## Facts

- Clayton gave a gold watch to Le Roy for repair.
- Upon completion of the repairs, Clayton demanded the return of the watch.
- Le Roy refused to return the watch, asserting a lien for unpaid repair costs.
- Clayton disputed the existence of any agreed lien or obligation to pay the additional costs and contended the refusal was wrongful.

## Issues

1. Whether Le Roy’s refusal to return the watch constituted the tort of conversion or was merely a breach of the bailment agreement.
2. Whether Le Roy’s claim of a lien over the watch for unpaid repair costs was valid under the principles of bailment.
3. Whether a bailee’s refusal to return goods, based on a genuine belief in a right to retain them, amounts to conversion.

## Decision

- The Court of Appeal held that Le Roy’s refusal to return the watch did not constitute conversion.
- The court found that a bailee who retains goods based on a genuine claim of right, such as a lien, does not commit conversion unless the claim is wholly unfounded or asserted in bad faith.
- The court determined that Le Roy’s belief in his right to retain the watch was sincere even if ultimately incorrect.
- The standard for conversion was clarified: an intentional exercise of authority over goods, inconsistent with the owner’s rights, is required.

## Legal Principles

- Bailment involves the transfer of possession of goods to a bailee, who must take reasonable care and is obliged to return the goods on demand absent lawful justification.
- Conversion is an intentional act dealing with goods in a manner inconsistent with the owner’s rights and depriving the owner of their property.
- A refusal to return goods does not necessarily amount to conversion unless it is accompanied by an intentional exercise of authority that conflicts with the owner’s rights, particularly if any claim of right is unfounded or made in bad faith.
- Genuine claims of lien by a bailee, asserted in good faith, protect against automatic liability for conversion.

## Conclusion

Clayton v Le Roy [1911] 2 KB 1031 (CA) established that a bailee’s bona fide retention of goods under a genuine, albeit mistaken, claim of lien does not by itself amount to conversion. The case provided important clarification on the distinction between wrongful refusal to return goods and actionable conversion within bailment relationships.
