Court scopes diamond dealing deeds

A Melbourne diamond merchant – who earned a reputation as “diamond dealer to the stars” – was conspicuous by his absence in the recent court adjudication of who among those misled by his conduct, should bear the loss of a missing consignment of precious stones.

pawn dealer's receipt of spectacular stones was alleged to be a conversion

Ronnie Ben-Simon was a leading light in the luxury gemstone industry with outlets at Crown Casino and in the Melbourne CBD.

A feature of the diamond trade is that wholesalers often supply stones to merchants on consignment or “apro” without requiring security or payment in advance.

Ben-Simon was one such dealer to whom wholesalers were happy to entrust their gems “on a handshake”.

Australian Diamond Corp – an importer and wholesaler of quality diamonds – released 5 such stones to Ben-Simon in October 2015 on that arrangement.

For added security, it required him to sign an “Approval Note” consisting of just five paragraphs requiring him to keep the sparklers safe, be responsible for their loss & damage and to return them within seven days.

The wholesaler supplied the goods with a certificate of authenticity for each gem – issued by the Gemological Institute of America – to facilitate their on-sale.

Rather than sell the stones on to customers, Ben-Simon – whose website description is a “bespoke diamond atelier” – hocked them to pawnshop Sell Your Gold as security for a loan.

From January to March 2016, ADC queried the dealer about which stones had been sold and requested the return of those unsold.

Ben-Simon returned none, asking rather to be invoiced. His April 2016 cheque in payment for the consignment was dishonoured on presentation.

SYG returned the stones to Ben-Simon – who it understood to be their owner – in May when its loans to him had been repaid but they apparently did not make their way back to ADC.

After presumably deciding that any lawsuit against Ben-Simon carried recovery risks, ADC pursued the pawnshop for “conversion” of its goods.

It recovered a judgement against Sell Your Gold on those grounds for USD$146k – the value of the gems specified in the Approval Note – plus interest and costs.

SYG appealed.

Because the dispute was between ADC and SYG, Ben-Simon wasn’t a party and wasn’t required to attend court.

To arrive at their decision, the Victorian appeal judges picked apart the law of conversion back to the beginning of the 19th century and concluded “the time may now have come for a radical reappraisal of the tort of conversion”.

The problem they identified was the difficulty faced by courts in determining whether a particular dealing with goods constituted a sufficiently serious “interference with the rights of the owner” to give rise to a liability to their owner.

That said, they concluded in this instance the mere acceptance and possession of goods by Sell Your Gold did not of itself constitute wrongdoing.

Rather, to make out liability, ADC had to prove that SYG had done something more than mere possession, something inconsistent with its ownership rights, eg refusal to deliver up the gems; sale of the diamonds to third party; or registering itself as their owner.

As none of these things had occurred – and the return of the stones to Ben-Simon himself did not qualify – the wholesaler struck out in its claim.

ADC subsequently commenced bankruptcy action against Ben-Simon.

Sell Your Gold Pty Ltd v Australian Diamond Trading Corporation Pty Ltd [2018] VSCA 355, Maxwell P, Hargrave and Ashley JJA, 20 December 2018

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