange) was insufficient. The relevant principles The general rule 224 At the risk of stating the obvious, I begin with the proposition that the general rule is that damages in tort are compensatory. The customary citation is the speech of Lord Blackburn in Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39: I do not think that there is any difference of opinion as to its being a general rule that, where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is getting his compensation or reparation. 225 However, as his Lordship pointed out in the passage immediately following, the application of that general rule requires careful consideration of all relevant facts. In particular, his Lordship said, damages that might not be allowed against an innocent wrongdoer may well be allowed against one who has acted wilfully and intentionally: That [statement just quoted] must be qualified by a great many things that may arise – such, for instance, as by the consideration whether the damage has been maliciously done, or whether it has been done with full knowledge that the person doing it was doing wrong. There could be no doubt that there you would say that everything would be taken into view that would go most against the wilful wrongdoer – many things which you would properly allow in favour of an innocent mistaken trespasser would be disallowed as against a wilful and intentional trespasser on the ground that he must not qualify his own wrong, and various things of that sort. 226 The underlying principle appearing from the passage just quoted has been applied many times, in support of the proposition that damages should be assessed robustly against a wrongdoer where the wrong itself has made quantification difficult. That proposition can be traced back for more than 250 years before Lord Blackburn spoke (see Armory v Delamirie (1722) 1 Strange 505; 93 ER 664). It was applied by Handley JA in Houghton at 59, and his Honour's words (and the words of others) were quoted with approval by the High Court in Murphy at 416 [74]. Second order rules 227 It is important to distinguish between the fundamental principle – that damages should be assessed so as to compensate the injured party, to the extent that money can, for the wrong done – from second order rules as to how that assessment might be carried out. (The phrase "second order rule" comes from the speech of Lord Steyn in Smith New Court Securities Limited v Citibank NA [1997] AC 254 at 284.) Although, in particular kinds of case, damages may generally be assessed on a particular basis, the method of assessment may be disregarded, or departed from, if adherence to it would violate the compensatory rule. 228 Smith New Court was a case of misrepresentation. In seeking damages for the purchase of shares at a price inflated by a misrepresentation, the purchaser had to give credit for the market value of what it had acquired. The general rule, in such cases, was that the market value should be assessed at the date of acquisition. The House of Lords said that this general, or second order, rule should be departed from where to adhere to it would not allow proper compensation for the loss actually suffered. See Lord Browne-Wilkinson at 268, Lord Mustill at 269 and Lord Steyn at 285. Lord Keith of Kinkell and Lord Slynn of Hadley agreed with Lord Browne-Wilkinson and Lord Steyn. 229 Of course, this is a case of conversion or detinue, not a case of misrepresentation. Nonetheless, it has been recognised that the assessment of damages for conversion should be carried out in a flexible manner so as to achieve the true compensatory purpose of damages: IBL Ltd v Coussens [1991] 2 All ER 133. 230 The distinction between the fundamental compensatory rule and second order rules that give effect to it was referred to, with apparent approval, by the High Court of Australia (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ) in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 667 [63]. In that case, the Court was dealing with the assessment of damages under s 82 of the Trade Practices Act 1974 (Cth), but nothing in what their Honours said suggested that Lord Steyn's approach (which, as I have already said, related to a case of misrepresentation) was incapable of any wider application. Strand Electric 231 The starting point, on the approach advocated by Chep, is the decision in Strand Electric. In that case, the plaintiff's business comprised or included the hiring out of electrical switchboards. It hired some switchboards to the occupant of a theatre owned by the defendant. The occupant moved out, and the defendant retook possession of the theatre. It used the switchboards in the theatre for its own purposes. The plaintiff made demand for the return of the switchboards. The defendant refused to comply. The Court of Appeal (Somerville, Denning and Romer LJJ) held that damages should be assessed at the rate of hire that the plaintiff could have obtained for the switchboards had they been available to be hired out in the course of its business. Their Lordships followed somewhat different paths to this conclusion. 232 Somerville LJ said at 252 that, the claim being one in detinue, the plaintiff's loss was the market value of the defendant's user of the switchboards. His Lordship said that "[t]he wrong is not the mere deprivation, as in negligence and possibly some detinue cases, but the user". The value of that user was to be measured by the plaintiff's usual rate of hire, not by "the actual benefit which the defendants have obtained". His Lordship said: The damages could not … be increased by showing that a defendant had made by his use of the chattels much more than the market rate of hire. Equally they can not be diminished by showing that he had made less. 233 His Lordship justified this conclusion by reference to the analogy of a claim for mesne profits. As his Lordship said (again at 252), "[t]he measure there is a reasonable sum in the nature of rent for the user during the period of the defendant's trespass". 234 Denning LJ commenced his judgment by referring, at 253, to the compensatory rule. His Lordship said (in my respectful view correctly) that this directed attention to the real question, what is the proper measure of damages, on the facts of that case, for the wrongful detention of goods. 235 His Lordship reasoned at 254 that the defendant was in the position of "a wrongdoer [who] has made use of goods for his own purposes". Such a wrongdoer, his Lordship said, "must pay a reasonable hire for them even though the owner has in fact suffered no loss … the owner is entitled to a reasonable hire". As his Lordship made clear later on the same page, that conclusion did not follow from mere detention of the goods, but from the fact that they were detained and used by the wrongdoer. 236 Romer LJ commenced by emphasising "three salient facts": (1) the plaintiff's goods that the defendant had detained were profit earning property; (2) the plaintiff normally hired those goods out in the course of its business; and (3) the defendant actually used the goods for its own purposes during the period of wrongful detention. 237 His Lordship referred to the compensatory rule and, like Denning LJ, posed the question as being identification of the loss suffered by the wrongful act of detention. His Lordship rejected, as the appropriate measure of quantification, the profit or benefit that the defendant gained by its wrongful act. 238 At 257, Romer LJ rejected the proposition that the assessment of the plaintiff's loss, on the basis of the value of hire foregone, should take into account the chance that the plaintiffs may not have been able to hire the goods out for the full period of the detention. His Lordship said: In my judgment, however, a defendant who had wrongfully detained and profited from the property of someone else cannot avail himself of a hypothesis such as this. It does not lie in the mouth of such a defendant to suggest that the owner might not have found a hirer; for in using the property he showed that he wanted it and he cannot complain if it is assumed against him that he himself would have preferred to become the hirer rather than not have had the use of it at all. 239 In this regard, his Lordship appears to have taken the approach advocated by Lord Blackburn, of taking into account, against a wilful wrongdoer, things that might not be allowed against an innocent wrongdoer: preventing the wilful wrongdoer from qualifying his own wrong. In other words, as I understand the approach of Romer LJ, it reflected in substance, if not in terms, the approach in Armory v Delamirie and foreshadowed the approach taken by Handley JA in Houghton. 240 In my view, the approach to be gathered from the decision in Strand Electric is that the assessment for damages for the wrongful detention of a chattel that is normally hired out for reward may be effected by reference to the foregone hire, and the wrongdoer should not be permitted to raise the argument that the chattel might not have been hired out for the whole period of the detention. All three of their Lordships agreed in the first point. The second is explicitly supported by the judgment of Romer LJ and is, I think, implicit in the judgment of Somerville LJ. Gaba Formwork 241 The decision in Strand Electric was reviewed by Giles J in Gaba Formwork. His Honour's analysis commences, relevantly for present purposes, at 177, where his Honour identified the principles relating to actions in conversion and actions in detinue. The former, his Honour said, was a claim for damages for the wrong done to the plaintiff by the interference with its goods. The latter, by contrast, was a continuing wrong, and various remedies were open. Those remedies included judgment for the value of the goods and damages for their detention; or judgment for the return of the goods or their value and damages for detention; or judgment for return of the goods and damages for detention. 242 His Honour pointed out at 177 – 178 that the normal measure of damages for conversion is the value of the goods converted at the date of conversion, together with consequential, but not too remote, losses flowing from the conversion. 243 By contrast, his Honour pointed out at 178, the normal measure of damages in detinue is the value of goods at the date of judgment. Where the goods detained were used by the plaintiff in its business, damages could be assessed by reference to the cost of hiring substitute goods. Where the plaintiffs' business comprised the hiring out of the goods, damages might be assessed by reference to the foregone profits from hiring them out. 244 In addition, his Honour said, a plaintiff in detention was entitled to damages for the detention of the goods. At 179, his Honour said that there was no arbitrary rule, either in conversion or in detinue, that the assessment of damages should not take into account any period after judgment. In conversion and in detinue, damages could take account of a period after the date of judgment if that were necessary, for example, "to compensate for hiring fees to be lost after judgment and before acquisition of replacement materials". Equally, if by reason of actions in mitigation taken by the plaintiff, its ongoing loss stopped before judgment, that should be reflected in the quantification of damages. 245 Giles J dealt with the decision in Strand Electric at 180 to 183. His Honour then considered the decision of the High Court in Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 (I refer to this case at [250] and following below) and concluded, at 184, that the decision could be distinguished on its facts. His Honour then reviewed the authorities in which the decision in Strand Electric had been considered, noting at 185 that it had been referred to by the Full Court of this Court in McKenna and Armisterd Pty Ltd v Excavations Pty Ltd [1957] SR (NSW) 515, and that the Court was "at pains not to endorse the result in Strand Electric…". 246 Giles J concluded at 188 that the decision in Strand Electric should be followed so far as it applied to the facts before him. His Honour said of that decision: It has stood for nearly 40 years and, while confined to where the defendant has used for his own purposes goods which the plaintiff would or might otherwise have hired out for reward, has been generally accepted in that situation. It produces a just result… . 247 His Honour appeared to suggest, both in a passage following what I have just quoted and at 184, that the decision in Strand Electric marked some departure from the compensatory rule. If I may say so with respect, I am not sure if this is the case. As I have noted already, both Denning LJ and Romer LJ referred to the compensatory rule, and asked the question, what was the proper measure of damages to compensate the plaintiff in that case for its loss? In the language of Lord Steyn, it seems that Denning LJ and Romer LJ regarded their task as being to identify the appropriate second order rule that, in the circumstances of that case, would best ensure that the compensatory rule achieved its purpose. Flowfill 248 Young J dealt with the question in Flowfill at 62,523 – 62,524. He said, at the latter page, that the decision of Giles J in Gaba Formwork "was strongly reasoned after a review of all the applicable authorities in Australia and England and it seems to me that I should follow it". 249 There was no later case cited to me to suggest that Gaba Formwork was wrongly decided (or, for that matter, that the principle established by Strand Electric is inappropriate in cases of the detention of profit-earning chattels). Butler 250 I return to the decision in Butler. In that case, a statutory scheme of regulation vested in the respondent board property in all eggs when they came into existence. Producers were paid by participating in a pool into which the proceeds of sale of eggs by the board were paid and from which expenses were deducted. The appellants failed to deliver eggs to the board and instead sold them to a third party. The board sought damages for conversion of the eggs. The High Court held that the measure of damages was not the value of the eggs but the difference between the price for which the board would have sold the eggs, had they been delivered to it for sale, and the amount which in that event it would have been bound to pay to the appellants. 251 Taylor and Owen JJ pointed out at 190 that if the board received the full value of the eggs, it "would be in a better position financially than would have been the case had the appellants complied with the Act". Their Honours said at 191 that "such a result would not accord with the general principle upon which compensatory damages are assessed, whether in actions of contract or of tort". Thus, their Honours said, the general rule – that damages in conversion are the value of the goods converted – should give way where necessary to ensure that the plaintiff receives no more than its entitlement under the compensatory principle. To adapt the words of Lord Steyn, the second order rule gave way to ensure a result in conformity with the compensatory rule. 252 In a separate judgment, Menzies J reasoned to similar effect at 192, stating that "[t]he true rule is … that the plaintiff is entitled to recover no more than the real damage he has sustained". If application of the general rule – value of the goods at the date of conversion – would mean that the plaintiff was over-compensated, then the general rule should give way. Decision 253 In my view, in principle, it is appropriate to apply in this case what I have called the Strand Electric / Gaba Formwork reasoning. That is because (to adapt the words of Romer LJ at 256) the salient features of this case are that the pallets were profit-earning property of Chep; that Chep normally hired pallets out in the course of its business; and that (contrary to Mr Garratt's submission) Bunnings, during the period of detention, did use the detained pallets for its own purposes. 254 Those salient facts attract the operation of the principle. As Young J said in Flowfill at 62,524 it is appropriate to follow the reasoning of Giles J in Gaba Formwork, having regard to his Honour's extensive review of the authorities (and, I add, the absence of any authority, at least cited to the Court, to the contrary). Thus, in principle, I propose to adopt the approach sanctioned by those cases. 255 However, the approach cannot be applied in a mechanical or unthinking manner. It must take account of the particular facts. 256 Although it is correct to say that Chep hires out its pallets for reward, it is necessary to bear in mind that it does so on a pooled basis, and that part of its business strategy seems to be that it will always have pallets on hand sufficient in number to satisfy the requirements of all its customers. There is nothing in the facts of Strand Electric to suggest that the plaintiff had an oversupply of portable switchboards; nor anything in Gaba Formwork to suggest that the plaintiff had an oversupply of formwork. In each case, I suspect, the plaintiff was happy to let out what it had, and more than happy if all its stock in trade was let out on hire. By contrast, Chep, as a matter of choice (or business model) operates on the basis that not all its stock of pallets will be on hire at any given time. 257 In my view, it would be unjust to Bunnings, and would overcompensate Chep, not to recognise the feature of Chep's business model that I have just identified. Accordingly, I think, the assessment of damages needs to take account of the fact that even if the pallets in question had all been in Chep's possession at all relevant times, not all of them would have been out on hire at any given time. 258 I have adverted briefly to Mr Austin's evidence on this topic. What he said, at para 46 of his affidavit sworn 29 October 2008, was that over a period from "at least 1996" until January 2008, between 86% and 92% of Chep's pallets were on hire at any one time during "non-peak times". By contrast, at peak times, in excess of 95% of pallets were on hire. Mr Austin did not give detailed identification of peak and non-peak times, but gave, as examples of peak times, "the lead up to Christmas and Easter". 259 Mr Austin was questioned on this evidence at T52. It was put to him at line 26 that this evidence provided "a fair working basis … for regarding the pallet usage within … the Chep business for each of these years from about 2001 to 2008". He agreed with that proposition. However, as he made plain in his answer to the following question, that ratio was the percentage of the total pool that was on hire from time to time. The total pool included pallets under repair or awaiting repair, as well as pallets that had been repaired and were ready to be hired out. 260 In my view, substantial justice would be done between Chep and Bunnings if one assessed damages on the basis that, over the years in question and averaging out peak and non-peak times in a rough and ready way, 90% of Chep's pallets would have been on hire at any given time. On that basis, I think, the assessment of foregone hire for the Non-Commercial Chep Pallets that are the subject of the claim in detinue and conversion should be assessed on the basis that what Chep has lost is the hire of 90% of those pallets at any given time. To ignore the reality of the business model, and to give Chep the benefit of the hire of 100% of the pallets all the time, would amount to over-compensation. 261 In this way, I think, the secondary rule established by Strand Electric and Gaba Formwork must be adapted to ensure that the method of assessment of damages ensures that the aim of the compensatory rule is met. 262 However, I do not think that either the compensatory principle or the secondary rule as to assessment established by Strand Electric and Gaba Formwork, requires the Court to take, as the hire rate applicable, the rate paid by Wesfarmers from time to time. There are at least two reasons why this is so. The first is that the measure of damages is the loss of a market rate of hire (see Somerville LJ in Strand Electric at 252). The market was wider than Wesfarmers. The second is that, to adapt the words of Romer LJ in Strand Electric at 257, it does not lie in the mouth of Bunnings to suggest that the damages that it should pay should be reduced by reason of some benefit that it might have obtained had it bargained for the use of the chattels instead of converting or detaining them. 263 To the extent that it may be said that Chep cannot prove what particular hirers would have paid, then, I think, one should assess damages robustly and against Bunnings, whose wrongful detention and conversion of the pallets has rendered precise quantification impossible. 264 Essentially for the reasons that I have indicated already, I do not think that it is correct to say that Chep has been compensated in full by receiving (if it has done so) compensation from hirers for the loss of the pallets in question. As the figures set out at [204] and [205] above show, that compensation does not cover the capital cost of replacement. It does not compensate at all for the annual cost of repair. Chep claims neither the cost of replacement nor the cost of repair in these proceedings. It has limited its case to loss of use. 265 For effectively similar reasons, I do not think that the decision in Butler has anything to do with the facts of this case. Whilst it might be true, as a matter of theory, to say that Chep has already received compensation in respect of the loss of the pallets, that compensation has been, as it were, soaked up by other losses that are not the subject of the present claim. There is no need for it to be brought to account, against the damages presently claimed, so as to ensure that Chep receives no more than full compensation for its losses. 266 Accordingly, I conclude that the proper measure of damages for conversion and detention (it was not submitted that there was any significant distinction between the alternative claims, in this case) is the daily hire fee foregone, for the Relevant Period as I have found it to be, in respect of 90% of the Non-Commercial Chep Pallets found, by calculation, to have been in the possession of Bunnings for each period. Issue 15: amount of damages 267 Chep calculated its damages as follows, on the basis that the appropriate way of pro-rating back the number of Non-Commercial Chep Pallets in Bunnings' possession in periods prior to 1 April 2007 was by reference to the number of warehouse stores: Period No. of Non Commercial Pallets Daily Hire Fee Number of Days Hire Fee for Period 1 April 2007 – 1 October 2007 64,690 $0.1090 183 $1,290,371 1 April 2006 – 31 March 2007 59,264 $0.1015 365 $2,195,583 1 April 2005 – 31 March 2006 54,673 $0.1010 365 $2,015,520 1 April 2004 – 31 March 2005 52,169 $0.0980 365 $1866,085 1 April 2003 – 31 March 2004 48,413 $0.0950 365 $1,678,720 1 April 2002 – 31 March 2003 46,326 $0.0925 365 $1,564,081 1 Jan 2002 – 31 March 2002 46,326 $0.0890 90 $371,071 $10,981,431 268 It follows from what I said that the damages should be reduced by 10% for each period; that the very earliest period in that table (1 January 2002 to 31 March 2002) should be excluded from the calculation; and that the second earliest period should commence on 16 May rather than 1 April 2002. 269 Chep also claims interest. Mr Garratt opposed the award of interest. He relied on the decision of the Court of Appeal in Screenco Pty Ltd v R L Dew Pty Ltd (2003) 58 NSWLR 720. In that case, the plaintiff claimed damages for the loss of a profit-earning chattel which it owned but for which it had not paid. The damages included the cost of the chattel. It sought interest on that amount. Handley JA said at 724 that, in those circumstances, although the plaintiff had lost the chattel and its use, "in a real and practical sense [it] had not lost its money because it had not paid for the screen". His Honour reviewed the authorities, and drew from them the principle that an award of interest on damages was intended to restore the plaintiff to its pre-loss position. In this case, his Honour said at 730, an award of interest would improve the plaintiff's position, rather than simply restore it. 270 Likewise, Tobias JA said at 748, again after a detailed review of the authorities, that to award interest on the capital value of the lost chattel would over-compensate the plaintiff, because, since it had not paid for the screen, it was not out of pocket for that monetary value. 271 Sheller JA, at 731, accepted the reasoning of Handley and Tobias JJA. 272 The facts of that case are far removed from the facts of this. Their Honours were concerned with the question of interest on that component of the damages that represented the value of the screen. Because the plaintiff had not paid for the screen, it was not out of pocket for the equivalent amount of money, and had not suffered loss in being deprived of the use of that money. In this case, what Chep has lost is the hire that it would have earned on the pallets over the years. In a real and practical sense, it is out of pocket for that hire, because it has not received it. The decision in Screenco is plainly distinguishable on its facts, and the principle on which it decided is not relevant to the damages, representing loss of hire, that in my view should be awarded in this case. 273 Accordingly, I conclude that interest should be allowed, at the rate from time to time applicable, on the damages calculated in the way that I have outlined. 274 Chep brought in a calculation of interest. That calculation did not reflect the adjustments that I have said should be made. 275 It might be possible for me to recalculate the amounts in question to take account of the factors to which I have referred. However, I think, it is safer to leave this to the parties, who will be able to agree on a correct calculation that gives effect to these reasons. Conclusion and orders 276 It follows that Chep is entitled to damages for detinue or conversion, calculated in accordance with what I have said. 277 I make the following orders: (1) Direct entry of judgment for the plaintiff against the defendant for damages to be assessed. (2) Stand proceedings over to 9:30am on 18 May 2010 for the making of final orders. (3) Direct the parties to bring in short minutes of order to give effect to these reasons; (4) Draft short minutes to be provided to my Associate by 5:00pm on 14 May 2010. (5) Order that the exhibits remain with the file for 28 days after the date of judgment, and that thereafter they be dealt with in accordance with the rules. 278 If the parties are unable to agree on the proper costs order to be made, I will hear argument on 18 May 2010. ********** 19/05/2010 - Substituting names - Paragraph(s) 41, 51, 52, 69(1),72, 128, 209 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.