In May 2010, Justice McDougall in the Supreme Court of New South Wales ordered Bunnings to pay $11 million in damages to Chep for conversion and detinue of 64,690 pallets it had unlawfully detained over a five year period. This is despite the fact that Bunnings is not a Chep customer.

Facts

Between 16 May 2002 to 31 October 2007 Bunnings received deliveries on Chep pallets. When these deliveries were made, Bunnings either exchanged other Chep pallets with customers or gave an IOU for the number of Chep pallets received.

Chep conducted an informal count of Chep pallet movements in and out of Bunning stores with major customers of Bunnings that held IOUs. It was discovered that Bunnings held 82,216 Chep pallets. Chep made repeated demands for the pallets to be returned. Bunnings refused to return the pallets claiming they were on hire to customers of Chep. In August 2007, the Supreme Court of New South Wales ordered Bunnings to return all Chep pallets to Chep. Bunnings complied with the order and returned 17,526 Chep pallets that were owed to Bunnings’ suppliers who were customers of Chep. The remaining 64,690 Chep pallets were not subject to any identifiable hire agreement (Non-Commercial Chep pallets).

The decision

• The Court was satisfied that Bunnings had 64,690 Chep pallets in its possession that were Non-Commercial Chep pallets, that is pallets over and above those that were needed to satisfy Bunnings’ IOU obligations. Justice McDougall relied on evidence of the reconciliation process conducted by Chep.
• As the Court was satisfied that Bunnings possessed Non-Commercial Chep pallets, this amounted to conversion as it controlled these pallets inconsistently with the rights of the owner, Chep.
• The Court found on the evidence that Bunnings did unlawfully detain Non-Commercial Chep pallets by using them in the ordinary course of its business. The Court also relied on evidence of demands by Chep to Bunnings made over several years to return Chep pallets.

The Court concluded Chep was entitled to damages for detinue and conversion for the relevant period plus interest and that the appropriate measure of damages was foregone hire charges. Hire charges accumulated over the relevant five year period totalled some $11 million dollars i.e. the hire charges Chep did not receive from the person in possession of the pallets.

Damages were awarded in favour of Chep despite the fact that during that entire time, a customer of Chep (whomever that may be) was paying hire charges for precisely the same pallets. This case raises serious issues about double dipping and the conscionability or otherwise of such hire arrangements. It also highlights that a pallet supplier may obtain a Court order for the return of pallets that are in the possession of companies who are not party to a hire agreement or terms of trade and make a claim for foregone revenue.
This is a timely reminder for transport and logistics operators to:
• Conduct weekly or monthly audits of their pallets.
• Train all employees that handle pallets about the financial implications of “lost pallets”.
• Always obtain an IOU from companies delivering pallets or exchange pallets and redeem them in a timely manner.

For further information on anything in this article or related issues please contact the author:

Elizabeth Guerra-Stolfa
Principal
03 9611 0107
eguerra@harwoodandrews.com.au