Applications of CHEP Australia Ltd

These reasons are concerned with equivalent applications by the plaintiff, CHEP Australia Ltd (CHEP), in nine separate proceedings. Each of the proceedings was commenced by a summons filed by CHEP on 7 July 2022. The nine proceedings are, by their File Numbers and Case Titles:

In each of the matters, CHEP commenced an application before Slattery J, sitting as Duty Judge, on 15 July 2022, for interlocutory relief against each of the defendants. Slattery J commenced to hear the application, but because of pressure of business in the Duty List and the circumstances of his Honour's diary, he was not able to determine the application. I have nonetheless had the benefit of some of the consideration that his Honour was able to give to the application. CHEP renewed its application before me in the Duty List on 24 August 2022.

The essence of CHEP's claim against each of the defendants is that it has come to the attention of CHEP that each defendant is in possession of a number of CHEP pallets or related products. None of the defendants is a CHEP account holder, which means that no defendant has a contract of hire with CHEP under which it is entitled to possession of the CHEP pallets, and which would oblige the defendant to pay to CHEP the hiring fee to which CHEP would be entitled if there were in existence a contract between it and the defendant.

In each case, CHEP has made one or more informal demands to the defendant that the defendant return to CHEP the CHEP pallets that are in the defendant's possession. Each defendant has been served with a formal letter of demand by CHEP's solicitors for the return of the CHEP pallets. None of the defendants has returned the CHEP pallets to CHEP. Some of the defendants have claimed that they are not obliged to return the CHEP pallets to CHEP because those pallets have been received by the defendant from some third-party who is said to have some right to retain the CHEP pallets. Most of the defendants have, however, simply refused to return the CHEP pallets or they have not responded to CHEP's demands.

As I will explain below, it is now a matter of considerable public importance that all the CHEP pallets that are available be returned to circulation on CHEP's standard arrangements for providing pallets for general use in the Australian market for the transport and storage of products. As I will also explain, CHEP's experience gives it reason to fear that if interlocutory ex parte orders are not made that authorise it to search the defendants' premises at which CHEP pallets have been seen to be in use and to remove those pallets, those pallets will become irretrievable by CHEP after it has served the defendants with its initiating process.

In essence, CHEP has applied for search orders against each of the defendants in exercise of the Court's power in Uniform Civil Procedure Rules (2005), rr 25.19 and 25.20, which respectively provide:

The procedure for obtaining search orders is the subject of this Court’s Practice Note SC Gen 13, which contains an example form of search order that commonly forms the basis of search orders sought by plaintiffs. Many aspects of the example form of search order are appropriate to circumstances where the plaintiff can justify orders that will involve searching for and removing computer systems and electronic data storage devices. The subject of CHEP's application is much more mundane, being CHEP pallets. As will be seen, that does not mean that the present application is not of considerable public commercial significance.

Following exchanges between Slattery J and counsel for CHEP, CHEP propounded a form of orders that greatly simplified the orders sought when compared with the example form of search order. On the basis of the evidence before the Court, I have determined that it will be appropriate to comply with par 5 of the Practice Note, which permits the adaptation of the example form of search order to meet the circumstances of the particular case, but nonetheless provides a sound starting point for the adaption process, as the example directs the mind of the draughtsperson to all of the matters that require attention to ensure fairness to the defendant who is required to comply with the order.

It may be thought that the wording of the example form of search order pays more service to legal precision and comprehensive treatment of the subject than to simplicity. However, one of the reasons for the requirement that an independent solicitor be appointed to supervise the search process is that the independent solicitor will be available to explain the effect of the orders to the defendant or the other persons who are required to cooperate in the search.

Accordingly, I have prepared a form of wording of the search orders that I will make on CHEP's application that substantially conforms with the example form of search order, though much simplified because of the nature of the subject matter of the search. I will set out the terms of the pro forma order that I will make in each of the proceedings below and provide a brief explanation of the more significant departures from the example in the Practice Note.

CHEP seeks not only the making of search orders in order to preserve evidence that the defendants have CHEP pallets in their possession to which CHEP has an immediate right to possession, but also orders that it be permitted to remove the CHEP pallets from the premises of the defendants in order to preserve the pallets so that they may be restored to CHEP. This claim is based upon CHEP’s ownership of the pallets and its right to immediate possession of the pallets. To this extent, the orders sought go further than strict search orders. This aspect of the interlocutory orders sought by CHEP involves in substance injunctive relief to preserve an asset which is the subject of the proceedings, in the sense explained by Parker J in Ip v Chiang [2019] NSWSC 1549 at [126]-[129], where his Honour distinguished such relief from an asset preservation (or freezing) order.

Authority for the power of equity to make an order requiring the defendant in appropriate circumstances to return specific chattels to their rightful owner is found in Aristoc Industries Pty Ltd v R A Wenham (Builders) Pty Ltd [1965] NSWR 581 at 588 (Jacobs J, as his Honour then was); Doulton Potteries Ltd v Bronotte [1971] 1 NSWLR 591 at 597 (Hope J, as his Honour then was); McKeown v Cavalier Yachts Pty Ltd (1988) 13 NSWLR 303 at 307-8 (Young J, as his Honour then was) and BIS Cleanaway (trading as CHEP) v Tatale [2007] NSWSC 378 at [126] (McDougall J). It is not now necessary that it be shown that the chattels have a peculiar or sentimental value to the owner, and the primary question is whether or not an award of damages will be an adequate remedy.

Before I set out my reasons for making orders as sought by CHEP, I will briefly note the following matters.

In each of its summonses, CHEP sought interlocutory orders for the appointment of a receiver to take control of the CHEP pallets in the possession of the defendants. That approach did not commend itself to Slattery J because of the practical consequences of a receiver attempting to take control of CHEP pallets in the possession of each of the defendants. I agree with his Honour. It was apparently his Honour's suggestion that a more appropriate course was for CHEP to seek orders that would permit it to search the defendants' premises and remove any CHEP pallets found to be on the defendants' premises.

CHEP initially sought to be included in the orders some authorisation that would permit CHEP to place or affix cameras within the premises and upon the gates of the premises to permit the premises to be surveilled between the two stages of the search that I will explain below. I was not prepared to make ex parte orders that would permit CHEP to install cameras that would intrude upon the privacy of the defendants, their staff and customers. CHEP was content to rely upon the search process and the interlocutory order that would prohibit the defendants from interfering with the results of the search in the time before the CHEP pallets identified by the search were removed from the defendants' premises.

I note that of the defendants, A.Elmir Group Pty Ltd, Fig Hug Pty Ltd, Paul Muscat, and Menai Variety Discounts Pty Ltd are situated in New South Wales; SAS Towing Pty Ltd is situated in Victoria; Logan Cold Storage Pty Ltd and Jacob Ryan are situated in Queensland; and Grasscourt Investments Pty Ltd and Sea World Import & Export Pty Ltd are situated in Western Australia. I have decided that it will be appropriate for this Court to make interlocutory orders against all defendants, on the basis that it will be a matter for CHEP to serve, and if necessary, enforce, the orders by means of the Service and Execution of Process Act 1992 (Cth). It will be a matter for later consideration whether, as the result of the response to the proceedings of any defendants who are situated outside this State, the proceedings against those defendants should be transferred to another court.

The principal structural difference between the orders that I will make in these proceedings and the example form of search order in the Practice Note is that the orders that I will make provide for the search to be conducted in two stages. The first stage will involve the search party identifying and tagging any CHEP pallets on the defendants' premises. The second stage will take place at least two days later when the identified CHEP pallets will be removed by the search party. In the intervening period, the defendants will have an opportunity, if they should so desire, to notify any third party who has supplied the CHEP pallets to the defendants of the fact of the search. As computer systems and electronic databases are not involved, the search process will be considerably simpler than the search contemplated by the example form of search order, and it will not be necessary for any items removed as a result of the search to be retained in independent hands. It will not be necessary for the usual orders to be made protecting the contents of confidential information, and in particular, it will not be necessary to secure that information from CHEP itself.

Although there are some differences between the factual circumstances of each of the defendants, those differences are not material, and it will be appropriate simply to explain CHEP's case against the defendants generally. Most of the defendants apparently use the CHEP pallets in their possession for their own businesses, sometimes storing products on CHEP pallets apparently delivered by the defendants' customers. Mostly, when CHEP's employees visited the defendants' premises to look for CHEP pallets, the pallets that were identified numbered in the tens and usually less than 100. In at least one case, it appeared that the defendant was in possession of hundreds of CHEP pallets that it made available for sale. Most of the defendants did not engage with CHEP in response to its communications by which it tried to recover its pallets, but a number of defendants did provide explanations as to why they understood that their duty to return the CHEP pallets was to third parties rather than to CHEP.

In each case, the evidence tendered in support of CHEP's application was an affidavit dated 8 June 2022 of Ms Chantelle Dixon, who is employed by CHEP as its APAC National Security Manager.

I am relieved of the need to explain in detail the business model and the standard terms of the contract between CHEP and its account holders by noting that the evidence before me establishes that CHEP currently conducts its business in the same manner as was considered by the Court of Appeal in Bunnings Group Ltd v CHEP Australia Ltd (2011) 82 NSWLR 420 at 424-9; [2011] NSWCA 342 at [4]-[17]. I note that in that case, as I am satisfied the interlocutory evidence establishes in the present case, the Court of Appeal found that at all times CHEP retained a right, even against account holders, to an immediate right of possession in respect of all CHEP pallets and other CHEP products that are in circulation under CHEP's standard terms of hire agreement. It will follow that CHEP has an immediate right to possession of all CHEP pallets and other products that might be in the hands of the defendants who do not have a contract of hire with CHEP.

As was explained in the judgment of Allsop P, the humble CHEP pallet plays a significant role in the efficiency of Australian supply chains. CHEP permits its pallets to be exchanged between businesses that have account arrangements with CHEP. That permits products to be moved along supply chains without requiring pallets to be unloaded and reloaded at each link. Scarcity of available CHEP pallets will substantially interfere with the efficiency of supply chains.

I will now summarise the evidence in Ms Dixon's affidavit as follows.

CHEP is an Australian company that provides pallet and container hire services to customers in a variety of industries and supply chains Australia wide. CHEP leases wooden and plastic pallets, small display pallets, crates and intermediate bulk containers to active account holding customers in consideration of payment of daily hiring fees by the customer.

The relationship between CHEP and its customers is governed by a standard terms of hire agreement. Pursuant to clause 11(b) of the agreement, CHEP retains legal ownership of its property at all times. Clause 11(c) of the agreement entitles CHEP to maintain an immediate right of possession in respect of all of its products the subject of an agreement.

Clause 4(a) of the agreement provides that CHEP products may only be transferred between active CHEP account holders, and only if that transfer is specifically approved by CHEP.

Under clause 10(c) of the agreement, in the event that the CHEP property on hire or loan is lost, the account holder must pay to CHEP compensation for the lost equipment and must continue to pay all charges until payment of the compensation is made.

CHEP equipment can be recognised by its distinctive blue colour, the CHEP logo (which is a trademark), and the words "PROPERTY OF CHEP" stencilled on the property.

CHEP products are not available for purchase. When CHEP products are no longer merchantable, they are decommissioned and destroyed. CHEP products are never sold.

Ms Dixon's evidence was that, in her experience, there is an active black-market trading in and selling CHEP products, including pallets, across Australia. The impact of the black-market upon CHEP includes a significant reduction in the number of CHEP pallets available to CHEP's account holders.

Ms Dixon said that supply chains around Australia have slowed and, in some instances, stalled due to the shortage of pallets. This has resulted in the Australian media coining the phrase "Pallet-gate" and writing and broadcasting multiple negative stories about CHEP.

None of the defendants is a CHEP account holder. In each case, an officer of CHEP has on one or more occasions visited the defendant's premises and observed CHEP pallets to be in the possession of the relevant defendant. Requests were made from time to time by CHEP's officers for the return of CHEP pallets, but those requests were rebuffed.

CHEP's solicitors have in each case made one or more formal demands of the defendants for the return to CHEP of its pallets. In the case of each of the present defendants those demands have not been successful.

Ms Dixon gave evidence that, generally, CHEP constructs a certain number of new pallets each year at a certain cost per pallet. As a result of material shortages, the number of new pallets constructed each year has been insufficient to meet demand. CHEP increased the rate of production to alleviate the nation-wide supply chain issue, but this increase has been insufficient to meet demand due to material supply shortages such as hardwood and softwood timber, major delays in global shipping networks as a result of the COVID-19 pandemic, constraints with milling capacities, and long lead times to procure timber through agreed contracts, especially to harvest timber from certified sources.

Ms Dixon exhibited to her affidavit evidence that has come to her attention that various government committees, on both the Federal and State level, the Australian Chamber of Commerce and various industry associations have noted the shortage of pallets that has caused, and is continuing to cause, nationwide supply chain issues. Among other such evidence, Ms Dixon exhibited an extract of the Hansard of the Commonwealth of Australia Senate for the Rural and Regional Affairs and Transport Legislation Committee, which showed that there was a supply chain issue that was in part caused by suppliers keeping pallets for use in their own vehicles, resulting in disruptions elsewhere. Further, the Committee was informed that there is a scarcity of hardwood going into the construction of new pallets.

Ms Dixon explained that in her years of experience, she has supervised dozens of asset recovery proceedings which have resulted in an order for delivery up of CHEP assets. In the majority of those matters, the CHEP assets were no longer available at the defendant's premises following judgment and CHEP did not recover the assets. The defendants in those proceedings were often found to be reoffending within months of the judgment being entered.

Ms Dixon observed that damages against the defendants would not be a sufficient remedy in this case, because CHEP has an immediate need to supply pallets to its existing customers.

In these circumstances, I am comfortably satisfied that it will be appropriate to make interlocutory orders in favour of CHEP against each defendant in the terms of the following pro forma orders. As noted, the orders represent a variation and simplification of the search and removal process contemplated by the example search order in the Practice Note. The orders will be as follows:

The exercise of adapting the example freezing order in the Practice Note to create the orders set out above has been informed principally by the fact that the process of searching for CHEP pallets and removing them from commercial premises is inherently simpler and less contentious than the process to which the example is directed which involves computer systems and electronic data storage devices that are likely to contain personal information of the defendant to which the plaintiff has no right of access. It has also been informed by the relatively low value of individual CHEP pallets and the desirability of making orders that can be executed in a cost-efficient way, whilst also preserving the defendant’s entitlement to be treated justly and with the least disruption that can be achieved.

The orders provide for the search to take place in two stages so that the defendant will have an opportunity to notify any third party who is understood to have a possible interest in the CHEP pallets so that both the third party and the defendant may approach the Court for an order to set aside or vary the orders before the CHEP pallets are removed in the second stage of the search. The defendant should also have time to comply with the order that the defendant must remove any products or other items that have been placed on any of the CHEP pallets before the commencement of the second stage of the search. That should obviate the possibility of aggravation that may have occurred if the orders permitted CHEP to remove CHEP pallets upon which products had been stored in one exercise.

As it may be unnecessarily onerous for CHEP to be required to pay the fees of the type of solicitor referred to in par 11 of the Practice Note because of the location of the defendants’ premises and the need to carry out the search in two stages, the orders permit CHEP’s solicitor to retain as the independent solicitor a solicitor of at least 7 years’ admission who has experience practising in commercial law.

I consider that the evidence establishes that CHEP has a strong case that it has a right to immediate possession of all the CHEP pallets that may be found on the defendants’ premises. CHEP pallets are fungible and there is no reason why the defendants should prefer to have the use of the pallets that are at present in their possession rather than equivalent CHEP pallets that the Court might order be given to them by CHEP if the proceedings lead to a determination by the Court that the defendants were entitled to retain possession of the pallets. It may be assumed that CHEP will have control of a sufficient number of pallets to enable it to honour the undertaking that it has submitted to that it will abide by any order by the Court to replace CHEP pallets removed from the defendants’ premises with equivalent pallets. Consequently, the orders will authorise CHEP to use the pallets removed from the defendants’ premises in its business pending the determination of the proceedings. Given the reason that has been explained above why damages for the detention of the CHEP pallets would not be an adequate remedy for CHEP, it would be irrational for the Court to require that CHEP store the removed pallets and keep them unused pending the determination of the proceedings.

Initially, I proposed to include the following paragraph in the definition of the search party in the search orders, as the example form of search order in the Practice Note assumes that a solicitor for the applicant will participate in the search:

However, I have accepted a submission by CHEP that, given the nature of the search that is contemplated and that the searches will take place in a number of locations throughout Australia, it will not be warranted to impose upon CHEP the cost of retaining in addition to the independent solicitor a representative of its own solicitor to participate in the searches.

CHEP volunteered the requirement that its solicitor give notice to the Police prior to the execution of these orders as found in undertaking (7) to be made by CHEP’s solicitor.

The balance of the differences between the terms of the orders and the example in the Practice Note are self-explanatory.