Appeal Dismissed: Officers Do Not Have Personal Right to Company Chattels

The Court of Appeal dismissed an appeal brought by individuals who were directors and shareholders of a company. The appeal concerned the right to immediate possession of the company's chattels left behind after lawful eviction. The Court affirmed that officers of a company do not have a personal right to immediate possession of the company's chattels unless there is an overt act affecting the status of the officer's possession.

[ADDRESS] of Appeal

CITATION: [NAME] & Anor v Randwick City Council [2006] NSWCA 196

HEARING DATE(S): 5 July 2006

JUDGMENT DATE: 20 July 2006

JUDGMENT OF: Giles JA at 1; Hodgson JA at 2; [NAME] at 9

DECISION: Appeal dismissed with costs

CATCHWORDS: PERSONAL PROPERTY – ownership and possession – right to immediate possession – property owned by a corporation – rights of directors, managers and sole shareholders in respect of [NAME] property – bailment – possessory title – de facto possession – TORTS – TROVER AND DETINUE – possession or right to possession – what constitutes conversion

LEGISLATION CITED: Corporations Act 2001 Impounding Act 1993

Gollan v Nugent (1988) 166 CLR 18 James v Oxley (1939) 61 CLR 433 [NAME] (1831) 2 B & Ald 817; 109 ER 1346 CASES CITED: [NAME] (1700) 1 Salk 10 [NAME] (1959) 19 DLR (2d) 229 [NAME] v [NAME] (1923) 33 CLR 538 [NAME] (No 3) [1927] P 122 [NAME] v [COMPANY] (Unreported, Supreme Court of New South Wales, 30 July 1993)

[NAME] PARTIES: [NAME]

FILE NUMBER(S): CA 40525/05

COUNSEL: [redacted] R: [NAME] / [NAME]

SOLICITORS: [redacted] R: [NAME], Sydney

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT FILE NUMBER(S): SC 20947/97

LOWER COURT JUDICIAL OFFICER: [NAME] AJ

LOWER COURT DATE OF DECISION: 31 May 2005

LOWER COURT MEDIUM NEUTRAL CITATION: Randwick City Council v [NAME] & Anor [2005] NSWSC 508

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40525/05 SC 20947/97

GILES JA HODGSON JA [NAME] 20 July 2006 [NAME] and [NAME] v RANDWICK CITY COUNCIL

Facts:

[NAME] ran a [NAME] in premises that were owned by the respondent. Certain chattels that had been used in connection with the [NAME] were owned by one or more companies, which [NAME] were employed to manage and of which they were the sole directors and shareholders.

The chattels were left behind when [NAME] were lawfully evicted from the premises. [NAME] argued that they had a personal right to immediate possession of the chattels. They also sought to sue the respondent in conversion, which allegedly arose out of the respondent's refusal to hand the chattels over to them.

Held, dismissing the appeal with costs:

1. Although an officer of a company may control the manner in which a company's property is held, used, acquired or disposed of, this does not vest that officer with a right of immediate possession in his or her personal capacity entitling him or her to sue for trespass or conversion in his or her own name, unless there is some overt act on the part of the [NAME] to affect a change in the status of the officer's possession: [95], [96]; [NAME] v [COMPANY] (Unreported, Supreme Court of New South Wales, 30 July 1993) referred to.

2. Even if the officer of a company does have some right to the physical custody of the company's chattels, that is not a legal right that is superior to the legal right of another actual [NAME].

Accordingly, there will be no obligation on the third [NAME] to yield its possessory title to the officer who has no superior right. On the contrary, the third [NAME] could only yield its possessory title to the [NAME] of the chattel who has the right to immediate possession of the chattels: [115]; [NAME] v [NAME] (1923) 33 CLR 538, Gollan v Nugent (1988) 166 CLR 18 discussed.

GILES JA HODGSON JA [NAME] 20 July 2006 [NAME] and [NAME] v RANDWICK CITY COUNCIL Judgment 1 GILES JA: I agree with [NAME]. 2 HODGSON JA: I agree with the orders proposed by [NAME], and substantially with his reasons. I would add the following comments. 3 In the current edition of [NAME] (19th Edition, 2006) at pp 1032-3, it is asserted that an employee can sue for conversion of the employer's goods where the employee is a bailee of those goods; that "the practical result now seems to be that in most cases the [NAME] will be able to sue"; and that "this is no bad thing", because "a plea of the converter that he has been sued by the wrong claimant is normally an unmeritorious one". 4 Such a plea may be unmeritorious in some cases, but it may not be in others, particularly where the employer is a company which has contractual obligations to the alleged converter. For example, suppose the company had a debt to the alleged converter, who takes property of the company in an honest but mistaken belief that it is included in a security given for the debt. If the company sues for conversion, the converter can have the debt taken into account in arriving at a balance to be paid one way or the other. But if the directors of the company could sue for conversion, the converter would be liable in full to the directors, and would have to look to the company, which may be insolvent, for its debt. It may be unfair if directors can hide behind the [NAME] veil in relation to liabilities, but ignore it in relation to rights. 5 In my opinion, therefore, it is reasonable in cases of alleged conversion to continue to apply established principles concerning custody and possession as between employee and employer; although of course this does not exclude an employee's establishing possession as bailee, if the circumstances justify this conclusion. In the present case, for reasons given by [NAME] did not establish possession as bailees. 6 In my opinion also, when the Council obtained possession of the premises, it obtained possession of the goods left on the premises, in circumstances that did not amount to a conversion. As an involuntary bailee, the Council owed a duty to [NAME] of the goods to exercise reasonable care in their disposition, a duty not necessarily discharged by the return of the goods to the person last in possession of them: James v Oxley (1939) 61 CLR 433 at 447. Thus, even if [NAME] had been in possession of the goods before the Council obtained possession of the premises, the Council's refusal to return the goods to them did not constitute conversion, since they were not the [NAME] of the goods. 7 As regards costs, although the issues in the claim and cross-claim were different, all issues depended on underlying facts concerning the relation between [NAME] and their various companies in the conduct of the business on the premises. In my opinion, it is unrealistic in the extreme to suggest that 23 of the 24 hearing days were concerned with the Council's claim and not with the appellant's cross-claim. Where both a claim and a cross-claim depend on a common underlying factual matrix, separate orders as to the costs of the claim and the cross-claim should be avoided if possible: the trial judge is in by far the best position to determine an appropriate apportionment. 8 If in this case the cross-claim had been purely defensive, an order more favourable to [NAME] may have been appropriate. However, it was not suggested below that the cross-claim was purely defensive, and the bringing of this appeal is a powerful indication that it was not. 9 [NAME]: [NAME] were the sole directors and shareholders, and were employed in the management, of a company or companies which owned certain chattels that had been left behind when [NAME] were lawfully evicted by the respondent (the Council) from the premises where they had conducted a business in which the chattels were utilised. The [NAME] issue in this appeal is whether [NAME] personally had the right to immediate possession of those chattels so as to entitle them to sue the Council in conversion, which right allegedly arose out of its refusal to hand over those chattels to [NAME]. The [NAME] judge, [NAME] AJ, determined that issue in favour of the Council and it is from that decision that [NAME] appeal to this Court.

The relevant facts 10 Since 1959 the Council has been the trustee of Crown Land known as "the [COMPANY]" which had been dedicated as a public reserve (the Park). A sporting complex was located within the Park which, relevantly , included a free-standing steel framed building that had been used as a fitness centre over the years. 11 In 1979 the Council granted a lease of the sporting complex to [COMPANY] ([NAME]) for a term of 20 years commencing on 1 January 1980. Thereafter the complex was known as the [NAME] (the Centre) and was used for that purpose. During 1985 and 1986, representatives of [NAME] had discussions with various organisations with a view to sub-letting part of the Centre for the purpose of a gymnasium (the premises). 12 As a consequence of those negotiations, the details of which are not presently relevant, either [NAME] or a corporation with which they were associated entered into occupation of the premises for the purpose of a gymnasium or fitness centre then known as the "[COMPANY]" on 15 August 1986. The name of the business conducted upon the premises was changed in September 1988 to "[NAME]" ([NAME]). Towards the end of 1994 its name was changed to "[NAME]". 13 In December 1995 [NAME] informed the Council that it wished to surrender its lease. On 16 January 1996 the Council resolved to accept a surrender from 31 December 1995. 14 Correspondence then ensued between the Council and what the [NAME] judge referred to as "the entity occupying" the premises, which was variously described in that correspondence and otherwise as "[COMPANY]" ([NAME]) or "[COMPANY] t/as [COMPANY]" ([NAME]) or [NAME]. [NAME] were the sole directors and shareholders of [NAME] from 9 July 1992 and of [NAME] from 1 May 1996. 15 In early July 1997 the Council issued a Notice to Quit expiring on 30 October 1997 directed to "The Occupant or Occupants, [NAME], [ADDRESS], [ADDRESS], Maroubra" and which was served on [NAME], and each of [NAME]. The Council also claimed outstanding rent or occupation fees in the sum of $122,549.97 jointly or severally from the parties upon whom the Notice to Quit had been served. 16 Although the Council received some payments from [COMPANY] for the occupation of the premises, it commenced proceedings in the District Court against [NAME] by statement of claim filed on 28 November 1997 (the proceedings). On or about 28 April 1998, the Council filed a notice of motion in the proceedings seeking, amongst other things, judgment against [NAME] for possession of the premises and an order for the payment of arrears of rent . 17 Ultimately, the notice of motion was fixed for hearing on 30 July 1998 on which date the parties reached an agreement (the 1998 agreement) pursuant to which judgment by consent was entered for the Council for possession of the premises and leave was given for it to issue a writ of possession. However, it was agreed that [NAME] would be permitted to occupy the premises from 30 July 1998 until midnight on 30 October 1998, provided they paid the Council certain monies as consideration for such occupation. Those monies were duly paid. The agreement also provided that [NAME]' right to occupation of the premises would terminate at midnight on 30 October 1998 and that upon such termination the Council would be entitled to immediate possession of the premises. Furthermore, it was relevantly agreed that the writ of possession to be issued pursuant to the consent orders which were then filed was not to be executed by the Council before midnight on 30 October 1998. 18 That date came and went and [NAME] did not vacate the premises, and the gymnasium or fitness centre business continued to be conducted there.

Accordingly, on 27 November 1998 the writ of possession which had been issued on 30 July 1998 was executed by the [NAME], the occupants of the premises were evicted and the Council resumed possession. As [NAME] were residing in Queensland at that time, the occupants who were evicted were, in practical terms, employees of one or more of the companies of which [NAME] were the sole directors and shareholders. 19 At the time of the eviction, a considerable amount of [NAME] and other items that had been used in connection with the [NAME] were left in the premises (the [NAME]). On 1 December 1998 or shortly thereafter, the first appellant informed the Council's solicitor that he wished to remove the [NAME] and other personal items from the premises. The solicitor responded by advising the first appellant that she had been instructed by the Council that it would not permit [NAME] to remove the [NAME] unless and until they could prove their ownership of it. 20 The solicitors for the respective parties then engaged in a string of correspondence, which included the assertion by [NAME]' solicitors that [NAME] were entitled to remove the [NAME] as they had been in possession of the premises pursuant to the 1998 agreement and that they were, therefore, also in possession of the [NAME] from that date to 27 November 1998 when the writ of possession was executed. On the other hand, the Council's solicitors indicated that their enquiries suggested that a [NAME] by the name of [COMPANY] ([NAME]) could be either the owner or the entity entitled to immediate possession of the [NAME]. Those solicitors also asserted that the mere fact that [NAME] were, as against the Council, entitled to occupy the premises up until 30 October 1998, did not prove that they were in actual possession of the [NAME] during that period of occupation. [NAME]' solicitor replied that the Council was not entitled to demand proof of ownership but was legally obliged to hand over the [NAME] to [NAME] who were last in possession of the [NAME] and who had claimed it as their own. 21 In the meantime, the Council continued to pursue a reduced claim in the proceedings against [NAME] in the sum of $99,661.66. [NAME] denied liability for that amount and the Council continued to deny that it was required to hand over the [NAME] to [NAME] unless and until they had established their ownership thereof. In this respect, the first appellant swore an affidavit on 21 July 1999 in which he deposed that most of the [NAME] was owned by [COMPANY] ([NAME]), which was a non-trading family trust. [NAME] and [NAME] were companies in which [NAME] were the sole directors and shareholders. 22 Because of the ongoing disputes as to these issues, an order was ultimately made in the proceedings that [NAME] file and serve a defence and cross-claim. Those documents were filed on 17 July 2002. I will refer to these pleadings in more detail below. 23 The [NAME] itself remained in the premises until early 2003. From 27 November 1998 until December 2002, the Council engaged a security patrol to ensure that the premises were kept secure at night. However, vandals were attracted to the premises because of its isolated location, and it was difficult to ensure their security. The premises were broken into on a number of occasions and some of the [NAME] was stolen. On other occasions the premises were vandalised and a number of fires occurred during 2002. 24 The Council ultimately conducted an audit of the [NAME] and prepared a list of items to be removed for disposal due to disrepair and a further list of items to be retained and stored. The first listed items were duly disposed of, and the remainder were stored at a cost of $3,300 per month until about February 2004. The Council then determined to dispose of them at auction, which occurred in March and April 2004. 25 The [NAME] judge was critical of the circumstances under which the [NAME] came to be auctioned to the extent that the Council relied upon its alleged rights under the provisions of the Impounding Act 1993. However, no issue arises with respect to this manner of disposal except insofar as it bears upon the question of the costs of the proceedings, which I discuss below.

The pleadings 26 In its amended statement of claim dated 9 November 2000, the Council alleged that on 15 August 1986 [NAME] went into possession of the premises; that [NAME] surrendered its lease to the Council on 1 January 1996; and that on that date the Council re-entered and took possession of the centre except for that part constituted by the premises and occupied by [NAME]. It was then alleged that, by operation of law, the [NAME] became landlord and tenant with respect to the premises when the Council effected re-entry. 27 The amended statement of claim then pleaded the Notice to Quit, the fact that [NAME] continued to remain in possession of the premises and their failure to pay rent since 1 January 1996 to the extent of $99,661.66. It was then alleged that the Council forfeited its lease to [NAME] when it served the statement of claim upon them. Alternatively, if there was no lease to begin with, the Council alleged that [NAME] were no longer entitled to remain in possession of the premises but were liable to pay the Council the same amount that it claimed for rent, but as consideration for their occupation of the premises. 28 The amended statement of claim alleged in the alternative that [NAME] had been in possession of the premises from 1 January 1996 to 31 October 1997, and that they were liable to pay $202,695.99 for their use and occupation of the premises during that period. 29 [NAME] denied each of the allegations contained in the amended statement of claim. In particular, they denied any relationship of landlord and tenant between themselves and the Council, and contended they were therefore not liable to pay rent. In para 21 of their defence, and in answer to the Council's alternative allegation that, if there was no relationship of landlord and tenant between them, [NAME] had nevertheless been in possession of the premises until 31 October 1997 and were liable to pay rent for their use and occupation, [NAME] pleaded as follows: "In further answer to paragraph 18A of the Amended Statement of Claim, [NAME]] say that when they occupied the premises, at all relevant times they did so on behalf of one or more of [COMPANY] and [COMPANY] and that [NAME]] had no personal liability to the [Council] for any monies owing to the [Council] by those companies." 30 In their amended cross-claim (the cross-claim) [NAME] asserted (in para 1) that in or about November 1998 they managed and operated a gymnasium known as "[NAME]" in the premises for and on behalf of [NAME]. After reciting that the Council entered into possession of the premises on 27 November 1998 and thereafter had locked out and excluded [NAME], the latter alleged (in para 3) that at the time the Council entered into possession of the premises, and at all prior times that were material, [NAME] "were the owners of and/or alternatively, had in their actual possession within the [premises], the [NAME] …"

It was then alleged that the Council had converted the [NAME] to its own use and wrongly deprived [NAME] of its possession. This allegation in para 3 of the cross-claim is to be contrasted with para 21 of the defence (set out in [29] above) in which [NAME] asserted that they occupied the premises only on behalf of one or more of their companies. 31 As an alternative claim, [NAME] alleged (in para 9 of the cross-claim) that the Council became a bailee of the [NAME] for [NAME] when it entered into possession of the premises, and took possession of and exercised control and domain over the [NAME]. As such, [NAME] contended that the Council owed them a duty to use reasonable care and skill in keeping and taking care of the [NAME], and that they had suffered damage as a result of the Council's failure to do so. 32 Finally, the cross-claim set out facts (in para 11A) which, so it was alleged, justified an award of exemplary damages against the Council. The matters relied upon related to the manner in which it had used the Impounding Act for the purpose of disposing of the [NAME]. 33 In its amended defence to the cross-claim, the Council did not admit that [NAME] were at any material time the owners of the [NAME] or had possession of it. In further answer to the cross-claim it alleged (in para 8) that [NAME] had not requested the Council to deliver up the [NAME] left on the premises when the Council had taken possession.

The decision of the [NAME] judge 34 The [NAME] judge stated that he had two issues to determine. These were set out in the following terms (at [16]): "1. Has the [Council] established on the probabilities that it is entitled to remuneration from [NAME]] in respect of rent or use and occupation for the period from 1 January 1996 up to the time the Agreement was made on 30 July 1998. 2. [NAME]] satisfied the Court on the probabilities that they were wrongfully deprived of the gymnasium's [NAME] and other goods remaining within the premises at the time of execution of the Writ of Possession." 35 His Honour answered each of the questions so posed in the negative and therefore dismissed both the Council's claim and [NAME]' cross-claim. 36 So far as the Council's claim was concerned, his Honour concluded (at [148]) that, on the probabilities, the entity which entered into the arrangements with the Council for occupation of the premises pending the execution of a formal licence was [NAME] or possibly [NAME]. He concluded that the Council had "failed to satisfy me on the probabilities that the arrangements or agreement for payment of any fees for that occupation was made with [NAME]] personally."

The Council does not challenge this decision. 37 His Honour's decision on the cross-claim is the [NAME] subject of the appeal. Notwithstanding that [NAME] asserted (in para 3 of the cross-claim) that they were the owners of the [NAME], and/or had the [NAME] in their actual possession within the premises, it would appear that at trial their evidence was that most of the [NAME] was owned by [NAME], with some belonging to [NAME]. In other words, it was not in issue that [NAME] were not the owners of the [NAME] but that the [NAME] was owned by one or other of the companies of which they were sole directors and shareholders. 38 The [NAME] judge dealt with the cross-claim at [218]–[291] of his judgment. He stated the relevant issue in these terms: "Are [NAME]] entitled to immediate possession of the [NAME]?" 39 His Honour noted at [225] and [226] that [NAME] had alleged (in para 1 of the cross-claim) that they operated the gymnasium for and on behalf of [NAME], and not in their own right. [NAME] was incorporated on 18 December 1995 and [NAME] had been its sole directors and shareholders since 22 December 1996. His Honour found (at [262]) that the ownership of the business name "[COMPANY]" had been transferred to [NAME] and [COMPANY] ([NAME]) on 28 June 1997. The latter was incorporated on 1 May 1996 from which date [NAME] were also its sole directors and shareholders. 40 His Honour stated the position of each of the parties in the following terms: "228. In effect [NAME]] allege that it was they personally who exercised control and dominion over the subject [NAME] and goods.

Accordingly, at the time of the demands, whether in December 1998 or May of 1999, they were the persons who had the immediate right to possession. 229. On the other hand, the [Council] submits that whatever dealings were performed with the [NAME] and goods by [NAME]] was performed by them in their capacity as servants and/or agents and/or directors of corporations and that the immediate right to possession was vested, not in [NAME]], but in the corporations on behalf of which they acted." 41 The [NAME] judge then referred to a number of authorities and, in particular, to a passage from [NAME](11th ed) at 454 to the effect that a "mere [NAME] who has custody or charge of goods on behalf of [NAME] has not a possession in the sense now under consideration. The [NAME] has not only the right of possession, but constructively the possession itself."

His Honour then noted (at [23]) that in McDowell v Ulster Bank (1899) 33 Irish Law Times Journal 233 Palles CB had pointed out (at 218) that, in cases of [NAME] and [NAME], it was necessary to examine the scope of the [NAME]'s duties in order to determine whether the right to possession is in the [NAME] or the [NAME]. The [NAME] judge then continued in these terms (at [238]): "More relevant to the present case is whether the use of the gymnasium [NAME] and goods within the subject premises by [NAME]] was in their own right or in right of the corporations of which they were at the relevant times sole directors and shareholders and by which they were employed as managers and were paid a fortnightly wage." 42 His Honour then analysed the evidence, noting that [NAME] had moved from Maroubra to the Gold Coast in Queensland in or about January 1996. [NAME] then remained at the Gold Coast and employed operations co-ordinators to run the day-to-day affairs of the gymnasium at the premises as well as at another location in Bondi Junction. The [NAME] judge noted that the first appellant frequently came to Sydney to supervise operations and was in almost daily contact by telephone, while the second appellant came to Sydney less frequently. 43 At [263] and [264] of his judgment, his Honour referred to the first appellant's affidavit in which he had deposed that that he and his wife were paid a wage or salary by the company that operated the gymnasium during the whole of the time he managed the business, and that all expenses relating to the operation were paid by the company. In other words, while he worked in and managed the business in conjunction with his wife during the time the gymnasium was conducted from the premises, he only did so for and on behalf of one or more companies. During the whole of that time he neither personally employed any of the persons who worked in the business nor personally assumed or regarded himself as being responsible for the debts of the business including rent or occupation fees. 44 At [274] his Honour referred to the first appellant's evidence that from 1996 until 1998 the customer's fees at the Maroubra gymnasium were paid into [NAME]'s [COMPANY] account and that all the day-to-day expenses were paid out of that company's cheque account. The only amount paid by [NAME] personally was the occupation fee for the premises pursuant to the 1998 agreement. His Honour observed (at [275]) that the first appellant had given the following evidence: "Even in that time [NAME] paid all the wages, and cleaning, buying any of the stock and all the money was banked into that account as it had been in 1997. All the money went into [NAME]'s account and it paid all the running day-to-day expenses." 45 At [280] his Honour made the following findings based on his examination of the evidence: "1 At the material times most of the goods and [NAME] were owned by [COMPANY] of which [NAME]] were sole directors and shareholders. 2 Some of the goods were owned by [COMPANY] of which [NAME]] were sole directors and shareholders and employed as managers at a fortnightly wage. 3 [COMPANY] was granted the right to use the subject goods pursuant to a licence arrangement between it and [COMPANY]. 4 The use and control of the [NAME] by [NAME]] was by virtue, either of their employment by [COMPANY] or by the exercise of their rights as directors of that company, or both. 5 The immediate right to possession of the goods at the time of the execution of the Writ of Possession on 27 November 1998 was vested in [COMPANY]. It was not vested in [NAME]] personally. This situation has not changed since that date even though this company was deregistered in February 2002 (see s 601 AD of the Corporations Act 2001)." 46 At [282] his Honour determined that in exercising control over the [NAME] were answerable to the respective companies of which they were directors and by whom they were employed. Their capacity and right to make decisions regarding the [NAME] and its purchase disposal and use was not, his Honour held, a right vested in them personally. It was a right which accrued to them by virtue of their position as directors of the relevant company and/or their employment as managers of the business conducted by that company at the premises. 47 The [NAME] judge then referred (at [286]–[288]) to the statutory obligations of directors under the Corporations Act 2001 (Cth), including the obligation to make business judgments in good faith and for a proper purpose and to discharge their duties in the best interests of the corporation. His Honour then concluded in these terms: "289 [NAME]] were under these duties to the respective corporations in respect of all of their acts in controlling the [NAME] and goods used in the course of the [NAME]. In making a claim for the subject [NAME] and goods in their own right instead of in the right of the corporation they are not acting in good faith in the best interests of the corporation. 290 Under these circumstances [NAME]] have failed to satisfy the Court on the balance of probabilities that at the time the [Council] entered into possession of the gymnasium and at all material times prior thereto and at all material times thereafter they ([NAME]]) were, in their personal right, entitled to possession of the subject [NAME] and goods.

The submissions of the parties on the appeal 48 [NAME] submitted that although it was common ground that the [NAME] was owned by [NAME] and/or [NAME], they were nevertheless vested with the management and control of the [NAME] at all material times. This was because [NAME] could decide by which [NAME] and at which premises the [NAME] was to be held and/or used, to where and when it was to be removed and what [NAME] was to be acquired, sold or replaced.

Accordingly, they argued that the [NAME] judge had erred in finding that the they were, in effect, "mere servants" of the [NAME] so that even if they had actual physical custody of the [NAME], the right to its possession remained with that owner. This error arose, they contended, because his Honour failed to consider their position from the point of view that they were the sole directors and shareholders of the [NAME], and were thus the controlling mind of the corporation. By virtue of this position, it was submitted, they had the power and right to control the [NAME] in all respects, and were therefore not only in de facto possession of the [NAME] but also had the right to its immediate possession. 49 Alternatively, [NAME] submitted that although the [NAME] judge had found that they did not have the necessary intention to possess the [NAME] because they only exercised any such intention on behalf of its [NAME], their possession vis-à-vis the [NAME] was such that there was, at the very least, an implied bailment by that owner to [NAME] of the [NAME], with the result that they had the right to its immediate possession. 50 In support of this contention, [NAME] argued that the cases relied upon by the [NAME] judge were distinguishable from the present case. This is because it was within the rights of [NAME] as the directors of the [NAME] to sell, dispose of or alienate that [NAME] "as they saw fit". [NAME] were obliged to act in good faith when accounting to the corporation for management of its affairs, their position was more closely comparable to that of an employee who manages the business of his or her [NAME] and who, in the course of that business, is free to dispose of the [NAME]'s chattels. 51 It was thus submitted that [NAME]' position as sole directors and shareholders, and in control of the management, of the [NAME] constituted an arrangement that would suggest that there had been a transfer of exclusive possession as opposed to ownership, by the [NAME] to the [NAME] controller ([NAME]) resulting in their being bailees of the [NAME]. 52 Accordingly, it was contended that the evidence was indisputable that the ownership of the [NAME] by [NAME] was subsumed by the possession of [NAME] in circumstances where [NAME] alone had the power to make decisions in relation to the [NAME] and its custody and car. Even the ownership rights were, in a sense, those of [NAME] which they could exercise without fear of contradiction as they were the only stakeholders in the [NAME]. 53 Essentially, therefore, [NAME]' contention was that because they were the sole directors and shareholders of the [NAME], they were entitled to deal with that [NAME] as if it was their own. That possession of the [NAME] was not as mere servants but, on the contrary, they had dominion over the [NAME] in respect of which they had total control to deal with it as they saw fit. The [NAME] veil could not deny these facts. 54 In what was referred to as a fallback position, [NAME] further submitted that the effect of the 1998 agreement was that the [NAME] was excluded from the premises and, as a consequence, had given up custody and possession of the [NAME] to [NAME] who had the sole right to occupy the premises until 30 October 1998.

Accordingly, , even if [NAME] were not relevantly in possession of the [NAME] prior to 30 July 1998, its possession changed on that date with the result that [NAME] were thenceforth in de facto possession of both the premises and the [NAME]. 55 It was therefore submitted that as they had the right to immediate possession of the [NAME] prior to midnight on 30 October 1998, the mere fact that they lost that possession upon their eviction did not mean that they had lost their entitlement to be restored to their rightful possession of the [NAME] by the Council even if, upon lawfully retaking occupation of the premises, the Council had obtained its de facto possession. Rather, it was argued that even if one accepted that [NAME] only had physical custody as distinct from possession of the [NAME] prior to 30 July 1998, because they had the sole right to possession or occupation of the premises after that date, the [NAME] had thereby become separated from the [NAME]. As a result, [NAME]' relationship to the [NAME] could be characterised as one of possession as distinct from mere custody. As they were responsible for paying the fees in respect of their occupation of the premises, their prior custody of the [NAME] ripened into possession and they therefore obtained sufficient title to sue the Council for conversion. 56 The Council submitted that [NAME] could only succeed in their action for conversion against it if they could establish that, at the time of conversion, they had the right to immediate possession of the [NAME]. It argued that his Honour was correct in finding that this was not so, and that the right to immediate possession remained at all times in the [NAME], either [NAME] or [NAME] or both. 57 By a foreshadowed Notice of Contention, the Council sought to support the [NAME] judge's decision by submitting that upon execution of the writ of possession relating to the premises, it lawfully acquired possession of the [NAME]. Such possessory title, the Council submitted, was good as against every person except [NAME]. Furthermore, the Council argued that its position was akin to that of a finder of goods left by another in premises. Being lawfully in de facto possession of the goods, that person does not have an unfettered discretion to deliver them to any person who makes a claim for their delivery but is required to return them only to the person who has the right to immediate possession which, relevantly, was [NAME]. Reliance in this respect was placed upon the decision of the High Court of Australia in [NAME] v [NAME] (1923) 33 CLR 538 at 546. 58 Absent any bailment, it was therefore submitted that the Council, which had lawfully obtained possession of the premises and thereby taken de facto possession of the [NAME] therein, had the right to its immediate possession. This right would stand against [NAME], as the prior [NAME] of the [NAME], though not against [NAME]. In the present case, it was submitted that [NAME], even if they had de facto possession prior to 30 October 1998, lost the right to immediate possession when they were evicted from the premises and when there was a change in de facto possession as a consequence of the Council regaining occupation . 59 In other words, the Council argued that [NAME] as the prior de facto possessors of the [NAME] had no better right to its immediate possession, having lawfully lost de facto possession to the Council, than the Council as the present de facto [NAME] of the [NAME]. [NAME] thus had no prior right to possession and the Council was required only to deliver up the [NAME] to [NAME]. 60 Accordingly, the Council contended that it could not have committed any act of conversion by refusing to deliver up the [NAME] upon [NAME]' demand. This was because there was no conduct on the part of the Council which amounted to an intention to deprive [NAME] of its right to immediate possession of the [NAME]. 61 It was thus argued, that the right to immediate possession was not determined by simply identifying a person who had lawful possession of the [NAME] at a time prior to the possession of the person who was the subject of the claim. Rather, it was necessary to examine the consequences of the fact that the prior [NAME] had parted with possession. Where [NAME] subject to the claim had lawful possession, it necessarily followed that the right to immediate possession must always be with [NAME], unless that owner has lost that right by transferring it to another (as in the case of an ongoing bailment) or otherwise by operation of law (as where there is a seizure pursuant to a lawful warrant or common law power). 62 It was therefore submitted by the Council that irrespective of who was in actual possession of the [NAME] immediately prior to the action of the [NAME] in executing the writ of possession with respect to the premises, that action terminated the actual or de facto possession of [NAME] and did so lawfully. The consequence was that the right to immediate possession was thereby vested in the Council, which was entitled to refuse to return the goods to anyone save [NAME]. [NAME]'s title was superior to the possessory title of the Council whose title was, in turn, superior to that of a prior de facto [NAME] ([NAME]) whose possession had been lost. 63 [NAME] responded to the foregoing submissions by contending that the decision in [NAME] v [NAME] was distinguishable from the present case. They submitted that execution of the writ of possession conferred no right to the [NAME] upon the Council so that its de facto possession thereof was, in fact, unlawful or wrongful. The Council never acquired lawful possession of the requisite character of the [NAME] and was, therefore, required to deliver up the [NAME] to [NAME]. Their prior lawful possession, it was argued, was not changed by the execution of the writ of possession, which related only to the right to occupy the premises and not to possess their contents.

The relevant authorities 64 [NAME] referred the Court to a number of passages in relevant texts as well as to a number of authorities. [ADDRESS] was first referred to [NAME], The Law of Torts (9th ed, 1998) at 73 where the following statement appears: "A [NAME] who has mere custody of goods on behalf of [NAME] is not treated as being in possession: the [NAME] has not only the right to possession but 'constructively' the possession itself. … [Y]et a [NAME] may become a bailee and sue for trespass or conversion, if an intent can be inferred to invest him with exclusive possession , as when the plaintiff was employed at weekly wages to navigate a ship and himself engaged and paid an assistant." (Emphasis added.) 65 According to a footnote, the first of the above propositions drew its authority from the decision of the Appeal Division of the New Brunswick Supreme Court in [NAME] (1959) 19 DLR (2d) 229. This decision was also referred to by the [NAME] judge at [230] of his judgment. 66 Authority for the second part of the above statement from [NAME] was stated (in a footnote) to derive from [NAME] (1831) 2 B & Ald 817; 109 ER 1346. That case related to whether the [NAME] of a vessel, who was hired by a [COMPANY] on weekly wages, was entitled to maintain an action in trespass, notwithstanding that the trespass had been against the property of the [COMPANY]. Reference was made to the case of [NAME] (1700) 1 Salk 10 where [NAME] had said that the [NAME] of a ship might maintain trespass as might the bailiff of goods. On the other hand it was submitted that the [NAME] was but a mere [NAME] with no possessory interest in the vessel in question. [ADDRESS] held that the [NAME] was entrusted with the management of the vessel and its crew, and that the case was therefore indistinguishable from [NAME]. 67 The footnote in [NAME] also refers to the decision of Hill J in [NAME] (No 3) [1927] P 122. In that case his Lordship (at 131) referred to [NAME] but considered that "at the present day" it was impossible to regard the [NAME] of a ship as its bailee. Conditions of modern commerce were quite different than those which applied in 1700 when [NAME] was decided. After referring to a passage in [NAME]'s Essay on Possession in the Common Law, his Lordship said: "After stating the rule that where an owner delivers a thing to a [NAME] to be by him kept, used, carried or applied in the course of his employment as a [NAME] … the [NAME]'s possession continues, they add, 'it may be that it will sometimes as against strangers be treated as a possession in cases where the servants charge is to be executed at a distance from the [NAME] and where the manner of the execution is necessarily left in a great degree to the discretion of the [NAME]'. In my judgment, [NAME] never was in possession of [NAME] nor had he at any time the right to possession. He was a custodian merely." 68 Nevertheless, [NAME] relied on the second part of the passage from [NAME] and, in particular, that part which I have emphasised. They asserted that their situation was, in terms of the statement from [NAME] cited by Hill J in [NAME], one in which "the manner of the execution is necessarily left in a great degree to the discretion of the [NAME]". It was submitted that, by virtue of their control of the [NAME], that owner had necessarily left in the hands of the directors "a great degree of discretion" with respect to the [NAME] which entitled them to its possession. Alternatively, [NAME] became bailees as it could be inferred that the [NAME] intended to invest them with exclusive possession of the [NAME]. 69 In my opinion, these submissions should be rejected. However, before giving my reasons for this conclusion, it is necessary to refer to some further authorities relied upon by [NAME]. [ADDRESS] was next referred to the current edition of [NAME] (19th ed, 2006) at [17]–[55] (pp 1032–1033) where the following passages appear under the heading "Goods in the Custody of Employees": "It should be noted, however, that an employee who has custody or charge of goods on behalf of his employer does not as such have possession in the sense now under consideration. The employer has not only the right of possession, but constructively the possession itself: from which it follows that, if the goods are interfered with, the employee cannot sue in conversion. This is the traditional rule, which seems generally accepted. However, an important caveat must be added. While an employee does not as such possess his employer's goods, the case is different where the employer evinces an intent to make the employee a bailee of those goods in addition. This is likely to be the case where the employee is allowed to use the goods for his own purposes (as with a company car); and possibly in other cases where he is given considerable discretion how to employ them. … In short, the practical result now seems to be that in most cases the [NAME] will be able to sue. Moreover, it is submitted that this is no bad thing. A plea by a convertor that he has been sued by the wrong claimant is normally an unmeritorious one …" 71 The same authorities are relied upon in the footnote to the above passage as those referred to in the footnotes to the passage from [NAME] to which I have referred above. Again, [NAME] rely upon the above statements and submit that the [NAME] had evinced an intention to make them bailees of the [NAME], particularly given the considerable discretion vested in them as directors of the company as to its deployment. 72 Reference was also made to [NAME] on Bailment (2nd ed, 1999) where, at 108, the following is stated: "As a general rule, a [NAME] does not obtain possession of her or [NAME]'s chattels. This rule is subject to wide exceptions and it may be questioned whether it retains any practical value." 73 At 103 the learned authors state that for possession to amount to bailment, there must be a high degree of physical control over the chattel in question to the exclusion (at least) of the bailor. At 106 it is stated that this is a question of fact and degree, although the question of control and the distance between the owner and his chattel are clearly relevant factors. The Council relied on the factor of distance as supporting its position, given that, at all material times, [NAME] were in Queensland and the [NAME] in Maroubra, New South Wales. As such, there was a significant distance between [NAME] who were claiming to be bailees and the relevant [NAME]. However, I do not consider that this factor is in any way determinative. [ADDRESS] was next referred to [NAME] where (at 139) the following passage appears: "In any view for the language of this decision [ [NAME]'s case] is a strong authority against holding that a [NAME]'s custody is in general sufficient to support an action or prosecution as for a taking of the thing from his possession, even as against a mere wrongdoer; though it may be that it will sometimes as against strangers be treated as a possession in cases where the [NAME]'s charge is to be executed at a distance from the [NAME] and where the manner of the execution is necessarily left in a great degree to the discretion of the [NAME]." 75 [NAME] submitted that this passage could be transposed to the directors of a company who are sole directors and shareholders, as in the present case. They argued that because they controlled the [NAME], they were vested with both an exclusive and complete discretion as to its deployment with the consequence in law that they were to be treated as having the immediate right to possession. 76 On the other hand, the following further passages from [NAME] are of some significance. Thus, at 17, the authors state: "Possession in law is most easily understood as associated with possession in fact. This is the normal aspect of the right. It exists, broadly speaking, for the benefit of possessors in fact and in good faith, even if we hold the ulterior object is the benefit of those who, as being or claiming through [NAME] onus, are really entitled to possess. The law would be much simpler than it is if it were held that actual control or custody invariably gives actual legal possession, whether the custodian exercises control on his own account or is the [NAME] or otherwise on behalf of another. But no system of law, so far as we know, has gone to that length. A manifest intent, not merely to exclude the world at large from interfering with the thing in question, but to do so on one's own account and in one's own name, is required in different degrees both by the Roman law and Common Law." 77 Again, at 18 the authors observe: "It may be observed however that a [NAME]'s custody is often so manifestly exercised not on his own account but on [NAME]'s, that it has no colour of apparent ownership. If we regard acts according to their apparent intent and effect, as measured by the common knowledge of mankind, we can hardly say that a groom exercising [NAME]'s horse is even in de facto possession of the horse. He is in appearance as much in fact, in fact as much as in law, the [NAME]'s instrument for exercise the [NAME]'s power. There is no appearance of acting on his own behalf which could mislead a [NAME] of ordinary judgment." 78 Further, at 19: "It is not merely that things continue in a [NAME]'s possession though they be out of his immediate control, so long as his active control is, as some say, capable of being reproduced, or, as others say, his relation to them is consistent with the usual dealing of an owner of such things." 79 Under the heading "The Transfer of Possession", the following appears at 58: "The simplest case is the handing over of a moveable object with intent to transfer ownership or a more limited right, including the right to use or have control of that object. Such a delivery, whether the transaction be gift, sale, or bailment, always transfer possession to the deliveree. … On the other hand, a [NAME] in charge of [NAME]'s property, or a person having the use of anything by the mere licence of the owner, as a guest has the use of the furniture and plate at an inn, generally has not possession."

and at 59: "We have pointed out in the Introduction that in the great number of common cases the [NAME] may be said not even to have possession in fact, for he would not be supposed to by any ordinary observer to have the physical custody of the thing otherwise than on [NAME]'s behalf and at [NAME]'s disposal." 80 Finally, at 60 the authors opine that: "the rule is settled in our modern law that a [NAME] does not possess by virtue of his custody, except in one case, namely when he receives a thing from the possession of a third person to hold for the [NAME]: and then he is held to possess as a bailee until he has done some act by which the thing is appropriated to the [NAME]'s use. … We do not know of any case in which a delivery by the [NAME] to the [NAME] with intent to deliver possession besides custody has been proved as a matter of fact. The holder of goods may make his [NAME] a bailee if he thinks fit, and the holder of land may make his bailee a tenant at will; but the law does not regard this as a normal state of things, and probably rather strict proof would be required . There is no reason however to doubt that such an intent, if sufficiently proved in a particular case , would be effectual in law." (Emphasis added.) 81 Finally, reference was made to the decision of [NAME] (as he then was) in [NAME] v [COMPANY] (Unreported, Supreme Court of New South Wales, 30 July 1993). The case concerned a company which was at all material times prior to June 1986 the beneficial and registered owner of a Porsche motor vehicle. The vehicle had been in the physical possession of the plaintiff, who was a director of the company. The company records revealed that the vehicle had been disposed of as at 30 June 1986 and had not appeared in those records since. However, the company had paid accounts in respect of the vehicle including registration, insurance and NRMA fees, some of which were debited from the plaintiff's loan account. 82 The company's journal in 1986 showed that the recorded value of the vehicle was paid by the plaintiff, who had the appropriate sums debited from his loan account. There was no record of any resolution of the company or written agreement between the plaintiff and the company agreeing to sell him the vehicle. 83 In 1993 the [COMPANY] claimed the vehicle alleging that it was property of the company over which it had a charge. The plaintiff's solicitor informed the [COMPANY] that the car was not company property but the [COMPANY]'s agent seized the vehicle from outside the plaintiff's premises. The plaintiff demanded return of the vehicle which was refused. His Honour ordered that it be returned on the basis that the evidence was sufficient to establish that the company had either sold the car or otherwise given it to the plaintiff, or had abandoned its property in it.

Accordingly, the plaintiff had ceased to hold the vehicle as an agent for the company and his possession was good as against the whole world. 84 In the course of his judgment, his Honour made the following observation: "When goods are in the care of a [NAME], even the [NAME] such as a [NAME] director, they are not in his possession as a matter of law, but in the possession of [NAME]. If there is a transaction in which the goods are said to have passed from the possession of the [NAME] to the [NAME], then it is almost impossible to show delivery unless there has been some overt act by which the status of the possession has demonstrably changed." 85 After referring to [NAME] at 58–59, his Honour continued: "They [[NAME]] also point out that even last century there were cases where a [NAME] has been allowed to sue in his own name for trespass to the goods of which he was in charge; eg [NAME] (1831) 109 ER 1346. However, this is a special type of situation and in general the proposition is [NAME] that if a car is in the care and control of an employee, that employee does not have possession of the car in the ordinary legal sense of the word." 86 [NAME] then referred to a number of decisions involving the transfer of chattels after which he observed: "It seems to me that when one looks at the whole of these cases, the question is one of fact as to whether the circumstances show that the [NAME] … who has remained in care and control of the chattel at all material times has changed his or her possession from that of an agent of the employer to personal possession." 87 His Honour then considered that there were three possibilities, namely a contract for sale, a transfer of possession or an abandonment by the company and acquisition of the vehicle by the plaintiff. With respect to the second of these possibilities, which is relevant to the present case, his Honour made the following observations: "If there was a sale, then one does not need to look at delivery. They have already dealt with the concept of the delivery when there is a transaction which means that a person who physically holds a motor vehicle on behalf of another is thereafter to hold it for himself. As I have already said, this raises a question of fact as to whether there has been a delivery in all the circumstances. Of course, there need not necessarily be a physical transfer, if, for instance, a person is told that if he can find something he can keep it, that would appear to be sufficient delivery … The only factor which indicates a change in the nature of the possession of the car is the fact that [NAME] paid some of the expenses. Whilst that is weakened by the fact that some were 'expensed to the company', it seems to me that the more probable explanation is that the latter was more likely to be the error than the [NAME].

Accordingly, on the balance of probabilities I think there is just enough evidence to show that there was a delivery of the motor vehicle. Thus it would not matter whether there was a contract for sale or even a gift because the transfer would have taken place by physical delivery." 88 [NAME] relied upon this passage as supporting the proposition that, as a consequence of the 1998 agreement, there was a change in the character of [NAME]' custody of the [NAME]. That is, from 30 July 1998, [NAME]' were no longer mere custodians of the [NAME] on behalf of its [NAME], and instead took possession in law. This, they contended, gave them title to sue for conversion when the Council refused to permit [NAME] to remove the [NAME] from the premises.

Do [NAME]' contentions have merit? 89 In my opinion there is no merit in this last contention of [NAME]. Equally, in my view, there is no substance in their contention that, irrespective of the 1998 agreement, they at all times before and after 30 July 1998 had possessory title to, or the right to immediate possession of, the [NAME] in their personal capacities because, as sole directors and shareholders of its [NAME], they had complete and exclusive control over the manner in which the [NAME] was used, the location where it was used and over its disposal or other deployment. 90 In rejecting [NAME]' submissions I rely upon the following matters, which were established by the evidence and the [NAME] judge's findings. First, there was never any resolution of the directors of the [NAME] meeting as the board of the company whereby it entered into a contract of bailment of the [NAME] to [NAME]. Second, there was no overt act on the part of the [NAME] that, in my view, evinced an intention on its part to transfer possessory title of the [NAME] to [NAME] for them to deal with as they saw fit for their own purposes. 91 Third, as directors of the [NAME] were bound in law by virtue of the Corporations Act 2001 to exercise their powers and to discharge their duties as directors in good faith in the best interests of the corporation and for a proper purpose. Fourth, on their own evidence, [NAME] worked in and managed the business for and on behalf of the company or companies who, from time to time, traded under the business names under which the business was carried on at the premises. Fifth, all costs associated with the acquisition, repair, maintenance and disposal of the [NAME] was on account of its [NAME], or the [NAME] of the business to the extent to which at any time they may have been different. 92 Sixth, the business carried on by [NAME] in the premises between 30 July 1998 and 30 October 1998 was at all times the business of [NAME] and the [NAME] used in that business was at all such times owned by [NAME] and/or [NAME]. 93 Seventh, as asserted in para 1 of their cross-claim, [NAME] acknowledged that at the time the writ of possession was executed on 27 November 1998, they did not operate the gymnasium known as "[NAME]" at the premises in their own right but managed that business before and on behalf of [NAME] which, at the same time, was also the owner or part-[NAME]. 94 Eighth, to adopt and adapt the passage of [NAME] (at 18), recorded in [77] above, in [NAME] and conducting the [NAME] for and on behalf of [NAME] manifestly did so not on their own account but on [NAME]'s account and in circumstances which gave no indication of their apparent ownership of the business. In appearance as much as in fact, in fact as much as in law, [NAME] were [NAME]'s instrument for operating that company's business. The circumstances did not give the appearance that [NAME] were acting on their own behalf rather than that of [NAME] which could "mislead a [NAME] of ordinary judgment" to consider otherwise. 95 Again, to adopt and adapt the passage from [NAME] (at 58) referred to in [79] above, although a person may be in charge of a company's [NAME] and business (as [NAME] were in the present case), like a person having the use of anything by the mere licence of the owner, such a person will generally not have possession. Just as [NAME] had observed in [NAME], in this case there was no evidence of any overt act of the [NAME] by which the status of its possession or custody in the hands of [NAME] changed from mere physical custody to a right to immediate possession in their personal capacities. 96 To hold otherwise would, in my view, pierce the [NAME] veil in a way that is impermissible. It is a truism to say that a company can only act through its officers and agents. An officer may well carry on the company's business and his or her decisions may control the manner in which the company's property is held, used, acquired or disposed of. However, this does not vest in that officer (including, as [NAME] observed in [NAME], even a [NAME] director), with such control and dominion over the property of the company as to change the physical custody of that property from the possession of the company to the possession of the officer in the sense that that officer then has the immediate right to possession of, or the possessory title to, the company's property entitling him or her to sue for trespass or conversion in his or her own name. 97 In this case, [NAME] were the sole directors and shareholders of the [NAME] of the [NAME] and the [NAME], and they performed their duties as directors and employees of the relevant [NAME] entities in utilising the [NAME] in the course of the business. It follows from the discussion above that this alone cannot, in my view, justify the conclusion that not only the [NAME] but the other assets of those companies (to the extent to which they may have been different) was possessed by [NAME] in their own right rather than on behalf of their [NAME]. 98 Clearly, it was not open to [NAME] to deal with the [NAME] otherwise than in accordance with law. As the [NAME] judge also found, [NAME] were bound by the relevant provisions of the Corporations Act, which imposed duties of good faith upon the officers of the corporation and required them to exercise their business judgment for a proper purpose. 99 In accordance with their role as directors of the relevant companies, which carried on the business at different locations, and consistent with their duties to the [NAME] deployed the [NAME] at those different locations. But it could not be said that they did so for their own purposes as distinct from the purposes of the companies that owned the businesses. Even if those companies were different from the [NAME], it would appear that it was the business of the latter to provide the [NAME] to the [NAME] for the purpose of their respective businesses. If this is so, then the [NAME] was bailed to those companies but not to [NAME]. 100 Accordingly, it may be accepted that [NAME], as the [NAME] or owners of the [NAME], through their directors, [NAME], deployed their [NAME] in the gymnasium businesses that their associated companies were carrying on at different locations. But [NAME] were acting as agents of [NAME] which, as owner or owners of the [NAME], retained the legal right to regain possession of the [NAME] from the companies that operated the gymnasiums. 101 For the foregoing reasons, therefore, in my opinion the [NAME] judge was correct in holding that [NAME] were not at any relevant time entitled to possession of the [NAME] in their personal capacity. 102 Turning then to [NAME]' "fallback" position, essential to it was that by the 1998 agreement under which they were permitted to occupy the premises, that occupation carried with it possession of the [NAME] so that they had de facto possession in their own right and an immediate right to possession giving title to sue for conversion. There are, in my view, a number of reasons why that submission should not be accepted. 103 First, and as I have already observed, [NAME] admit that they continued to carry on the [NAME] on behalf of its owner, [NAME] or [NAME] (probably the latter as the owner of the business name "[COMPANY]" as and from 28 June 1997) from the premises after 30 July 1998. The [NAME] remained in the ownership of [NAME] or [NAME], who may be taken to have authorised its use as and for the purposes of that business. In these circumstances it does not seem to me that the possession of the premises under the 1998 agreement carried with it possession of the [NAME] in the right of [NAME]. Rather, the continued presence of the [NAME] on the premises was [NAME] of [NAME] or [NAME] the use of which in the [NAME] they had authorised through their directors, [NAME]. The possession of that [NAME] remained that of the company or companies operating the gymnasium and the right to regain possession was that of [NAME] or [NAME]. [NAME] may have had possession of the premises, but that did not carry with it possession in their own right of the [NAME]. 104 Secondly, even if the possession of the premises by [NAME] carried with it possession in their own right of the [NAME], that position enured only so long as [NAME] lawfully held possession of the premises. Their lawful possession ceased no later than 27 November 1998. Any de facto possession of the [NAME] which accompanied possession of the premises then also ceased, and [NAME] in their own right no longer had whatever right to possession they might previously have enjoyed. As was made clear in the course of the appeal, [NAME] relied for their cause of action on the Council's refusal to return the [NAME] when requested to do so some time later; and at that time if [NAME] had ever had a right to immediate possession of the [NAME], they no longer had it. In this regard, see the discussion of [NAME] v [NAME] later in these reasons.

Did the Council have possessory title that was no worse than that of [NAME]? 105 In its notice of contention, the Council raised an alternative argument that, upon the execution of the writ of possession on 27 November 1998, [NAME]' physical custody of the [NAME] ceased and became vested in the Council. As noted in [57] above, the Council's title to possession of the [NAME] was no worse than that of [NAME] or, more accurately, [NAME] did not have a better possessory title to the [NAME] than the Council with the consequence that the latter was entitled to retain the [NAME] against the whole world other than [NAME]. As I am of the opinion that no error has been demonstrated in the [NAME] judge's conclusion that [NAME] did not have an immediate right to possession of the [NAME] which entitled them to sue the Council for conversion, it is not strictly necessary to deal with this argument. However, in my view [NAME] must also fail on this point, and I will provide my reasons for the sake of completeness. 106 In [NAME] v [NAME], the appellant [NAME], a police officer, purporting to act under authority conferred on him by a search warrant issued under the Gaming & Betting Act 1912, entered [NAME]'s premises and seized certain money and valuable securities which had been received by him in connection with a business carried on by him in the premises which promoted sweeps on horse racing. [NAME] was subsequently prosecuted and convicted on a charge under s42 of the Gaming & Betting Act. An appeal by him against that conviction was dismissed. No order for forfeiture of the money and securities was made under s44 of that Act. After the appeal was dismissed, [NAME] made a demand upon [NAME] for the return of the money and securities, which was refused. In an action by [NAME] against [NAME], the High Court held that assuming the seizure of the money and securities by [NAME] was lawful, [NAME] was entitled to recover both the money and the securities. 107 In their joint judgment, Isaacs and Rich JJ at [545] observed that [NAME] had submitted that [NAME]'s claim must fail because, inter alia, [NAME]'s actual possession of the money and securities was lawfully terminated when they were seized by [NAME] pursuant to the search warrant on 6 May and was never in fact renewed. As a result, he could not succeed by reason of possession only. In other words, [NAME] having once obtained possession rightfully could never be considered a wrongdoer. 108 Their Honours considered that this submission could not be sustained. At 546 they said: "Immediately before the seizure on 6 May 1921, [NAME] was in actual possession of the all the property seized, which comprised the proceeds of the forbidden transaction. But he was possessed of that property as for himself by actual consent of the original, and, we shall for this purpose assume, the continuing, [NAME] of the property. That is to say, he had possession of the property, not as [NAME] or agent of another, but as in his own right subject to any right of the [NAME] to recover it whenever they so desired. Had there been no intervention of the police, his possession would have continued unless the [NAME] had recovered the property from him, either upon simple demand or by action. They have not intervened, and the matter is left to a contest between [NAME] and the police. … [[NAME]] starts with actual possession as being the owner of the property. It is [NAME] his possession was broken. But it is of the essence of the matter to enquire first what right his possession in the circumstances conferred and next what the breaking of it involved with regard to that right. Possession, in the relevant sense, is not merely evidence of [NAME] title: it confers a title of its own, which is sometimes called a 'possessory title'. This possessory title is as good as the [NAME] title as against, it is usually said, every person except [NAME]." 109 At 547, after referring to a number of authorities, their Honours continued in these terms: "It is therefore clear that [NAME] had by that possession a real 'title' to the property, just as lawful and just as powerful as if it were the [NAME] title, except as against [NAME], or any person claiming to hold by virtue of [NAME]'s authority. And it is also clear that a wrongdoer is, according to Lord Campbell, ' one who takes them ' (the goods) ' from him ' ([NAME]) '' having no title in himself '. The expression ' having no title in himself ' must, we think, mean no legal right superior to the title of [NAME]. If the person taking the goods has a superior right, then to the extent of that superior right , and to that extent only must the possessory title yield. [NAME], his rights being unqualified by any circumstance, would of course be justified in taking and keeping or demanding the goods, because his title is superior." (Emphasis in original.) 110 The question in that case was, therefore, whether the police's right and duty was to finally terminate [NAME]'s actual possession, in which case his possessory title would vanish and he would fail as against the police.

Accordingly, the question was whether the police had a superior right to [NAME]'s. 111 At 548 their Honours noted that the powers of the police could not be extended beyond the limits imposed by the Gaming & Betting Act. Section 40 permitted the issue of the warrant and authorised its form and the action under it. There was nothing in the Act that imposed a duty on the police to permanently deprive [NAME] (as the betting [NAME] keeper) of the relevant property and to hold that property henceforth from the [NAME]. In the circumstance that no order of forfeiture was sought or made, it followed that the instant the proceedings authorised by the Gaming & Betting Act were finally terminated by the dismissal of [NAME]'s appeal against his conviction, the power of seizure and retention by the police was exhausted. The police's statutory right had expired and their superior right no longer existed.

Accordingly, their refusal to return the money and securities was that of a person who was depriving [NAME] of the property. Such a person had, in Lord Campbell's words, "no title in himself", and was, in other words, a wrongdoer. [NAME]'s position reverted to that which he had held immediately before the seizure as to both the money and the securities and he therefore had an instant right to possession as against [NAME]. 112 The decision in [NAME] v [NAME] was referred to in the joint judgment of Deane, Dawson, Toohey and Gaudron JJ in Gollan v Nugent (1988) 166 CLR 18 at 47. Of that decision their Honours said: "The possessory title of the plaintiff to the money was held to be good against all but a superior title such as that of the [NAME]. Once the proceedings against the plaintiff had terminated, no order for forfeiture having been made, the power of seizure and retention by the police was exhausted." 113 It is to be noted that in [NAME] v [NAME], the latter had possession of the relevant property not as [NAME] or agent of the [NAME] but in his own right due to the fact that he was possessed of that property with the actual consent of the [NAME], until such time as those owners demanded its return. I do not regard the position of [NAME] in the present case as in any way analogous to that of [NAME]. As I have indicated, in my view at all times the possession of [NAME] was not in their own right but in the right of the [NAME] or owners of the [NAME]. 114 The Council submitted that, when it lawfully obtained possession of the premises by reason of the execution of the writ of possession, it also obtained lawful possession of the [NAME] which had been left in the premises. It is [NAME] that the writ of possession itself conferred no right to the [NAME] upon the Council, but it does not follow that when it took possession of the premises it did not lawfully enter into possession of its contents including the [NAME]. The Council's possession, like that of [NAME], was subject to the rights of the [NAME]. To put the matter another way, up until 27 November 1998 [NAME] had physical custody of the [NAME] but the right to immediate possession remained in the [NAME]. [NAME] ceased to have that physical custody when they were evicted from the premises and at which point physical custody vested in the Council. 115 [NAME], that custody was held on behalf of the [NAME] who still had the right to immediate possession. It followed that [NAME] not only did not have the right to immediate possession of the [NAME], but had simply been deprived of physical custody. In any event, it is clear that even if they did have some right to the physical custody of the [NAME], that was not a legal right which was superior to the legal right of the actual [NAME], the Council.

Accordingly, there was no obligation on the Council to yield its possessory title to [NAME] who had no right to the [NAME] superior to that of the Council. On the contrary, the Council could only yield its possessory title to the [NAME] who had the right to possession of the [NAME]. For these additional reasons, in my opinion, [NAME] did not have any relevant possessory title entitling them to sue the Council for conversion. 116 Accordingly, [NAME]' challenge to the [NAME] judge's decision should be rejected.

The question of costs 117 As the Council failed in its claim and [NAME] failed in their cross-claim, a question arose as to the appropriate order with respect to the costs of the proceedings. The [NAME] judge dealt with this question in a supplementary judgment on 31 May 2005. 118 After reciting what he referred to as "a long and unfortunate history" of the matter, which had occupied eight days of hearing before Justice Shaw in July 2004 and, after his Honour's retirement, a further 13 days before the [NAME] judge, each party had failed to establish its or their claims. 119 [NAME] submitted to the [NAME] judge that costs should follow the event with the result that the Council should pay the costs of the claim and [NAME] should pay the costs of the cross-claim. The Council on the other hand submitted that there should be no order for costs on either the claim or cross-claim other than that made by Justice Shaw on 12 October 2004 when his Honour granted leave to the Council to file an amended defence to [NAME]' amended cross-claim based upon the Impounding Act 1993. 120 His Honour then noted that on the Council's claim there were two [NAME] issues. The first was the question of which entity was liable to pay the rent or occupation fee, and the second was whether that entity was [NAME] personally or one or more of their companies. On the cross-claim, the issue identified by his Honour was who had the immediate right to possession of the [NAME]. Was it [NAME] personally or one of their companies? In relation to the claim, his Honour had held that the entity occupying the premises and operating the [NAME] was not [NAME] personally, whereas with respect to the cross-claim he had held that the immediate right to possession of the [NAME] was vested in one or more of the companies and, again, not in [NAME] personally. 121 His Honour then said this: "So, the [NAME] issue on both the action and the cross claim was the identity of the entity operating the [NAME]. I, therefore, reject the submission on behalf of [NAME]'] that the issue in the [Council's] claim and on [NAME]'] cross-claim was separate and distinct." 122 Accordingly, his Honour considered it appropriate to order each party to bear and pay its or their own costs subject to a number of exceptions which are not in issue. The first was Justice Shaw's order of 12 October 2004 that the Council pay [NAME]' costs of the application for leave to amend its defence to the cross-claim. The second was that the Council should pay [NAME]' costs of 22 and 23 July 2004, which had been thrown away by reason of the adjournment of the hearing due to the failure of the Council to make full discovery of documents which were of significance in the case. The third was that the Council should pay [NAME]' costs of 11 and 12 May 2005 being the days taken up by evidence relating to the conduct of its officers purporting to apply the provisions of the Impounding Act which his Honour found to be "totally unmeritorious, improper and verging upon the dishonest". 123 [NAME] submitted that his Honour erred in finding that the issues in the claim and the cross-claim were not separate and distinct. The issue in the claim by the Council was whether [NAME] were in occupation of the premises personally or whether the occupant was one or more of their companies. The issue in the cross-claim had nothing to do with occupation of the premises but related to whether [NAME] had an immediate right to possession of the [NAME] as at 27 November 1998. These were said to be distinct issues although there was a degree of overlap in the evidentiary material. 124 [NAME] further submitted that in the Council's claim some 11 affidavits were filed to which [NAME] were required to respond. Furthermore, of the 24 days of the hearing, approximately 23 days were concerned with the Council's case. No doubt, to a degree, this was due to the fact that the evidence given with respect to the claim also covered the evidentiary material relevant to the cross-claim. 125 So far as the special orders made by the [NAME] judge in favour of [NAME] were concerned, these would be subsumed in any order that the Council pay [NAME]' costs of the claim. 126 The question of costs is, of course, discretionary. Before there will be appellate intervention in the exercise of that discretion, it is therefore necessary for the party challenging the orders to demonstrate that the [NAME] judge's discretion has miscarried in the relevant [NAME] v [NAME] sense: see House v King (1936) 55 CLR 499. Such a miscarriage may include a misunderstanding by the [NAME] judge of the issues and/or a failure to take a relevant consideration into account. 127 I am not satisfied that demonstrable error in the relevant sense has been established. It is [NAME] that the issues in the claim and cross-claim were, at least to a degree, separate and distinct. However, there are also overlapping considerations and, in particular, overlapping evidence whereby the evidence in relation to the claim was, at least in part, relevant to the issue raised in the cross-claim. In my opinion when the [NAME] judge said that "the [NAME] issue on both the action and the cross-claim was the identity of the entity operating the [NAME]" he was generally correct insofar as it was contended that that entity had immediate right to possession of the [NAME] utilised in that business. 128 [NAME] accepted that the [NAME] was owned by a [NAME], they nevertheless asserted that their unconditional operation of that business, albeit on behalf of its [NAME], carried with it the right to possession of the [NAME] utilised in that business. 129 Thus, in the claim and cross-claim, the issues concerned, respectively, the identity of the entity operating the [NAME], and the question of who had the right to immediate possession of the [NAME] used in the business. It was necessary to distinguish, for the purposes of each question, whether this was [NAME] personally or whether it was a [NAME] of which [NAME] were the sole directors and shareholders. I think it is this significant overlap that prompted his Honour to reject [NAME]' submission that the issues in the claim and cross claim were separate and distinct. In my opinion there was no error in his expression of that view. 130 As to the submission that his Honour failed to take into account the assertion that some 23 out of the 24 days of hearing were concerned with the claim of the Council as distinct from the cross-claim of [NAME], in my view his Honour was well aware of the nature of the evidence that was given both before Justice Shaw and himself. As appears from his principal judgment, which was handed down on the same day as his Honour's ex tempore costs judgment, this included the fact that the evidence as to the relationship between the parties in terms of the occupation of the premises extended from 1986 to 1998. He must also have been perfectly aware that the relationship between [NAME] and their companies was relevant with respect to both the claim and the cross-claim. 131 In my opinion, it was open to his Honour to determine that in all the circumstances, and subject to the special orders that he made in favour of [NAME], each party should pay its or their own costs of the claim and cross-claim. 132 However, even if error were established so that this Court would be required to exercise for itself the discretion with respect to the costs of the hearing at first instance, it seems to me that there are good grounds for making an order no different to that made by the [NAME] judge. To order that costs should follow the event, leaving it to the costs assessor to work out which costs were applicable to the claim and which to the cross-claim, would not only involve the expenditure by the parties of further unnecessary costs but would also pose a most difficult and complex task for the costs assessor. In the circumstances of this case, it is understandable that such an outcome should be avoided.

Accordingly, if I was required to exercise the discretion myself, I would have come to the same view as the [NAME] judge and made identical orders. 133 Accordingly, in my opinion [NAME]' challenge to the orders for costs made by his Honour should be rejected.

Conclusion 134 In my opinion each of the challenges by [NAME] to the findings of the [NAME] judge have failed. It follows that the appeal should be dismissed with costs. **********

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