A bailment is the delivery of goods by one person (the bailor) into the possession (as opposed to the transfer of ownership) of another (the bailee) for a specific purpose, on the understanding that they will eventually be redelivered in accordance with the bailor’s wishes.
The seminal English case of Coggs v Bernard (1703) 2 Ld Raym909 is a landmark case relating to bailment and the judgment of Lord Holt CJ who outlined the 6 types of bailment. These included:
- The gratuitous delivery to a bailee for safekeeping (depositum);
- The gratuitous delivery to a bailee for their use (commodatum);
- The delivery of goods for use by the bailee (hire agreement) for reward (locatio et conductio);
- The delivery of goods or chattels to a bailee as security for a loan (vadium or pledge);
- The delivery of goods for reward, on the basis that something will be done to them (to improve them);
- The gratuitous delivery of goods or chattels, on the basis that something will be done to them (to improve them).
In English law there are now two primary categories of recognised bailment:
- Bailment for reward (or contractual bailment); and
- Gratuitous bailment.
Bailment for reward is the type of bailment that is contractual in nature and payment is made to the bailee for the possession of the property. The delivery of property is for a specific purpose and some examples include: dry cleaning, hire contracts (e.g. cars) and the use of commercial car parks (see Council of the City of Sydney v West (1966) 114 CLR 481 Barwick CJ and Taylor J). The causes of action available to parties in these type of situations, whereby loss or damage occur as a result of the bailment, are breach of contract and negligence.
Gratuitous bailment is a type of bailment whereby the bailor transfers possession of property to the bailee on the basis that no compensation is to be paid. This type of bailment will arise in situations where a bailor will lend something to a friend and normally will be for the exclusive benefit of the bailee. This type of arrangement is non-contractual (no consideration) and therefore the recourse available to a bailor in the event of a cause of action arising is in negligence. In Houghland v R.R Low (Luxury Coaches) Ltd (1962) 1 QB 694 Ormerod LJ held that “gross negligence” is required in order for negligence to be proved in a case involving gratuitous bailment, that the standard would be vary on a case by case basis and the onus is on the person in possession of the goods to prove that the loss or damage was not caused by their actions or fault.
Another cause of action that is available to both the bailor and the bailee is a ‘breach of bailment’. Both parties are under specific duties and the failure to fulfil those duties may give rise to a remedy for the other party. Some of the duties that a bailor is required to fulfil include the duty to deliver goods, to ensure that the goods are of merchantable quality and to inform that bailee if any of the goods may be dangerous. Conversely, a bailee is under a duty to take care of goods, to retain the goods for the specific purpose of the bailment and to ultimately return the bailed goods upon the request of the bailor or terms of the bailment.
Recently in Australia, there has been reform in the area of securities law and the bailment of goods. Prior to the introduction of the Personal Property and Securities Act 2009 (Cth) (PPSA) the law did not recognise a bailment as a security interest (i.e. an interest in personal property that in substance secures payment or performance of an obligation; see section 12 of the PPSA). The introduction of the PPSA and the subsequent further amendments in 2017 (see section 13 of the PPSA), a bailment of goods will be deemed a “PPS Lease” (and therefore capable of being a security interest) if:
- The term of the bailment is for more than two years; or
- The bailment is for a term for up to 2 years that is automatically renewable; or
- The bailment is for an indefinite term and the bailee has retained uninterrupted possession of the goods for a period of two years.
However, a bailee will not be able to rely upon section 13 of the PPSA if they are not regularly engaged in the business of bailing goods and excludes gratuitous bailments (i.e. the section only applies to bailments for value or “reward”).