Bunnings' $11m pallet cleanser

"I don't think we have lost the pallets," the then chairman, Don Argus, told shareholders. "They are just missing from the pool."

As it happened, CHEP's worldwide hunt for missing pallets extended to its business in Australia, where its operatives found quite a few of the distinctive blue-and-white painted pallets in the back aisles of the hardware retailer Bunnings.

Now Bunnings has been ordered to pay CHEP millions of dollars for more than five years of pallet hire after its stores amassed tens of thousands of pallets and failed to return them to the logistics group.

The NSW Supreme Court last week ordered that Bunnings must pay CHEP$10.98 million plus interest for the daily hire of almost 65,000 pallets between January 2002 and mid-2007.

Bunnings has never been a CHEP customer. It uses pallets supplied by CHEPs rival, Loscam, or its own pallets.

But byOctober 2007, CHEPs informal audits showed the hardware retailer had accumulated 82,216 of its pallets.Of these, 64,690 were not subject to a hire agreement.

Justice RobertMcDougall found thatCHEPhad the right to immediate possession of its pallets and that byNovember 2005Bunnings knew that the number of pallets it retained was more than the number thatwere subject to hire agreements between its suppliers andCHEP.

The court heardBunnings used CHEPpallets to display its goods in its stores, to rack goods for longertermstorage and to shift goods from one Bunnings store to another.

Bunnings chose, for some years, to deal with CHEPs pallets in circumstances where it knew that CHEPmaintained that not all those dealingswere authorised by CHEPs contracts with its suppliers, Justice McDougall said.

Bunnings chose not to investigate the right of its customers to deal as they did, and chose not to keep . . .

adequate records of those dealings. The judge said that over 18 months  when Bunnings used CHEP pallets while knowing that CHEPs customers (its suppliers) could give up its hire agreements and leave the hire burden on Bunnings  the hardware retailer dealt with the CHEP-branded pallets at its peril.

In 2006, CHEPs lawyers demandedBunnings negotiate a hire agreement over what amounted to the retailers private floating pool of CHEPpallets.

The court heard this was followed by high-level correspondence between senior executives of the respective parent companies, Brambles andWesfarmers.

WhenBunnings in mid-2007 refused to letCHEPdo an audit, CHEPobtained orders fromthe NSWSupremeCourt directing Bunnings to return all the pallets promptly.

JusticeMcDougall said Bunnings took an expansive view of what was meant by promptly as the process of returning pallets toCHEPbegan only onOctober 1, 2007.

The court will hear argument about the formof final orders on May 18.