Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Sadcas Pty Ltd v Business and Professional Finance Pty Ltd [2011] NSWCA 267 Hearing dates: 27 July 2011 Decision date: 12 September 2011 Before: Giles JA at [1], Whealy JA at [82], Handley AJA at [83] Decision: 1. Set aside the verdict for the plaintiff against the first defendant and the judgment for $165,704.09 and the order that the first defendant pay the plaintiff's costs. 2. In lieu thereof, verdict for the first defendant against the plaintiff and judgment for the first defendant and order that the plaintiff pay the first defendant's costs. 3. Respondent pay the appellant's costs and have a certificate under the Suitor's Fund Act if otherwise eligible. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: TORTS - Conversion - respondent leased equipment to appellant's tenant - tenant vacated premises - equipment left on premises - appellant leased premises to new tenant - whether respondent had right to immediate possession - lease agreements still on foot and no conduct by lessee wholly repugnant to or destructive of bailment - no right to immediate possession - whether appellant converted equipment by leasing premises to new tenant - no conversion as leasing did not prevent respondent from retaking equipment - whether appellant converted equipment by later refusals to return equipment - did not refuse. DAMAGES - equipment later retaken by respondent - if conversion, damages were diminution in value of equipment or loss to respondent through deprivation of profit-earning goods - whether damages proved - query whether diminution in value proved - loss through deprivation not proved. Cases Cited: The Anderson Group Pty Ltd v Tynan Motors Pty Ltd [2006] NSWCA 22; (2006) 65 NSWLR 400; Armory v Delamirie (1722) 1 Stra 505; 93 ER 664; BBMB Finance (Hong Kong) Ltd v Eda Holdings Ltd (1990) 1 WLR 409; Burmah Trading Corporation v Mirza Mahomed (1878) LR 5 Ind App 130; Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175; Capital Finance Co Ltd v Bray (1964) 1 WLR 323; Caxton Publishing Co v Sutherland Publishing Co (1939) AC 178; Chep v Bunnings [2010] NSWSC 301; City Motors (1933) Pty Ltd v Southern Aerial Super Service Pty Ltd (1961) 106 CLR 477; Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Rep 81-244; Hall v Barclay [1937] 3 All ER 620 CA, 623; Hill v Reglon Pty Ltd [2007] NSWCA 295; Hiort v London & North Western Railway Co (1879) 4 Ex D 188; Howe v Teefy (1927) 27 SR (NSW) 301); Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 and 5) [2002] UK HL 19; (2002) 2 AC 883; Marcq v Christie, Manson & Woods Ltd (2004) QB 286 (2003) 3 WLR 980; North Central Wagon and Finance Co Ltd v Graham (1952) KB 7; Oakley v Lyster (1931) 1 KB 148; Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204; Playscoed Collieries Co Ltd v Partridge, Jones & Co Ltd (1912) 2 KB 345; Roberts v Wyett (1810) 2 Taunt 268; 127 ER 1080; Solloway v McLaughlin (1938) AC 247; Smith v Bridgend County Borough Council [2001] UKHL 58; (2002) 1 AC 336; Spackman v Foster (1883) 11 QBD 99; Strand Electric and Engineering Co Ltd v Brisford Entertainment Ltd (1952) 2 QB 246; Trailways Transport Ltd v Thomas (1996) 2 NZLR 443; Union Transport Finance Ltd v British Car Auctions Ltd (1987) 2 All ER 385. Texts Cited: Halsbury's Laws of England, 2nd ed, para 1211; Pollock and Wright on Possession in the Common Law; Tettenborn, "Damages in Conversion - Exception or Anomaly?" [1993] Cam LJ 128 Category: Principal judgment Parties: Sadcas Pty Ltd - Appellant Business and Professional Finance Pty Ltd - Respondent Representation: R D Marshall - Appellant E M Peden - Respondent Marsdens Law Group (Campbelltown) - Appellant E Moran & Co (Milsons Point) - Respondent File Number(s): CA 2010/409784 Decision under appeal Date of Decision: 2010-11-17 00:00:00 Before: Hughes DCJ File Number(s): 2008/31387 (formerly DC 1629/08) Judgment 1GILES JA : In proceedings in the District Court brought by the respondent against the appellant and three other defendants, it was held that the appellant had converted the respondent's goods and should pay it damages of $165,704.09. The claim against the other three defendants failed. 2The appellant contended, and the respondent did not contest, that the trial judge did not fulfil the judicial obligation to give reasons for his decision. It is not necessary to explain the insufficiency of the reasons, beyond that there were few findings of fact and no satisfactory exposure, if any at all, of the matters of fact and law and the process of reasoning leading to the finding of conversion and the assessment of the damages. 3The parties made submissions with a view to this Court deciding, if it could properly do so, whether the appellant was liable to the respondent for conversion of the goods, and if so the damages to which the respondent was entitled. It is obviously desirable that the parties not be required to undergo a new trial, with its expense and delay, if that can be done. In my opinion, this Court can properly decide these matters. 4For the reasons which follow, in my opinion the respondent did not prove conversion of its goods by the appellant; and had there been a conversion of the goods, its damages would not have been as assessed by the trial judge but at best a sum in the order of $35,000. The appeal should be allowed. Rented equipment is installed in a shop 5Under two agreements dated 19 April 2005 and 5 May 2005, the respondent rented to B & V Cedars Pty Ltd ("Cedars") a number of items of equipment for use in Cedars' conduct of a takeway food business. The equipment was purchased new by the respondent, at Cedars' request, from a supplier of such items. It comprised a cool room, fryers and a fry-top, a charcoal grill and hood, a rotisserie, benches, sinks, a dishwasher, an oven, and display cabinets. The rental agreements were for 48 months and rents of $2,084.37 and $2,261.50 per month. 6Cedars' takeaway food business was conducted in one of three shops in a property at Leumeah owned by the appellant. The shop was leased to Cedars by the appellant. No written lease was in evidence, and there was no evidence of the term of the lease or the rent, or of its nature at all. 7At the time Mr Christopher Eid was the sole director and shareholder of Cedars, and he was party to the rental agreements as guarantor. The directors of the appellant were Mr Bernard Eid and Mr Vincent Eid. The three Messrs Eid were brothers. 8At some time, it seems in April 2005 and prior to entry into the rental agreements, the equipment was installed in the shop. There were suggestions that an electrician and a plumber were required, and if so there was probably a degree of attachment to the realty. It was not contended in the proceedings that any of the equipment became a fixture and part of the realty. Possession of the shop changes: the equipment remains 9Cedars' business did not prosper. At some time prior to February 2006 Cedars vacated the shop, leaving the equipment behind. There was no evidence as to any arrangements between Cedars and the appellant, or between Mr Christopher Eid and Messrs Bernard and Vincent Eid, concerning vacating the shop and leaving the equipment. 10Notwithstanding that it was no longer conducting its takeaway food business, Cedars continued to make payments of rent to the respondent, although not in the full amounts, until October 2007. There were constant communications between the respondent and Mr Christopher Eid over this period, chasing up payments and threatening repossession of the equipment if promised payments were not made. 11In February 2006 the appellant leased the shop to Mr George Stylos. The written lease was in evidence. It provided for a term of two years commencing on 14 February 2006 at a rent of $3,250 per month subject to CPI increases, with two options to renew. The permitted use was as a takeaway food shop. By cl 3, "[i]f anything else is leased (such as furniture belonging to the lessor) and is described in Item 11 in the schedule it is included in the property". The equipment was not mentioned in the lease, and in particular was not described in item 11 in the schedule - on the contrary, item 11 was completed "not applicable". 12Despite evidence in the respondent's case that in discussions with Mr Stylos he had said that he had never been lessee of the shop, and had signed a paper so that Mr Bernard Eid could get a bank loan, it was not part of the respondent's case that the lease was a sham. Mr Vincent Eid was cross-examined with a view to affirming the lease to Mr Stylos. As will appear, the respondent relied on granting the lease to Mr Stylos as a conversion of the equipment. 13Mr Stylos conducted his own takeaway food business in the shop. It may be inferred that he used the equipment in the conduct of that business. As earlier stated, Cedars continued to make (partial) payments under the rental agreements. 14By letters to Cedars dated 24 August 2006 the respondent terminated the rental agreements "due to your breach of contract". The breach of contract was not specified, but there had been failure to pay the full rent under the rental agreements. The letters demanded payment of money sums, and said that if the money was not paid the respondent would, amongst other things - "4. Request that you return the goods under rent to our office at [address], if this is not possible our agent will call and repossess the equipment under rent." 15There was no evidence that these letters, or their contents, became known to Mr Bernard Eid or Mr Vincent Eid. From other evidence, see [19] below, at this time the respondent did not know that Cedars had vacated the shop. 16In February 2007 Mr Stylos "was succeeded as tenant of Shop 2 by Joseph Eid ... pursuant to an informal lease". This is taken from an affidavit of Mr Vincent Eid; it was not materially elaborated in other evidence, save that it was said that the rent payable by Mr Joseph Eid was $450 per month. The evidence did not reveal the circumstances in which Mr Stylos' lease of the shop terminated prematurely. Mr Joseph Eid was a brother-in-law of the other Messrs Eid. He was already leasing one of the adjoining shops, where he conducted a convenience store. 17Mr Joseph Eid also conducted a takeaway food business in the shop, and it may be inferred that he also used the equipment in that business; indeed, he said in evidence that he did. He remained the lessee of the shop until after the equipment was returned to the respondent, as shortly described. 18Mr Vincent Eid gave no evidence of his knowledge of the equipment in the shop when it was leased to Mr Stylos and then Mr Joseph Eid. Mr Bernard Eid said that he visited the premises rarely, that he saw a fridge and display cabinets, and that he knew that there was (unspecified) equipment for a takeaway food shop there; but that he thought, until he heard from the respondent, that Mr Christopher Eid owned it and left it there "and we were entitled to use them". Some action to regain the equipment 19On about 21 November 2007 Mr Alisten Joseph of the respondent telephoned Mr Bernard Eid. According to Mr Joseph, they had the conversation - "Me: 'Is that Bernie Eid?' Eid: 'Yes.' Me: 'This is Alisten Joseph from Business and Professional Finance. I understand Wendy Collins from our office came out to your shop yesterday and has tried to contact you about getting our equipment back.' Eid: 'Yes, I know the equipment you are talking about.' Me: 'How are you involved?' Eid: 'My brother and I own the shops.' Me: 'Okay. We want to meet with you to discuss getting our equipment back.' Eid: 'You know Chris is no longer here?' Me: 'Yes, we just found that out. That's why we want the equipment back.' Eid: 'We don't want to give it back. How much do you want for it?' Me: 'You can have it for $70,000 plus GST. You have until Friday to accept that offer. I will have Heidi Todd from our office send you an email confirming the offer. What is your email address?'" 20Mr Bernard Eid gave his e-mail address. An e-mail was sent confirming the offer. 21The offer was not accepted. On 10 December 2007 Mr Joseph wrote to Cedars, "Attention: Bernard Christopher Eid" [sic], stating that " ... we have no other option than to repossess the goods under the above rental agreements" and that "our agent will call and collect the goods next Tuesday, 18th December 2007". 22According to Mr Bernard Eid and Mr Vincent Eid, no one came to collect the equipment on 18 December 2007. There was no evidence that they did; it seems the intention to repossess was overtaken by the negotiations for sale of the equipment next described. The Messrs Eid gave evidence that, if anyone had come, they would have been allowed to take the equipment. 23On 18 December 2007 Mr Dean Alcorn of Hotray Pty Ltd ("Hotray") wrote to the respondent - "This letter is sent to you on a without prejudice basis. B & V Cedars Pty Limited and/or Mr Chris EID are no longer entitled to possession of the property at 54 Parkhill Avenue LEUMEAH. Neither B & V Cedars Pty Limited and/or Mr Chris EID own any business operating from the property at 54 Parkhill Avenue LEUMEAH. The business has been sold. On this basis we are prepared to offer you the sum of $25,000 for the equipment in full and final satisfaction of all alleged outstanding indebtedness in relation to it." 24Mr Vincent Eid said that Mr Alcorn was not acting on the appellant's behalf, and Mr Bernard Eid said that Mr Alcorn was acting on his behalf "as a concerned brother of Chris". 25On about 18 January 2008 Mr Joseph had a conversation with Mr Alcorn in which Mr Joseph offered to sell the equipment to "your client" for $60,000 and Mr Alcorn said that he would "speak with Bernie and get back to you". 26On about 25 January 2008 Mr Alcorn conveyed to Mr Joseph a counter offer of $30,000. So far as the evidence went it was not explicitly rejected, but on 29 January 2008 Ms Heidi Todd of the respondent wrote to Mr Alcorn requesting "that your client return the goods to our office address at [address] ... by Tuesday, 5th February 2008". 27On about 11 February 2008 Mr Alcorn phoned Ms Todd and said he had "passed [the letter of 29 January 2008] on to Bernie" and would follow it up and call back. On about 13 February 2008 they had a phone conversation - "Alcorn: 'I have advised Bernie to take out the equipment and return it to you.' Me: 'When will he return the equipment to us?' Alcorn: 'Bernie said he will return it when he has time.'" 28On 11 March 2008 solicitors for the respondent wrote to the appellant requiring the return of the equipment and asking to be advised of "a date and time convenient to you for our client to authorise an agent to collect the Equipment from the Premises". The solicitors said that legal proceedings were to be commenced unless there was "a satisfactory response from you by close of business on Monday, 17 March 2008". 29According to Mr Vincent Eid, he telephoned the solicitors and said - " ... words to the following effect: 'This has nothing to do with my company, Sadcas Pty Ltd. My company has not been in possession of the premises over the last five years and I do not know why Business & Professional Finance Pty Ltd did not collect the goods from Shop 2 when it said it would on 18 December 2007. This is a matter between your client and the tenant but I undertake to persuade the tenant to give your client the goods or allow them to be collected, if it is what you want me to do. You can collect the goods today if you want to." 30Mr Vincent Eid said that he gave the letter of 11 March 2008 to Mr Bernard Eid. Mr Bernard Eid said in his affidavit, and this evidence was neither elaborated nor challenged, "In March 2008 I offered to arrange for the Plaintiff to collect the Equipment from the Premises, but the offer was not taken up before these proceedings were commenced". Mr Joseph Eid gave evidence, and was not challenged, to the effect that he would have allowed the equipment to be collected if the landlord had said that should occur. 31A letter dated 18 March 2008 was sent by Mr Alcorn, relevantly reading - "Sadcas Pty Limited have received your letter dated 11 March 2008 and have obtained legal advice in relation to it. Sadcas Pty Limited is of the view that your dispute with B & V Cedars Pty Limited has nothing to do with it. Although it is the registered proprietor of the property at 54 Parkhill Avenue Leumeah it does not occupy any of the shops comprising the property. Your dispute is with B & V Cedars Pty Limited, its directors and the current occupants of the relevant shop or shops. Any action commenced against Sadcas Pty Limited will be defended by it and this letter produced on the question of costs." 32Mr Vincent Eid denied that he instructed that this letter be sent. Mr Bernard Eid maintained that he was not a director of the appellant at this time, having sold out to Mr Vincent Eid and resigned in February 2008, and that Mr Alcorn was still acting on his behalf and he was just "trying to sort things out for Chris". He did not consider himself to have been acting for the appellant but as an "issue of a family trying to clean up a mess that had been created by our younger brother, nothing to do with Sadcas ... ". 33An ASIC return, filed in October 2008, recorded Mr Bernard Eid's resignation as a director on 20 February 2008, and Mr Vincent Eid also gave evidence of Mr Bernard Eid's resignation at that time. One finding by the trial judge was that Mr Bernard Eid "was not a reliable witness and I am satisfied that he acted as an agent for [the appellant] in their [sic] dealings with various people". His Honour said nothing of Mr Vincent Eid's credit, and his Honour's conduct of the hearing, as seen through the transcript, does not bring confidence in his assessment of reliability. It is not necessary to decide: I will assume that Mr Bernard Eid was acting for the appellant in 2007-8, including in March 2008. The equipment is regained 34The respondent commenced the District Court proceedings at some time prior to 15 August 2008. The proceedings were initially brought against the appellant, and subsequently Messrs Bernard Eid, Joseph Eid and Stylos were joined as second, third and fourth defendants respectively. As the proceedings were ultimately pleaded the respondent sued for conversion and in detinue, although the claim in detinue was not maintained at the hearing. 35In some rather acrimonious correspondence between the solicitors thereafter, there is reference to an offer in about early September 2008 by Mr Vincent Eid for the respondent "to collect its equipment from the premises". This does not seem to have been treated seriously by the respondent. A later demand for access to regain the equipment was made by the solicitors, there were discussions, and equipment other than the cool room was regained by the respondent at some time in September 2009. The detail of these matters need not be considered. The District Court hearing 36The proceedings were heard on 4 and 5 August 2010. Judgment was given on 17 November 2010. As earlier indicated, the respondent maintained a claim in conversion only. 37There was complaint in September 2009 that, apart from the cool room, some of the equipment was not regained. It was no part of the respondent's case in the proceedings that some of the equipment had not been regained, or that the cool room was to be treated differently from the regained equipment. The proceedings were conducted on the basis that all the equipment had been returned. 38Apart from an oblique reference as to one item, there was no evidence that any of the equipment was sold or re-let by the respondent after it was regained. The respondent's case included evidence of the value of the equipment at various dates in 2006, 2007 and 2008, to which I refer below. 39The respondent did not cross-appeal against the failure of its claims against Mr Bernard Eid, Mr Joseph Eid and Mr Stylos. The issues as to liability 40The respondent submitted that the appellant converted the equipment in February 2006 when it leased the shop to Mr Stylos; alternatively in November 2007 when Mr Bernard Eid said to Mr Joseph, "We don't want to give it back"; alternatively again in March 2008 when the equipment was not returned following the demand made by the letter of 11 March 2008. 41As to conversion in February 2006, the appellant contended that the respondent had no claim in conversion because it did not then have the right to immediate possession of the equipment. It disputed each of the asserted conversions. Immediate right to possession as at February 2006 42To maintain an action for conversion the plaintiff must have either possession or the right to immediate possession of the goods at the time of the conversion. Conversion is a wrong against a possessory interest, not an ownership interest, although ownership may be the source of a right to immediate possession. Thus the finder of goods may sue in conversion, as in the classic case of Armory v Delamirie (1722) 1 Stra 505; 93 ER 664, as may a bailee for a term even against the owner of the goods as in City Motors (1933) Pty Ltd v Southern Aerial Super Service Pty Ltd (1961) 106 CLR 477 (in fact an action in detinue, but see at 491 per Windeyer J citing Roberts v Wyett (1810) 2 Taunt 268; 127 ER 1080; see also Howe v Teefy (1927) 27 SR (NSW) 301). 43Although it owned the equipment, the respondent had bailed it to Cedars under the rental agreements and could not sue for its conversion by the appellant, if there were conversion, unless it could show a right to immediate possession. 44As at February 2006 the rental agreements were still on foot. Cedars was still paying rent, although not the full rent, and under the rental agreements was entitled to possession of the equipment. The rental agreements provided that the respondent could terminate them in certain events, including default in payment of rent, whereupon Cedars had promptly to return the equipment. But the respondent did not terminate them until August 2006, and according to their terms the respondent had no right to immediate possession of the equipment as at February 2006. 45The respondent sought to overcome this in two ways. 46First, it submitted that the rental agreements provided that its rights thereunder "are in addition to our rights under the general law" (cl 15.5), thereby preserving its common law rights; and that at common law the bailment had come to an end and it had acquired the right to immediate possession of the equipment notwithstanding the terms of the rental agreements. It submitted that the bailment had come to an end because Cedars had parted with possession of the equipment when it vacated the shop. 47The common law position was expounded in Union Transport Finance Ltd v British Car Auctions Ltd (1987) 2 All ER 385, in which it was held that existence of a contractual right to terminate a hire purchase agreement did not oust the acquisition at common law of a right to immediate possession unless that were made clear; the contractual right to terminate did not do so because its purpose was to enhance the bailor's rights rather than curtail them: see per Roskill LJ at 390 and per Bridge LJ at 391. A bailment was terminated at common law by "[a]ny act or disposition which is wholly repugnant to or as it were an absolute disclaimer of the holding as bailee ... ": Pollock and Wright on Possession in the Common Law , p 132, cited in North Central Wagon and Finance Co Ltd v Graham (1952) KB 7 at 15 and through that decision taken up in Union Transport Finance Ltd v British Car Auctions Ltd at 389 per Roskill LJ and 391 per Bridge LJ. Roskill LJ also accepted the statement in Halsbury's Laws of England , 2nd ed, para 1211 of an act of the bailee "in doing something inconsistent with the terms of the contract", and adopted (at 390) the phrase "destroys the basis of the contract of bailment". 48In Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 determination of a bailment for a term was described in the language of "an act of the bailee which is wholly repugnant to the holding as bailee" (per Latham CJ at 214), "an act or disposition which is wholly repugnant to ... or as it were an absolute disclaimer of ... the holding as bailee" (per Dixon J at 227, citing from Pollock and Wright at 132-3), and a dealing "wholly inconsistent with the terms of the bailment, and consistent only with [the bailee's] intention to treat them as his own" (per Williams J at 241-2, citing from Playscoed Collieries Co Ltd v Partridge, Jones & Co Ltd (1912) 2 KB 345 at 351). 49Union Transport Finance Ltd v British Car Auctions Ltd was accepted as to continuance of the common law position despite a contractual right to terminate in The Anderson Group Pty Ltd v Tynan Motors Pty Ltd [2006] NSWCA 22; (2006) 65 NSWLR 400 per Young CJ in Eq, Santow JA agreeing, at [70]-[71], on the basis that the hire purchase agreement did not clearly limit the manner in which the bailment could be terminated. Basten JA was of a different view, and considered that where the conduct said to bring the bailment to an end was conduct in breach of a specific condition of the written contract and the contract provided for a mechanism for termination on default, the contract should not be treated as terminated unless the mechanism had been triggered according to its terms: at [11]. 50In the present case cl 2.2 of the rental agreements provided that Cedars "must not part with possession of the Equipment", and cll 14 and 15 entitled the respondent to terminate them by notice and "retake possession of the Equipment" if there was failure to comply with obligations under the agreements and the failure, if rectifiable, was not rectified after notice requiring rectification. There is a sound basis, with respect, for the view of Basten JA: as a matter of construction of the rental agreements, the regime of notice which would require rectification of a parting with possession is not consistent with termination by operation of law upon that event. However, in Hill v Reglon Pty Ltd [2007] NSWCA 295 Beazley JA, with whom Spigelman CJ and Ipp JA agreed, did not take up his Honour's view in holding that on the construction of the hire agreement it did not exclusively govern the rights of the parties (see at [46], [57]-[59]). The matter was not fully argued in the present case, and it is not necessary to decide. I proceed on the basis that there could be termination of the bailment at common law. 51I do not think that there was termination of the bailment at common law. As earlier described, there must be conduct of the bailee wholly repugnant to or inconsistent with the bailment; in Hill v Reglon Pty Ltd at [41] this was equated with a repudiation of the bailment. It is not obvious that Cedar's vacation of the shop was itself a breach of the rental agreements; abandonment may not be a parting with possession, or the family situation may have left Mr Christopher Eid with some kind of possession through his brothers as the directors of the appellant, and there was a dearth of evidence as to any arrangements at the time. Assuming a parting with possession, it was not by way of purported sale or other disposition inconsistent with Cedar's recognition of the respondent's ownership of the equipment and the continuance of the rental agreements - on the contrary, Cedars kept on paying rent. In the particular circumstances, leaving the equipment in the shop when vacating it was not wholly repugnant to or destructive of the bailment or repudiatory of it. 52It may be added that the respondent's termination in August 2006 may have acknowledged the continuance of the bailment until that time and, in the words of Young JA in The Anderson Group Pty Ltd v Tynan Motors Pty Ltd at [71], waived any "forfeiture" that would otherwise have taken place. Again, this was not argued and it is not necessary to consider it further. 53Secondly, the respondent relied on Smith v Bridgend County Borough Council [2001] UKHL 58; (2002) 1 AC 336. Under the agreement between the Council and the first contractor, if the first contractor abandoned the contract its plant on the site could be used by another contractor engaged by the Council to complete the works, and could be sold by the Council with the proceeds applied to satisfy sums due from the first contractor. The first contractor abandoned the works. The Council engaged the second contractor, which used the plant to complete the works. The Council agreed with the second contractor that it could take the plant away when the works were completed, which it did. The Council's right to sell the plant was held to be void as an unregistered charge. The first contractor sued the Council for conversion of the plant. 54So far as presently relevant, the Council argued that when it gave possession of the plant to the second contractor, the first contractor had no right to possession of the plant; and when the second contractor took the plant away, the Council did nothing to interfere with the right of possession which (the right to sell the plant being void) the first contractor then had. Lord Hoffman, with whom three other members of the House agreed, said at [39] that - "The Council consented to the removal of the plant by Burrows in violation of the company's right to possession. The fact that they gave such consent in advance, at a time when the company was not entitled to possession, can make no difference. The consent remained effective until the moment when Burrows took the plant. This was sufficient to amount to a conversion." 55The respondent submitted that this passage supports an action for conversion in February 2006 although it did not have a right to immediate possession of the equipment until August 2006. It does not. In Smith v Bridgend County Borough Council the conversion was at the time the second contractor removed the plant. The "consent in advance" remained effective and was the act of conversion when the plant was taken away by the second contractor at a time when the first contractor had a right to immediate possession of the plant. As was said by Tuckey LJ, with whom Keene and Peter Gibson LJJ agreed, in Marcq v Christie, Manson & Woods Ltd (2004) QB 286 (2003) 3 WLR 980 at [20], Lord Hoffmann was - " ... saying that the conversion took place when the plant was removed and that the council were liable because it happened with their consent which had been given earlier in the continuation contract." 56In my opinion, if there were conversion in February 2006 when the appellant leased the shop to Mr Stylos, the respondent did not then have an immediate right to possession of the equipment and had no claim in conversion against the appellant. There was no issue as to right to immediate possession after August 2006. Conversion in February 2006 57The respondent submitted that the appellant converted the equipment in February 2006 because, by leasing the shop to Mr Stylos whereby Mr Stylos was entitled to exclusive possession of the shop, it put it out of its power to return the equipment to the respondent. As it was put in the written submissions, the lease "completely eradicated [the respondent's] ability to take its Chattels for the period of the Stylos lease". 58An answer to the submission may be that the lease to Mr Stylos provided that he had to give to the appellant or anyone authorised in writing by it access to the property at any reasonable time for the purpose of "doing anything that the lessor ... must do by law" (cl 9.1.2). No doubt this was principally directed to matters such as compliance with statutory notices, but it may be that the appellant was obliged in law to return the equipment to the respondent if the respondent was entitled to possession, and that it could enter the shop in order to remove the equipment (which, as earlier noted, was not said to have become fixtures) or authorise the respondent to enter to remove it. 59The answer, however, is more fundamental. The appellant was an involuntary bailee, and its only obligation was to allow the respondent to take the equipment when it came for it ( Capital Finance Co Ltd v Bray (1964) 1 WLR 323 at 329). By leasing the shop to Mr Stylos the appellant did not prevent the respondent from taking the equipment. When Cedars as lessee from the appellant had possession of the shop, the appellant was not liable for conversion merely because it was the landlord. It was no different when the appellant leased the shop to Mr Stylos. 60The equipment was on the appellant's land, but mere possession was not a conversion ( Caxton Publishing Co v Sutherland Publishing Co (1939) AC 178 at 202). The additional factor was the lease to Mr Stylos. After Cedars vacated the shop but before the lease to Mr Stylos the respondent, if it had a right to immediate possession, was entitled to take the equipment away. The appellant may have converted the equipment had it refused to allow the respondent to do so. The lease to Mr Stylos did not prevent the respondent from taking the equipment away, and Mr Stylos may have been guilty of conversion if he refused to allow the appellant to do so. 61In leasing the shop to Mr Stylos there was "no injury to the property which would render it impossible to return it, nor claim of title to it, nor claim to hold it against the owner": Spackman v Foster (1883) 11 QBD 99 at 101. The appellant by transferring possession of the shop to Mr Stylos, and later to Mr Joseph Eid, did not deal with the equipment. It did not purport to transfer title, or a right to possession, to its tenant. As Dixon J said in Penfolds Wines Pty Ltd v Elliott at 229, the use of goods is not a conversion "nor is a transfer of possession otherwise than for the purpose of affecting the immediate right to possession". 62The appellant relied on Oakley v Lyster (1931) 1 KB 148 and Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 and 5) [2002] UK HL 19; (2002) 2 AC 883. In the former case the landlord refused to allow the owner to enter the land to retake the goods, and took some of them for himself and asserted a right to them. In the latter case the Iraq Airline, under government direction, treated the Kuwait Airline's aircraft as its own and absorbed them into its fleet. These are entirely different cases. 63There were suggestions in the District Court that there had been conversion because the rent payable by Mr Stylos took into account, or was higher than it otherwise would have been because of, the presence of the equipment in the shop, whereby there had been some kind of user of the equipment by the appellant amounting to conversion. There was no evidence establishing that position: indeed, the rent payable by Cedars was not proved, and Mr Bernard Eid said that "they were never extra being charged for the rental of the shop because of the equipment that there. They were just straight rental." (sic, as in the transcript). I do not think that this basis for conversion in February 2006 was pursued, but in any event a factual basis was not made out quite apart from whether there would thereby have been conversion of the equipment. 64In my opinion, the appellant did not convert the equipment in February 2006. Conversion in November 2007 65The respondent submitted that the appellant converted the equipment in November 2007 because, when Mr Bernard Eid said, "We don't want to give it back", there was a refusal by the appellant to return the equipment or allow the respondent to take it back. 66The conversation with Mr Joseph can not be so understood. Mr Bernard Eid was opening negotiations to purchase the equipment, instead of it being regained by the respondent. That is how Mr Joseph took it: he made an offer of sale. There were continuing negotiations, ultimately without result. Far from denying the respondent's rights, by opening the negotiations Mr Bernard Eid was recognising them. 67In my opinion, the appellant did not convert the equipment in November 2007. Conversion in March 2008 68The respondent submitted that the appellant converted the equipment in March 2008 because it did not return the equipment in response to the solicitors' letter of 11 March 2008, but rather caused to be sent Mr Alcorn's reply of 18 March 2008. 69The reply of 18 March 2008 can not be looked at alone. In February 2008 Ms Todd had been told that the equipment would be returned "when [Mr Bernard Eid] has time". Upon receiving the letter of 11 March 2008, Mr Vincent Eid had telephoned the respondent's solicitor and said that it was nothing to do with the appellant but, in substance, he would cause Mr Joseph Eid to let the equipment be collected and, "you can collect the goods today if you want to". No reason appears to decline to accept this evidence: it is consistent with the overall attitude of Messrs Bernard and Vincent Eid, and the person to whom he said he spoke was not called to give evidence to the contrary. From Mr Joseph Eid's evidence, Mr Vincent Eid's expectation that he could bring about access to collect the equipment was soundly based, as might be expected given the family relationship. 70The reply of 18 March 2008 affirmed the position that it was nothing to do with the appellant, but the expressed willingness to bring about the return of the equipment remained. There was not a denial of the respondent's rights in relation to the equipment. The evidence of Mr Bernard Eid's offer in March 2008 to arrange for the respondent to collect the equipment is not clear as to date, but if in response to the letter of 11 March 2008 confirms this conclusion. 71In my opinion, the appellant did not convert the equipment in March 2008. Damages 72This does not arise, but something should be said of it. 73The damages of $165,704.09 awarded by the trial judge adopted a calculation provided to him by the respondent. The damages were calculated as the monthly rents under the rental agreements from February 2006 to September 2009, plus interest, less the payments made by Cedars after February 2006. The monthly amounts were $2,310; it is not clear where that figure came from. 74The respondent sought to support this assessment of damages, but as a fallback submitted that it was entitled to recover the value of the equipment at the time of its conversion. 75It is convenient to begin with the fallback position. Damages for conversion of goods are commonly the value of the goods at the time of the conversion, together with consequential loss which is not too remote, although there are qualifications to that general statement particularly where the plaintiff has a limited interest in the goods. Thus it is sometimes said that the converter is made to purchase the goods, and on payment of the damages the converter acquires title to them. (In this respect, amongst others, the tort is perhaps unusual, see Tettenborn, "Damages in Conversion - Exception or Anomaly?" [1993] Cam LJ 128). If the goods are returned credit must be given for their then value, so the damages are the diminution in value between the conversion and the return: Solloway v McLaughlin (1938) AC 247; BBMB Finance (Hong Kong) Ltd v Eda Holdings Ltd (1990) 1 WLR 409; Trailways Transport Ltd v Thomas (1996) 2 NZLR 443. 76The equipment was regained, or at least the proceedings were conducted on that basis. As earlier indicated, the respondent's case included evidence of the value of the equipment at various dates (14 February 2006: $69,600; 26 August 2006: $65,600; 30 November 2007: $56,200; 11 March 2008: $53,200). The evidence, in a report of an "equipment appraiser", was admitted over objection; it was probably inadmissible, although there was no ground of appeal. When the equipment had been regained in September 2009, its value was not an appropriate measure of the respondent's loss, and other than by a rough prolongation of the fall in value over the period spanned by the above dates its diminished value in September 2009 was not established. 77It is not necessary to decide whether, proof of value in September 2009 being a matter readily available to the respondent, it failed to prove its damages on the fallback position. Assuming a rough prolongation would bring damages of about $35,000, $20,000 or $15,000 for the respective conversions. 78Going to damages as awarded by the trial judge, the respondent's loss rested upon its use of the equipment by hiring them out. Damages for conversion of goods can be assessed as the loss to the plaintiff through being deprived of profit-earning goods. If the defendant's conversion consists of the defendant itself using the goods as profit-earning goods, a basis of damages has been recognised in which the damages are the reasonable hire value to the defendant: Strand Electric and Engineering Co Ltd v Brisford Entertainment Ltd (1952) 2 QB 246; Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175; Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Rep 81-244; Chep v Bunnings [2010] NSWSC 301. 79The equipment was profit-earning goods in the hands of the respondent. However, an (assumed) conversion by the appellant did not deprive the respondent of continued rent from Cedars at the rent in the rental agreements - any deprivation was due to Cedar's default. And there was no evidence that, had the equipment been in the respondent's hands from (say) February 2006, it would have been able to rent it to some other user of such equipment. Nor was there evidence of the rent for which it might have been rented out, and it can not be inferred that the rent in the rental agreements would have been obtainable since the equipment was used equipment as at February 2006. Nor was it shown that the appellant itself used the equipment as profit-earning goods. It did not do so save so far as it may have obtained a higher rent for the shop because the equipment was in the shop, but see above as to failure to prove this. 80The respondent would not have been entitled to damages of $165,704.09, or any lesser sum calculated by reference to the rent under the rental agreements. Orders 81I propose the orders - 1. Set aside the verdict for the plaintiff against the first defendant and the judgment for $165,704.09 and the order that the first defendant pay the plaintiff's costs. 2. In lieu thereof, verdict for the first defendant against the plaintiff and judgment for the first defendant and order that the plaintiff pay the first defendant's costs. 3. Respondent pay the appellant's costs and have a certificate under the Suitor's Fund Act if otherwise eligible. 82WHEALY JA : I agree with the judgment of Giles JA and with the additional comments by Handley AJA. 83HANDLEY AJA : In this appeal I have had the benefit of reading the reasons for judgment of Giles JA in draft. I agree with his reasons and the orders he has proposed but will add some brief remarks. The prima facie measure of damages for conversion is the market value of the goods: Hall v Barclay [1937] 3 All ER 620 CA, 623. This is their value at the time: Solloway v McLaughlin [1938] AC 247, 257; and at the place of their conversion: Burmah Trading Corporation v Mirza Mahomed (1878) LR 5 Ind App 130. 84Since the plaintiff recovered possession of the goods it had to give credit to any converter for their value at that time: Hiort v London & North Western Railway Co (1879) 4 Ex D 188; Solloway v McLaughlin [1938] AC 247. It was only entitled to the difference, if any, between the value of the goods when converted, and when repossessed. There was some evidence of their value in situ, but none of their value when repossessed. 85The plaintiff was not entitled to enforce the leasing contract against the defendant, which was not a party to that contract. The judgment in conversion in the District Court for $165,704.09, equal to the debt under the leasing contract and interest, could not possibly be supported. ********** 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. Decision last updated: 12 September 2011