Title to Sue in Bailment: Repudiation and

the Contractual Basis of Liability for

Wrongs to Chattels
Norman Palmer*
The Question
Modern authorities routinely accept that, in the absence of the owner, the
possession of goods counts as title.1 More challenging is the task of
identifying the rights of a non-owner who once had but no longer has
possession.2 Does the non-owner’s title outlive his or her possession, or does
it perish when possession is lost?
The question takes many forms,3 and clear answers are often elusive.4 A

* Barrister; Chair, Treasure Valuation Committee; Visiting Professor of Law at King’s College
London; Emeritus Professor of Law at UCL; Adjunct Professor of Law at the University of
Tasmania.
1 The Winkfield [1902] P 42 and successor authority, as to which see generally Palmer,
Bailment, 2nd ed, LBC, Sydney, 1991, Ch 4; Chabbra Corp Pte Ltd v Jag Shakti, The Jag
Shakti [1986] AC 337, PC; O’Sullivan v Williams [1992] 3 All ER 385, CA; Re-Source
America International Ltd v Platt Site Services Ltd [2005] 2 All ER 50 at 51, CA, per
Tuckey LJ; HSBC Rail (UK) Ltd v Network Rail [2006] 1 All ER 343, CA. The basic
proposition for which The Winkfield stands as authority was recognised in Australia at least
as early as 1908 (Doodeward v Spence (1908) 6 CLR 406 at 418 per Higgins J, dissenting,
but not on this point) and has been applied in jurisdictions as diverse as New Zealand (see
eg Tamworth Industries Ltd v Attorney General [1991] 3 NZLR 616 at 621 per
Eichelbaum CJ; Gardiner v Metcalf [1994] 2 NZLR 8; Trailways Transport Ltd v Thomas
[1996] 2 NZLR 443), South Australia (Goodwin v Ron Heath Tyre Service (SA) Pty Ltd
[1999] SASC 222, Sup Ct SA, FC), Queensland (Byrne v Hoare [1965] Qd R 135, R v
McKiernan [2003] QCA 43, n 8 below), India (Mussammat Sundar v Mussammat Parbati
(1889) 16 Ind App 186 at 193) and Northern Ireland (Toome Eel Fishery (Northern Ireland)
Ltd v Cardwell [1966] NI 1, CA, Civ Div). But in recent years The Winkfield has had a
mixed reception in New South Wales. While generally approved (eg, Specialised Transport
Pty Ltd v Dominiak (1989) 16 NSWLR 657 at 663 per Young CJ in Eq; Banks v Ferrari
[2000] NSWSC 874; The Anderson Group Pty Ltd v Tynan Motors Ltd (2006) 65 NSWLR
400; [2006] NSWCA 22), it was eyed askance by the Court of Appeal in Maynegrain Pty Ltd
v Compafina Bank [1982] 2 NSWLR 141 at 155–7 per Hutley JA (Hope JA and Mahoney JA
concurring), on appeal without reference to this point (1984) 58 ALJR 389, PC. As to these
reservations, see further n 7 below.
2 Recent authorities include Chairman, National Crime Authority v Flack (1998) 156 ALR
501; Costello v Chief Constable of Derbyshire Constabulary [2001] 1 WLR 1437; Gough v
Chief Constable of the West Midlands Police [2004] EWCA Civ 206.
3 One example concerns the finder or equivalent possessor who takes, but later loses,
possession. See generally Chairman, National Crime Authority v Flack (1998) 156 ALR
501; Palmer, Bailment, 2nd ed, LBC, Sydney, 1991, Ch 23. Another example concerns the
recovery by former possessors of goods taken by the police, where no prosecution has
resulted and there has been no order for the return of goods to the party entitled; see the
decisions cited in n 2 above, and Russell v Wilson (1923) 33 CLR 538.
4 Palmer, ‘Possessory Title’ in Palmer and McKendrick (eds), Interests in Goods, 2nd ed, LLP,
London, 1998, Ch 3. Cf, on the supposed incapability of an immediate right of possession
that is unsupported by a proprietary right to ground proceedings in conversion, Islamic
Republic of Iran v Barakat Galleries [2007] EWHC (QB) 705 (27 March 2007, Gray J), now

132
 Title to Sue in Bailment 133

recent decision of the Court of Appeal of New South Wales explores one facet
of the question, the power of an original bailee who transfers possession to
another to sue the transferee for breach of bailment.5
Existing law already offers some guidance. An owner who cedes possession
to a bailee but retains his or her right of immediate possession against the
bailee may rely on that reserved right of possession in a claim, not only
against the bailee himself, but against a third party who invades the goods
without the owner’s authority.6 A bailee in possession can sue a third party for
wrongs inflicted on the chattel regardless of whether the bailee has, as against
the bailor, the better right to possession at the time of the wrong.7 Further, a
bailee’s possessory title normally enables him or her to proceed, in the
capacity of bailor, against a person to whom he or she has transferred
possession under a secondary bailment. That consequence may follow, at
least, where the second bailment occurred with the original bailor’s consent;8

reversed on this and other points by the Court of Appeal: Government of the Islamic
Republic of Iran v The Barakat Galleries Ltd [2008] 1 All ER 1177; [2007] EWCA Civ
1374, esp at para 30 of the judgment of Lord Phillips of Worth Matravers CJ; see n 45 below.
5 The Anderson Group Pty Ltd v Tynan Motors Ltd (2006) 65 NSWLR 400; [2006] NSWCA
22 below.
6 BIS Cleanaway (trading as CHEP) v Tatale [2007] NSWSC 378 at para 40 per McDougall J:
‘An owner who is wrongfully dispossessed of goods does not thereby lose the right to
immediate possession of those goods. However, where an owner lawfully gives possession
of goods to another, the owner’s right to immediate possession will depend on the terms of
the “arrangement” between it and that other’. In this case the owner of pallets was held to
have retained the right of immediate possession throughout the ensuing bailment sequence,
by virtue in part of a clause in the owner’s standard hire terms under which (inter alia):
‘CHEP has the right to immediate possession of all CHEP Equipment, whether on hire or
not, and may take possession of any Equipment immediately and without notice to any
person’. And see Government of the Islamic Republic of Iran v The Barakat Gallery Ltd
[2008] 1 All ER 1177; [2007] EWCA Civ 1374 at paras 15, 16, per Lord Phillips of Worth
Matravers CJ.
7 Note 1, above. In Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 at 155–7 per
Hutley JA (Hope JA and Mahoney JA concurring) the New South Wales Court of Appeal
expressed reservations about the general principle in The Winkfield [1902] P 42. Hutley JA’s
misgivings seem to have stemmed from a perception that The Winkfield undermined the
general rule that damages in conversion are compensatory. But these misgivings seem
misconceived: see Morrison and Sappideen, Torts Commentary and Materials, 7th ed, LBC,
Sydney, 1989, p 114 (comment that does not appear in later editions). In Maynegrain,
pledgees (Compafina) were suing the bailees (Maynegrain) of the pledgors (BTE) for the
bailees’ unauthorised release of the pledged goods (barley) on the instructions of BTE. In the
NSW Court of Appeal Compafina recovered merely the amount due under the pledge (ie
their actual loss). On that point the decision merely exemplified the principle, which is not
in conflict with that in The Winkfield, that where the defendant in conversion (or the person
from whom the defendant derives possession) has a competing and surviving (albeit
subordinate) interest in the goods, the claimant recovers only the value of his or her limited
interest. Decisions on claims by lessors against lessees on hire-purchase such as Wickham
Holdings Ltd v Brook House Motors Ltd [1967] 1 All ER 117 and Pacific Acceptance Corp
Ltd v Mirror Motors Pty Ltd [1961] SR (NSW) 548, which were cited by Hutley JA in
Maynegrain, are not, therefore, inconsistent with The Winkfield, where the defendant of
course asserted no rival interest in the goods. On appeal to the Privy Council (1984) 58
ALJR 389 the claim against Maynegrain failed on the ground that Compafina were bound by
the consent of their own agents (the ANZ Bank) to the release of the barley, and no action
can lie in conversion for an act to which the party entitled has consented. For criticism see
Palmer [1986] LMCLQ 218.
8 For example, under a sub-bailment as defined by Lord Diplock in The Winson [1982] AC
134 (2008) 24 Journal of Contract Law

for at common law the bailee is estopped from denying his or her bailor’s
title.9
The main question in The Anderson Group Pty Ltd v Tynan Motors Ltd10
was whether the original bailee can sue the transferee even where his or her
transfer of possession involves a breach of his or her own, original bailment.
In confronting this question the judgments in the Court of Appeal reveal
interesting divergences and ambiguities, and in one respect a certain lack of
coherence.

The Facts
The bailee of a car under a hire-purchase agreement broke the agreement by
consigning the car to the defendant for sale, without getting the lessor’s
written consent.11 After the defendant had received possession, the car was
stolen from the defendant’s yard. In a claim by the bailee against the
defendant, the defendant argued that the bailee’s breach of the first bailment
had caused the bailee to lose his right to the possession of the car and that the
bailee, having neither possession nor the immediate right of possession at the
time of the defendant’s alleged wrong, had no standing to sue. The court,
following R M Campbell (Vehicles Sales) Ltd v Machnig12 and other authority,
dismissed the argument and held that the bailee remained entitled to sue.13 The
lessor’s right of possession had not revived, and the bailee had not forfeited
his right of possession as against the bailor, because the procedure for

939 at 959: ‘A sub-bailee is one to whom actual possession of goods is transferred by

someone who is not himself the owner of the goods but has a present right to possession of
them as bailee of the owner’ (emphasis added). Where the transaction under which the first
bailee delivers to the second bailee is a substitutional bailment, the first bailee withdraws
from the bailment scheme, and generally retains no continuing rights or responsibilities as
bailee or bailor towards either the original bailor or the incoming bailee: Wincanton Ltd v
P&O Trans European Ltd [2001] EWCA Civ 227.
9 For recent recognition of both principles see Hoath v Connect Internet Services Pty Ltd
(2006) 229 ALR 566; Banks v Ferrari [2000] NSWSC 874 (semble). The principle in The
Winkfield has been applied in criminal cases: see, for example, R v McKiernan [2003] QCA
43 (theft of church bell, proved to have been in possession of church for over 50 years; bell
held to be the property of the church for purposes of s 391 of the Queensland Criminal
Code); and R v Rostron [2003] EWCA Crim 2206 (theft of golf balls from bed of lake on
golf course, golf club not having abandoned its possessory title) discussed by Hickey
‘Stealing Abandoned Goods: Possessory Title in Proceedings for Theft’ (2006) 26 Legal
Studies 584. It has been held that the estoppel that arises from a bailment may in certain
circumstances bind the bailor or others deriving title from him or her, and not only the
bailee: Esanda Finance Corp v Gibbons [1999] NSWSC 1094. In many cases, however, a
similar result might be more satisfactorily reached by invoking the undertakings as to title
that arise under certain types of bailment, such as chattel leases.
10 (2006) 65 NSWLR 400; [2006] NSWCA 22.
11 The bailee had earlier informed the lessor of this intention but failed to observe the proper
formalities.
12 Unreported, 22 May 1981, NSW, Yeldham J.
13 Another recent decision of the Court of Appeal of the Supreme Court of New South Wales
that applied R M Campbell v Machnig is Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2003]
NSWCA 75, upheld on another point Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004]
HCA 54. Surprisingly, Toll v Alphapharm was not cited by the same court in Anderson v
Tynan.
 Title to Sue in Bailment 135

termination that the first contract of bailment prescribed for the event in
question had not at the material time been followed.14

Contracts as Codes
The decision raises familiar questions about the extent to which the conclusion
of a detailed commercial contract will preclude the imposition of some
independent form of liability more onerous than that expressly undertaken by
the contract itself.15 Normally the assertion of a larger liability is an assertion
of liability in tort, but in Anderson v Tynan it was an independent principle of
the law of bailment that was alleged to exceed or outflank the contract. That
principle recognises that a bailee loses his or her right of possession when he
or she departs radically from one of the essential terms of the bailment.16 In
Plasycoed Collieries Co Ltd v Partridge, Jones & Co Ltd17 Hamilton J stated
the matter succinctly:
It is well-established law that where chattels have been placed in the hands of a
bailee for a limited purpose, and he deals with them in a manner wholly inconsistent
with the terms of the bailment, and consistent only with his intention to treat them
as his own, the right to possession revests in the owner, who can sue the bailee in
trover.
In a later English case, Colman J accepted that a bailment can in principle

14 The lessee’s act (consignment for sale) may conceivably have been an insufficiently grave
violation of the bailment to constitute a deviation under the general law, irrespective of any
restraint on the bailor’s power of repossession imposed by the express terms of the contract
(cf on the facts Citicorp Australia Ltd v B S Stillwell Ford Pty Ltd (1979) 21 SASR 142 at
145 per King CJ, where a completed sale of the chattel by the bailee was unhesitatingly
characterised as an act causing the right of possession to re-vest in the bailor.) In that event
the act of the lessee would not (even if the contract had not been exhaustive on the point)
have caused the right of possession to revert immediately to the bailor independently of the
prescribed machinery for termination. But consigning the car for sale involved relinquishing
possession, and an unauthorised vacation of possession is generally classed as a deviation,
at least when committed by storage bailees, artificers and carriers: Lilley v Doubleday (1881)
7 QBD 510; Edwards v Newlands & Co [1950] 2 KB 534. At para 71 of his judgment in
Anderson v Tynan, Young CJ in Eq observed that the lessor had, by refraining from reliance
on any act repugnant [semble, at common law] to the bailment, and by acknowledging that
the bailee’s rights continued until the notice of demand, waived any right to the automatic
cessation of the bailee’s right of possession that the lessor might otherwise have invoked.
15 See generally, as to adjacent liability in tort, Tai Hing Cotton Mill Ltd v Liu Chong Hing
Bank Ltd [1986] AC 80; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145; Rolls Royce
New Zealand Ltd v Carter Holt Harvey [2005] 1 NZLR 324.
16 As where he concludes a fraudulent sale or pledge of the chattel: Nyberg v Handelaar [1892]
2 QB 202 at 206 per Lopes LJ; Citicorp Australia Ltd v B S Stillwell Ford Pty Ltd (1979)
21 SASR 142 at 145 per King CJ, citing North General Finance and Wagon Co Ltd v
Graham [1950] 2 KB 7 at 14–15 per Cohen LJ, and Union Transport Finance Ltd v British
Car Auctions Ltd [1978] 2 All ER 385, as to which see below.
17 [1912] 2 KB 345 at 351; and see Nyberg v Handelaar [1892] 2 QB 202 at 206 per Lopes LJ
(‘This transaction amounted to a bailment to Frankenheim for a special purpose, which he
did not carry out, and on failure of the trust the plaintiff’s right to immediate possession
accrued at once.’), cited in Grocutt v Khan [2002] EWCA Civ 1945 at para 25 per Lord
Phillips of Worth Matravers MR; Model Dairy Ltd v White [1935] 41 ALR 432; Milk Bottles
Recovery Ltd v Camillo [1948] VR 344 at 346 per Lowe J; Penfolds Wines Pty Ltd v Elliott
(1946) 74 CLR 204 at 214, 217–18 per Latham CJ, 227 per Dixon J, 233 per McTiernan J
and 241–2 per Williams J; Myer Stores Ltd v Jovanovic [2004] VSC 478 at para 21 per
Balmford J.
136 (2008) 24 Journal of Contract Law

generate obligations more spacious and durable than those undertaken by the
underlying contract, and he proceeded to apply this proposition by analogy to
the relationship of principal and agent.18 The general position in English law
appears to be that, in the absence of some clear indication that the remedial
measures specified by the contract are exclusive and definitive, more
extensive measures drawn from the general common law of bailment can
co-exist with them.19 In Union Transport Finance v British Car Auctions,20
where the lessee of a car on hire-purchase wrongfully sold it, Roskill LJ took
as his starting point a statement of the common law principle that, in his view,
was beyond doubt:21
if the bailee acts in a way which . . . destroys the basis of the contract of bailment,
the bailor becomes entitled at once to bring that contract to an end, and thus at once
acquires the right to immediate possession of the article bailed.

Construing the Contract

The crucial task, of course, is to identify the ‘basis of the contract of
bailment’. Defining that basis is essentially a matter for the parties. Some,
perhaps the majority, will be content to allow the general common law
principles of bailment to operate uninhibited in concert with the express
contractual terms.22 Others may prefer to define the basis of the contract of
bailment in a manner that ousts the operation of such general principles.23 By
so doing they may prevent certain forms of notional misconduct (however
extreme when viewed objectively) from automatically reviving the bailor’s
immediate right of possession. The parties might even remove such conduct
entirely from the realm of breach, whether repudiatory or otherwise.
Roskill LJ accepted as much when he defined the essential question in
Union Transport Finance as whether, on the true construction of the
hire-purchase contract, there was ‘anything to bar the plaintiff from bringing
this agreement to an end in any other way than as is there provided, and thus
acquiring an immediate right to possession?’24 He appeared to regard such a
result as exceptional, later observing that:25
. . . even if there be room in principle for the existence of a contract which may
contract out of the basic common law rule, it would require very clear language to
deprive the bailor of his common law rights in circumstances such as these.

18 Yasuda Fire and Marine Insurance Co of Europe Ltd v Orion Marine Insurance
Underwriting Agency Ltd [1995] 3 All ER 211.
19 Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All ER 385; followed in
Rampton Holdings Pty Ltd (in liq) v Rocom Pty Ltd, unreported, 31 July 1992, WASC.
20 [1978] 2 All ER 385.
21 [1978] 2 All ER 385 at 390.
22 For an example of a contract that specifically preserved the bailor’s remedies for forms of
fundamental breach other than those expressly defined as such in the contract, see Reglon
Pty Ltd v Hill [2006] NSWSC 1360, affirmed sub nom Hill v Reglon Pty Ltd [2007]
NSWCA 295; below.
23 For an example, see Reliance Car Facilities Ltd v Roding Motors [1952] 2 QB 844.
24 [1978] 2 All ER 385 at 388. The absence of any route, other than via the express terms of
the contract, of extinguishing the bailor’s right of possession seems to have underlain the
decision of the High Court of Australia in Nominal Defendant v Andrews (1969) 121 CLR
562; cf Nominal Defendant v Morgan Cars Pty Ltd (1974) 131 CLR 22.
25 [1978] 2 All ER 385 at 390; see also Bridge LJ at 391.
 Title to Sue in Bailment 137

The view of Bridge LJ was to similar effect. He thought that it would be

‘ . . . perfectly possible to introduce into a contract of bailment a term
expressly limiting the manner in which the bailee’s right to possession as
against the bailor could be terminated’ but that ‘it would require the clearest
express terms to have that effect’. He continued:26
A clause which merely gives a right to terminate by notice for any breach of the
contract of bailment could not possibly . . . be construed as having that effect. Its
purpose is to enhance the rights of the bailor and not to curtail them.

The Starting Point: Bailment Or Contract?

The relevant task in Anderson v Tynan, like that in Union Transport Finance,
was to determine whether the lessee’s breach attracted consequences in
bailment that operated independently and divergently from those in contract.
Young CJ in Eq27 and Santow JA28 approved the approach of Roskill and
Bridge LJJ in Union Transport Finance but held that on this occasion the
contract was exhaustive. The principal reason lay in the lessor’s response to its
discovery that the lessee had consigned the car for sale. The lessor had not
relied on any act repugnant to the bailment in issuing its notice of repossession
to the lessee, but had on the contrary acknowledged that the lessee’s rights
continued until receipt of the notice. That constituted a waiver of any earlier
right to resume possession that might otherwise have arisen by virtue of the
breach. But in any event Young CJ in Eq did not consider that the misconduct
of the lessee was sufficiently grave a breach to attract the Union Transport
Finance principle: ‘the act that is necessary to terminate the bailment must be
a very serious act and one which is virtually a disclaimer of the contract of
bailment’.29 It was true that the lessee had delivered the car up for sale in
breach of the contract, but the act was not fraudulent (as it was, for example,
in Union Transport Finance)30 because the lessee had previously asked the
lessor for a pay-out figure and appeared willing to discharge the sums owed.
Nor was the lessee’s failure to insure the car a serious enough breach to forfeit
without more his right of possession. Finally, the unfortunate trial judge had
made no finding that the lessee’s conduct was repugnant to the bailment. The
result was that the lessee’s right of possession survived the breach, and he
could sue the second bailee for breach of duty.
Basten JA concurred in the result and emphasised that the lessee’s delivery
of the car for sale broke an express term of a written contract that also defined
the procedure to be followed on breach. But Basten JA was more sceptical

26 [1978] 2 All ER 385 at 391. See further MCC Proceeds Inc v Lehman Bros International
(Europe) [1998] 4 All ER 675 at 697 (Pill LJ) and 703 (Hobhouse LJ), where the Court of
Appeal held that the holder of a mere equitable interest could not invoke the principle in
Union Transport Finance Ltd v British Car Auctions Ltd (above) against the legal owner, a
trustee. In the words of Hobhouse LJ at 703: ‘This principle derives from the law of
bailment . . . The remedy of the beneficiary against the trustee (and any other person
involved) is equitable only’. See generally on this decision Palmer (1999) IV Art Antiquity
and Law 69.
27 At paras 62–80 of his judgment.
28 (2006) 65 NSWLR 401 at 403, concurring.
29 At para 72 of the judgment.
30 And, indeed, in Nominal Defendant v Andrews (1969) 121 CLR 562.
138 (2008) 24 Journal of Contract Law

about the demand in Union Transport Finance for ‘very clear language’ and
saw the present task as a straightforward exercise in contractual construction,
unburdened by presupposition.31
. . . [W]here the conduct which is said to bring the bailment to an end is conduct
in breach of a specific condition of a written contract, and the contract provides for
a mechanism for termination on default, the contract should not be treated as
terminated unless the party entitled to trigger the mechanism has done so, and
complied with its terms. Where, as in this case, the written contract, in clause 8,
required the finance company to serve a notice of default requesting that the default
be remedied within a specified period, before it became entitled to immediate
possession, compliance with that provision should be understood as a pre-condition
to entitlement to immediate possession, at least in the circumstances to which the
clause applies.
. . . Whether other circumstances, which might be treated as a repudiation of the
contract by the hirer, would give rise to an entitlement in the finance company to
immediate possession under the general law need not be determined in this case. The
decision in Union Transport32 should be understood as one based on the proper
construction of the contract in question. If a sensible commercial reading of a
contract demonstrates an objective intention to limit termination by reference to a
prescribed mechanism, there is no reason to read down the effects of the contract,
because [ie, on the alleged ground that]33 not to do so would impose a limitation on
the operation of the general law rights of the bailor and such an intention is not
provided in ‘the clearest expressed terms’. If a finance company wishes to preserve
its rights under the general law, without expressly identifying them, it can do so. It
will usually be the party which sets the terms on which it is willing to do business
with a prospective hirer and hardly needs to rely on some presumption of
construction in order to protect its position.
In the circumstances, Basten JA considered that, even if the defendant could
in principle rely on a superior possessory right in the lessor as defeating the
first bailee’s claim, the defendant had not in fact shown that the lessor took the
steps required to terminate the contract of hire and activate that right. The
defendant had failed to show that, at the time of the theft, the right to
immediate possession of the vehicle resided exclusively with the lessor.
There is obvious merit in Basten JA’s perception of the primary exercise as
one of construction and in his demand for a sensible commercial reading of
the contract. Courts may, here as in other contexts, come to view the contract
as the starting point and the bailment as the reserve fund, to be drawn upon
only when the provision in the contract is expended, leaving material
questions unanswered.34 On the other hand, the tendency to treat the common

31 At paras 11–14. He did so while declining to make any specific pronouncement on the law
of deviation in bailments. In view of the excursion of Young CJ in Eq into the field (see
below) Basten JA’s abstention might be seen as regrettable.
32 Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All ER 385, CA.
33 This appears to refer to the words of Bridge LJ in Union Transport Finance, cited above.
34 But cf Citicorp Australia Ltd v B S Stillwell Ford Pty Ltd (1979) 21 SASR 142 at 145 per
King CJ on the construction of South Australian legislation that was alleged to oust the effect
of the common law principle that a ‘fraudulent sale by the bailee of the chattel bailed to him
is unquestionably both an act and disposition repugnant to the bailment’. The legislation was
held to have no such effect. Where the broken obligation is one created solely by the express
terms of the contract, it is clearly easier to assert with confidence that the remedies for
breach should also be confined to those prescribed by the express terms.
 Title to Sue in Bailment 139

law principle as presumptive, requiring clear words of exclusion, may itself

prove hard to dislodge, particularly of course from those bailments that are not
elaborately negotiated and recorded. While there is no suggestion that
Basten JA proposed any change in the approach to such bailments, the
dividing line could prove hard to draw in specific cases.
Evidence that the basic principle in Union Transport Finance remains
vigorous in New South Wales can be drawn from the more recent decision in
Hill v Reglon Pty Ltd.35 The alleged breach in Hill v Reglon was the
unauthorised grant of a licence by the hirer-bailees of scaffolding (ACS) to a
related company (Action) purporting to authorise Action to sub-hire the
scaffolding, which ACS held from the owners (Reglon). The grant of the
licence resulted in the sub-hire of the Reglon scaffolding to building site
operators.36 In due course ACS defaulted in its payment of hiring fees to
Reglon, and Action defaulted under a fixed and floating charge that it had
granted to Citadel, who appointed a receiver (the appellant Hill). Hill in turn
granted a licence to Action NSW to use and sub-hire the scaffolding.
Following Hill’s retirement as receiver, Citadel granted a further licence to
Action NSW, having by then entered into possession of Action’s assets as
mortgagee.
In a claim for conversion brought by Reglon against Hill and Citadel,
Reglon argued that the grant of the licence by ACS to Action re-vested the
right of possession in Reglon, and that the later grant of the licences to Action
NSW were acts of conversion by both Hill and Citadel, in respect of which
Reglon, as the party then entitled to immediate possession, was entitled to sue.
At first instance, Windeyer J had agreed that, because ACS’s grant of the
licence to Action was unauthorised and a fundamental breach of bailment by
ACS, Reglon had the necessary immediate right of possession to the
scaffolding that ACS held on lease from Reglon.37 The recurrence of Reglon’s
right of possession was not precluded by certain express terms in the
Reglon–ACS lease that required the giving of notice in the event of certain
specified defaults by ACS (such as default in payment and the appointment of
an administrator). This was because (i) the essential right granted by the lease
was a right in ACS to use the scaffolding in accordance with that agreement,
and (ii) Reglon had granted to ACS no right to make over the scaffolding to
Action for the purpose of hiring it to outside parties. Such conduct took ACS
outside the ‘terms of possession’ granted by their contract and extinguished
their former right of possession, causing the immediate right to revert to
Reglon and qualifying Reglon to sue any later interloper in conversion.
‘Possession is handed over for the purposes of the bailment and not
otherwise.’38

35 [2007] NSWCA 295.

36 It also involved the intermixture of Reglon scaffolding with scaffolding owned by Action,
but this does not bear directly on the point at issue: the Court of Appeal of New South Wales
held that Reglon was entitled as co-owner of the commingled mass to the possession of an
amount of scaffolding equivalent to the scaffolding hired to ACS under the original
Reglon-ACS agreement: [2007] NSWCA at paras 86–141.
37 Reglon Pty Ltd v Hill [2006] NSWSC 1360.
38 [2006] NSWSC 1360, at para 33 of the judgment. At para 32 Windeyer J noted an argument
that Anderson v Tynan was in conflict with Nominal Defendant v Andrews (1969) 121 CLR
140 (2008) 24 Journal of Contract Law

In upholding Windeyer J, the Court of Appeal laid a predominant emphasis

on three terms of the main hire agreement: cl 15.3.1, which declared ACS’s
obligations to be essential and fundamental terms, any breach of which was
correspondingly repudiatory; cl 15.3.2, which provided that cl 15.3.1 should
not be construed as gainsaying the existence of other non-specified
fundamental terms; and cl 17.2, which characterised the remedies conferred
by the agreement as cumulative to ‘all other remedies in its favour existing at
law, in equity or in bankruptcy or insolvency’. Beazley JA for the court cited
with approval the statement of Bridge LJ in Union Transport Finance v British
Car Auctions39 that, whereas terms ousting the normal common law principle
are in theory capable of existing (the question being ultimately one of
construction)40 such ouster will not operate without the clearest language to
that effect, and the necessary language will not be perceived in a clause that
merely gives the bailor a right to terminate by notice for breach of the contract
of bailment.41 In Beazley JA’s words ‘any act which is repugnant to the
bailment or inconsistent with the terms of the bailment terminates the
bailment, causing the right of possession to revert to the bailor’42 and ‘ . . . a
bailment may be terminated by a repugnant act notwithstanding that the
contract underlying the bailment may not be terminated, unless some
requirement of the underlying contract, such as the giving of notice, has been
complied with’.43 Here ACS’s handing over44 of the Reglon scaffolding to
Action ‘undermined, or at least had the potential to undermine, each and every
obligation that ACS Hire had under the hire agreement and had the potential
to render the representations made under the hire agreement worthless’.45

562, which had not been cited in Anderson, but he held that on his view of the lease it was
unnecessary to reconcile them. He accepted that identifying the circumstances in which the
terms of a contract of bailment reduced the common law rights of a bailor required resort to
a difficult area of law, but found it unnecessary to explore that area on this occasion. See
further as to Nominal Defendant v Andrews the appeal judgment of Beazley JA, below.
39 [1978] 2 All ER 385 at 381; above, p 137.
40 Citing on this point Anderson v Tynan, above.
41 At [2007] NSWCA para 46 Beazley JA cited Waterways Authority of New South Wales v
Coal & Allied (Operations) Pty Ltd [2007] NSWCA as authority for the general proposition
that ‘Common law rights are only excluded or overridden by the terms of the contract if the
clearest of terms to that effect are used’.
42 [2007] NSWCA at para 56. And see para 41, where Beazley JA records it as common ground
between the parties that ‘a reference to an act inconsistent with or repugnant to the bailment
was a reference to a repudiation of the bailment’. Cf below p 143, on the liability of the
deviant bailee as an insurer of the goods. And see further BIS Cleanaway (trading as CHEP)
v Tatale [2007] NSWSC 378 at para 38–44 per McDougall J (obiter).
43 [2007] NSWCA 295 at para 73.
44 Whether accompanied by a delivery of possession (as found) or not: see para 62.
45 [2007] NSWCA at para 70. At paras 50–6, Beazley JA distinguished Nominal Defendant v
Andrews (1969) 121 CLR 562 as dealing solely with the identity of the ‘owner’ of a vehicle
within the meaning of the Motor Vehicles (Third Party Insurance) Act 1942 (NSW) s 5, and
not concerned with the identification of the party having the immediate right of possession
of a chattel for the purposes of suing in conversion. Beazley JA (at paras 55–6) relied in part
on the words of Barwick CJ (at 567) that the hirer’s breach of the relevant hire-purchase
agreement did not mean ‘that there was therefore an automatic change in the right to
possession of the car in a proprietary sense’. Beazley JA observed that in Reglon no question
arose of the existence of any right to possession in any proprietary sense because the sole
question was the existence of a sufficient right to qualify the holder to sue in conversion.
There appears to be implied in this distinction a recognition that a right of immediate
 Title to Sue in Bailment 141

A similar deference to the common law principle appears from the recent
decision of Henderson J in Calor Gas Ltd v Homebase Ltd.46 The claimant
Calor, who had bailed gas cylinders to the defendant Homebase, brought
claims in conversion and trespass in respect of the defendant’s allegedly
unauthorised practice of allowing customers of the defendant to return
cylinders to the defendant for onward transmission to the claimant.
Condition 5 of the relevant agreement empowered the claimant to repossess
the cylinders immediately ‘in any case of breach of the agreement’ and
Henderson J characterised the disputed practice as a breach. Having remarked
that, in the event of such breach, the claimant acquired an ‘immediate and
unqualified right to possession of the cylinder’ sufficient to ground a claim in
conversion, Henderson J added:47
I would add that, even if condition 5 did not make express provision in these terms,
the same result would follow from application of the well-established principle that
a breach of the contract of bailment by the bailee terminates the bailment and leads
to the revival of the bailor’s right to immediate possession, thereby entitling him to
maintain an action for conversion: see Halsbury’s Laws of England, vol 3(1), fourth
edition, 2005 Re-issue, para 88 and Transcontainer Express Ltd v Custodian
Security Ltd [1988] 1 Lloyd’s Rep 128 at 137 per Slade LJ (where he said that the
essential feature of this line of cases is that there has been conduct on the part of the
bailee repudiating the contract).

Unauthorised Possession: Running On Empty?

The construction adopted in Anderson v Tynan rendered unnecessary any
discussion of the logically prior question as to whether the lessee could have
recovered from the defendant where his right of possession under the
hire-purchase contract had ceased to exist. The Court of Appeal nevertheless
delivered opinions on this point.
The approach of Basten JA was straightforward. The lessee made the
defendant his bailee, and the defendant was thereafter estopped from pleading

possession need not derive from any proprietary interest in the goods in order to found a
claim in conversion. Such a proposition appears supported by Government of the Islamic
Republic of Iran v The Barakat Galleries Ltd [2008] 1 All ER 1177; [2007] EWCA Civ 1374
(reversing Islamic Republic of Iraq v Barakat Gallery Ltd [2007] EWHC 705 (QB) per
Gray J) where Lord Phillips of Worth Matravers CJ, for the court, appears to accept that an
owner having the immediate right to possession of goods currently possessed by another
can, by making a contract with a third party for the transfer of his immediate right of
possession to the third party, enable the third party to sue the possessor in conversion in the
event that possessor refuses to surrender the goods: see at para 30. ‘Where the owner of
goods who has an immediate right to possession of them, albeit that they are in the
possession of a third party, by agreement transfers his title to a new owner, the new owner
can bring a claim in conversion against the person in whose possession they are. Where the
owner of goods with an immediate right to possession of them by contract transfers the latter
right to another, so that he no longer has an immediate right to possession, but retains
ownership, it would seem right in principle that the transferee should be entitled to sue in
conversion. A fortiori if the contract provides that when the transferee enters into possession,
ownership will be transferred to him.’
46 [2007] EWHC 1173 (Ch); and see Calor Gas Ltd v Manchester Bottled Gas (unreported, 24
July 1984, CA); Calor Gas Ltd v DIY Motor Caravan Centre Ltd (unreported, 25 January
1985).
47 [2007] EWHC 1173 (Ch) at para 38.
142 (2008) 24 Journal of Contract Law

that the lessee’s title had been extinguished through repudiation of the
principal bailment. Moreover, that inability to deny the lessee’s title:48
holds good for each of the causes of action relied on by the [lessee], namely breach
of duty as bailee, breach of contract and negligence: see N E Palmer, Bailment (2nd
ed (1991) Sydney, Law Book Co Ltd, at 267.
Basten JA regarded himself as following the judgment of Young CJ in Eq
on this point. That judgment does indeed refer to certain decisions that
recognise the bailee’s estoppel,49 and concludes with the remark that
‘whichever way one looks at it, the learned judge fell into error on this point
and the appellant did have title to sue’. This might be construed as meaning
that, whether or not the lessee lost his right of possession by virtue of his
breach of the hire-purchase agreement, the defendant was precluded from
defending on that ground, having promised not to deny his bailor’s title.50
It seems that the instincts of the Court of Appeal were sound on this point.
On Basten JA’s analysis, the terms of the hire-purchase contract were in fact
immaterial to the lessee–defendant relations: the lessee–possessor, by granting
the defendant possession on limited terms, made the defendant his bailee, and
the defendant by accepting possession on those terms was estopped from
denying the lessee’s title, regardless of any superior right of possession
residing in the lessor. It might be objected that, if the lessee had no enduring
right of possession as against the lessor when he delivered the car to the
defendant, no bailment could arise between them because the lessee had no
sufficient interest to enable him to stand as bailor.51 On such reasoning, the
defendant might take free of the normal bailee’s estoppel, which is a constraint
peculiar to the relationship of bailor and bailee. But arguably that is the very
question that the bailee’s estoppel is designed to prevent a bailee from
ventilating. If such reasoning were sound, no originally illegal possessor (such
as a thief) could create an enforceable bailment, and even a finder’s standing
to sue as bailor would require recourse to the myth that the owner consented
to the finder’s taking possession and thus had a continuing right of possession
from him. On balance, there seems to be a serious prospect that the point of
construction examined at length in Anderson v Tynan was ultimately
immaterial.

48 (2006) 65 NSWLR 400 at 403.

49 In one such case, Esanda Finance Corp v Gibbons [1999] NSWSC 1094, Austin J suggested
that the prohibition on pleading jus tertii was a form of equitable estoppel. Young CJ in Eq
(at para 93 of the judgment) preferred to regard it as a manifestation of common law
estoppel by representation, but he declined to pursue the point as ‘this judgment is already
over-burdened by exploring by-ways . . . ’.
50 The trial judge, who had regarded the continuance of the lessee’s right of possession under
the hire-purchase agreement as critical to his standing in the action, received a caustic
rebuke from Young CJ in Eq at para 35 of the judgment: ‘It is, with great respect to the
learned judge, difficult to see how he was able to dismiss hundreds of years of learning on
the law of bailment quite so easily’. Later (at para 50) Young CJ in Eq observes: ‘It is bizarre
and extraordinary that it seems that none of this basic learning was put before the learned
judge’ with the exception of a passage in Pollock and Wright, Possession in the Common
Law, Clarendon Press, Oxford, 1888, sent to the trial judge after he had reserved his
judgment. For another bizarre and extraordinary aspect of this case see the section on
deviation, below.
51 In other words, no reversion.
 Title to Sue in Bailment 143

Deviation
While agreeing with Basten JA on the construction of the agreement,
Young CJ in Eq (with whom Santow JA agreed) went further and considered
the law of deviation in bailment. Having examined numerous authorities on
the legal incidents of possession and rights of possession, and on the
circumstances in which rights of possession are extinguished, he cited52 the
following passage from Palmer on Bailment:53
Deviation is a legal metaphor used to denote any radical departure from the method
of performance agreed upon in the contract . . . In fact, three principal consequences
appear to follow at common law from an act of deviation by a bailee. First, his
responsibility for the goods accelerates from one based upon reasonable care to a
strict liability as an insurer. Secondly, any deferred right of possession on the part of
the bailor becomes converted into an immediate right of possession, while the
bailee’s own possessory entitlement (but not, semble, his possession itself)
correspondingly expires.

That passage speaks only of deviation, which by definition embraces only

the more serious breaches of bailment. Elsewhere in Anderson v Tynan,
Young CJ in Eq accepts that in principle a ‘very serious act . . . which is
virtually a disclaimer of the contract of bailment’ can without more re-vest the
right of possession in the bailor.54
Few would contest the proposition that a bailee’s repudiatory breach revives
the bailor’s right of possession. Thus far the Chief Judge’s remarks are
unexceptional. But in a later passage55 he concludes that Australian law
supports only the first and not the second proposition in the quoted text, and
he denies that ‘a deviation short of a repugnancy or disclaimer of the bailment
amounts to the bailee losing all title or right to possession’.56
This remark is not, with respect, wholly enlightening. The essence of
deviation is an act repugnant to the bailment.57 There can be no deviation
falling short of such an act. The sole relevant exception arises where the

52 At para 78.
53 Palmer, Bailment, 2nd ed, LBC, Sydney, 1991, p 989.
54 That is supported by citation of Fenn v Bittleston (1851) 7 Ex 152 at 159–160 in para 72 of
the judgment and Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All ER
385 at 390 per Roskill LJ in para 74.
55 Paragraph 80.
56 In so doing, Young CJ in Eq implies that the treatment in the second edition of Bailment is
at odds with that principle.
57 See, for example, the common ground settled by counsel in the Reglon decision (above,
n 35) and the citation by Henderson J in the Calor Gas decision at para 38 (above, p 141)
of Slade LJ’s judgment in Transcontainer Express Ltd v Custodian Security Ltd [1988] 1
Lloyd’s Rep 128 at 137: ‘I would add that, even if condition 5 did not make express
provision in these terms, the same result would follow from application of the
well-established principle that a breach of the contract of bailment by the bailee terminates
the bailment and leads to the revival of the bailor’s right to immediate possession, thereby
entitling him to maintain an action for conversion: see . . . Transcontainer Express Ltd v
Custodian Security Ltd [1988] 1 Lloyd’s Rep 128 at 137 per Slade LJ (where he said that the
essential feature of this line of cases is that there has been conduct on the part of the bailee
repudiating the contract)’. To say that a deviation causes the bailor’s right of possession to
revive only when the deviation is repudiatory is rather like saying that the breach of a
144 (2008) 24 Journal of Contract Law

contract justifies the act, and in that event there may well be no deviation.58
Other passages in the same book59 recognise that the revival of the bailor’s
right of possession is subject to the terms of the bailment, and ask whether the
concept of an authorised deviation is logically coherent.60
At no point, therefore, is there any material difference between the
judgment and the text. And yet Young CJ in Eq appears to believe that his
acknowledgement of the subordination of the effect of deviation to the terms
of the contract controverts or discredits the text. That impression is the more
regrettable because the quotation is followed by this remark:
With respect to Professor Palmer, whose work in this area of the law is, generally
speaking, regarded as authoritative, it is an error to rely too much on material from
North America: see eg Paton on Bailment . . . p 303.
One wonders how this observation can have come about. The quoted
passage from Bailment does not cite a single North American authority in
support of the propositions in the text, and betrays no reliance on such
authority.61 Young CJ in Eq’s reference to the error of relying ‘too much’ on
such material appears quaint, if not bewildering.62
The simple explanation seems to be that Young CJ in Eq misunderstood the
essence of deviation. The root of his misunderstanding appears to be a belief
that any departure from the terms of a bailment is a potential deviation,
regardless of whether that departure is repudiatory or goes to the root of the
bailment or ‘destroys its basis’. The misconception appears to have been
accompanied by a misreading of the textbook, both on this and in its imagined
reference to ‘material from North America’. The result is to muddy the waters
in a manner that diminishes the judgment.

condition as to time is repudiatory only where the condition is of the essence of the contract;
in fact, the concepts are the same: Lombard North Central plc v Butterworth [1987] 1 All ER
267 at 271–2 per Mustill LJ.
58 See, for example, Treitel and Reynolds (eds), Carver on Bills of Lading, 2nd ed, Sweet &
Maxwell, London, 2005, p 516, para 9-043: ‘Sometimes contract clauses are relied on to
permit deviation for special reasons, for example to unload elsewhere if the designated port
of discharge is inaccessible by reason of strikes . . . Strictly speaking these do not permit
deviation so much as allow a different performance’.
59 2nd ed, Sweet & Maxwell, London, 1991, p 60 n 23.
60 Above, n 58, pp 990–1.
61 A footnote in another chapter (Ch 3, p 216, n 25) refers to US authority on the question
whether every deviation by a bailee is conversion, concluding that no such equation is
justified. This can hardly be the passage to which Young CJ in Eq refers.
62 Nor does the text of Bailment, as Young CJ in Eq further implies, state in terms that
‘deviation has little to do with deviation of a journey’: para 81 of the judgment.