Douglas Financial Consultants Pty Ltd v Price [1990] QSC 31

IN THE SUPREME COURT OF QUEENSLAND 6c 90\o No. 2938 of 1989 Before The Honourable Mr. Justice Williams BETWEEN: DOUGLAS FINANCIAL CONSULTANTS PTY. LTD. - and - DAVID RUSSELL PRICE JUDGMENT - G.N. WILLIAMS J. Delivered the 2nd day of March, 1990. CATCHWORDS: Plaintiff Defendant Motor vehicles - Motor Vehicles Securities Act 1986 {Qld.) s. 26 - instrument of lease in N.S.W. not registered under Qld. Act - security interest not extinguished by sale in Qld. - Woods v. Nissan Finance (1987) 5 M.V.R. 436 considered. Counsel: Solicitors: Hearing dates: M.D. Hinson for applicant K. T. Kilvington for respondent Hopgood and Ganim for applicant. Nicol Robinson & Kidd t/ a for Wilson & Copley for respondent. 14th December, 1989 and 21st February, 1990. -- 1 of 15 -- IN THE SUPREME COURT OF QUEENSLAND No. 2938 of 1989 Before The Honourable Mr. Justice Williams BETWEEN: DOUGLAS FINANCIAL CONSULTANTS PTY. LTD. - and - DAVID RUSSELL PRICE JUDGMENT ~ G.N. WILLIAMS J. Delivered the 2nd day of March, 1990. Plaintiff Defendant By specially endorsed writ issued 30th August, 1989 the applicant-plaintiff sought to recover $45,000.00 as moneys paid for a consideration which has wholly failed, together with interest. The claim arose out of a transaction whereby the defendant-respondent (who traded as Jasmine Motors) purported to sell a Mercedes Benz Coupe motor vehicle, registration number 958-POP, to the plaintiff on or about 26th June, 1987. After the respondent entered an appearance the applicant applied for summary judgment. It became clear during argument that the applicant was entitled to judgment unless the Motor Vehicles Securities Act 1986 (Qld.) operated in such a way that in law it acquired legal ownership of the vehicle in consequence of the transaction of June 1987. If the applicant did not get good legal title to the motor vehicle then it was conceded that it was entitled to summary judgment; if it did get such title then the respondent had an unanswerable defence and I was asked in those circumstances to enter judgment for the respondent-defendant. -- 2 of 15 -- 2 The relevant facts can be shortly stated. On 8th May, 1985 Beneficial Finance Corporation Limited ("Beneficial") leased the motor vehicle in question to a Paul Peter Schaffer of "Piccadilly Gardens", Woollahra in the state of New South Wales for a period of four years. The proper law of that leasing transaction was that of New South Wales. That lease has never been paid out. Early in February 1986 the respondent met Schaffer (who was then using the name Essefelt) on Russell Island in the state of Queensland. At that time Schaffer had the subject Mercedes in his possession and it bore the New South Wales registration number: NHV-348. Amongst other business activities the respondent then traded under the registered business name "Southport Car Sales". He became interested in the Mercedes and there was some discussion about it. Schaffer informed the respondent that he (Schaffer) was the owner and that he wanted to sell it. There was discussion about price and a figure of $22,000.00 was mentioned. After taking the vehicle for a test drive the respondent offered $15,500.00 in cash and a Nissan Patrol Four Wheel Drive motor vehicle. That offer was accepted. Again on that occasion Schaffer stated he was the owner of the car and apparently showed the respondent some paper work which suggested that such was the case. That paper work was not in evidence. The transaction between the respondent and Schaffer was finalised on 23rd March, 1986. Thereafter the respondent took possession of the vehicle. When registration fell due, it was renewed in Queensland and assigned the registration number 958-POP. Though the respondent personally provided the funds for -- 3 of 15 -- 3 purchase it was registered for a period in the name "Southport Car Sales", but on 24th April, 1987 the registration was changed to the respondent's name. From about February 1987 the respondent commenced running the business "Jasmine Motors" at Southport. In the following May he was approached by a Mr. Angus Douglas about some vehicles for sale at "Jasmine Motors". Eventually those negotiations centred upon the respondent's own motor vehicle, the subject Mercedes. On or about 26th June, 1987 the respondent agreed to sell that vehicle to the applicant for $45,000.00. On transfer the vehicle was registered in the name of the applicant. The motor vehicle was in Queensland at the material time and the proper law of the transfer agreement was Queensland. It is clear that at no time did the respondent have ·actual notice of the interest of Beneficial in the motor vehicle. Further, at all material times the applicant was unaware of the interest of Beneficial in the motor vehicle. On or about 26th June, 1989 the applicant was compelled to surrender possession of the Mercedes motor vehicle to an officer of the Queensland Police acting on a complaint of Beneficial. It is in those circumstances that the applicant contends that at all material times Beneficial was the legal owner of the motor vehicle and that at no time did it acquire good title to it. That is said to flow from the common law principle nemo dat quod non habet (and cf. s. 24 of the Sale of Goods Act 1896 ( Qld. ) ) . In accordance with the reasoning of the Court of Appeal in Rowland v. Divall (1923) 2 K.B. 500 the applicant, if it did not obtain legal title, would be entitled to recover the -- 4 of 15 -- 4 purchase price as moneys paid for a consideration which has wholly failed. Counsel for the respondent conceded that such an approach would be valid, and the applicant entitled to judgment, unless that result was altered by operation of the Motor Vehicles Securities Act 1986 (Qld.), or the Registration of Interest in Goods Act 1986 (N.S.W.). The first point to be noted is that the Queensland Act came into force on 1 st December, 1986 and the New South Wales legislation on 1st August, 1986. Thus neither Act was in force either when the leasing agreement was entered into between Beneficial and Schaffer or when Schaffer purported to sell to the respondent. Further, it was formally admitted by each party in the course of argument that the interest of Beneficial has not been registered at any time either pursuant to the Queensland or New South Wales legislation. It was further conceded that neither party conducted any search of the register maintained pursuant to either the Queensland or New South Wales legislation prior to the transaction of 26th June, 1987. When the matter was first argued on 14th December, 1989 Counsel for each party concentrated upon the applicability or otherwise of the Queensland Act to the relevant facts. Counsel for the applicant argued that "security interest" rights were not involved; s. 26 did not extinguish the right of Beneficial to legal ownership of the motor car. On the other hand Counsel for the respondent argued that s. 26 was called into play at the time of the transaction of 26th June, 1987 so that the rights of Beneficial were extinguished; his argument was primarily that the -- 5 of 15 -- 5 transaction of that date was governed by the. law of the lex si tus of the chattel in question. I caused the matter to be relisted for further argument on 21st February, 1990, and specifically invited each Counsel to address the question whether, on the basis that the proper law of the leasing agreement was New South Wales, the Queensland Act was of any relevance. Counsel directed oral and written submissions to that question. The New South Wales and Queensland Statutes referred to appear to have the same objective, but there are not insignificant differences when they are compared. Similar, but again not identical, legislation is to be found elsewhere in Australia; see, for example, the Consumer Transactions Act 1972 (S.A.). It is necessary to refer in some detail to each of the Queensland and New South Wales Statutes before the specific arguments of Counsel can be considered. The long title of the Queensland Statute says that it is an Act "to provide for the registration of instruments creating security interests in motor vehicles . II So far as is relevant, a "security interest" is defined ins. 5 to mean "an interest in a motor vehicle by way of security for or in respect of a liability . created or otherwise arising in or under ... a ... lease ... and includes the interest of. a lessor in respect of the liability of a lessee." Section 6 requires the Registrar of Commercial Acts, Brisbane, to "keep a register in the prescribed form", including certain specified details obtained from the instrument evidencing the security interest. Pursuant to s. 7 production of the "instrument" is -- 6 of 15 -- 6 required as a prerequisite to registration. Then by operation of s. 13(b) registration of the instrument evidencing the security interest constitutes notice to all persons of that security interest. Then comes s. 26 which is of critical importance for present purposes; it provides: " ( 1) Where a person is the holder of a security interest in a motor vehicle and a purchaser purchases or purports to purchase an interest in that motor vehicle for value and in good faith without notice of the security interest at the time he pays the purchase price. (a) the security interest in that motor vehicle is extinguished; and (b) the purchaser acquires the interest purchased or putatively purchased in that motor vehicle free from the security interest." Sections 29 and 30 provide for compensation for loss occasioned by operation of the provisions of the Act; it is not necessary to refer to them in detail. Finally reference should be made to s. 39 (inse+ted by the Amending Act of 1986) which deals, for the first and only time, with the problems occasioned by interstate complications. The Governor-in-Council may declare any other state or territory to be a "recognised State", and sub-s. (2) then goes on to provide: "Upon registration of the security interest with the person authorised by the law of a recognised State to register security interests and for so long as that registration remains current, the provisions of ss. 13(b) and 22 apply as if the instrument evidencing the security interest had been registered under this Act and that registration had taken effect." Section 22 is the provision providing for the Registrar to issue a certif~cate containing particulars of the registration of an instrument. -- 7 of 15 -- 7 When the statute is carefully considered the conclusion is reached, in my view, that it is primarily concerned with instruments creating "security interests", and with the registration of those instruments. The Act concentrates upon the instrument creating the security interest. It is the "security interest" which is the real subject matter of the legislation. Section 39 aside, the legislation does not by its terms expressly limit the field of its operation; but clearly it must be read down so as to operate within the legislative competence of the Queensland Parliament. Given the provisions in particular that I have referred to above, I have come to the conclusion that the Queensland legislation operates with respect to instruments creating security interests the proper law of which is Queensland. Where the proper law of an instrument creating a security instrument is that of some other State, then provided that State is recognised pursuant to s. 39, • that instrument may be registered in the State of its proper law and its existence will then be deemed to be known in Queensland. The long title of the New South Wales Act does not specifically use the term "instruments", as does its Queensland counterpart, but nevertheless it clearly indicates an intention to provide for the registration of security and other interests. It concentrates on what is defined as a "registrable interest"; such an interest includes a "security interest" as defined, and also the "interest in the goods of a lessor of the goods". The concentration is on the phrase "registrable interest" rather than "security interest", but it seems to me that when the definitions in each statute are compared there is little or no -- 8 of 15 -- 8 difference between a "security interest" in Queensland and a "registrable interest" in New South Wales. It is unfortunate that in an area where legislation was intended to be complimentary there could not be uniformity amongst Parliamentary draftsmen as to the phraseology used. The New South Wales Act provides for a register to be maintained and for the "prescribed information" to be recorded therein. There is then a provision for the Commissioner to issue a certificate containing particulars of information recorded in the register. Then comes s. 9, which is the broad equivalent of Queensland s. 26; so far as is relevant it provides: "(2) Where goods are the subject of a registrable interest ... and the goods are. purchased as provided by sub-ss. (3) or (4) - (a) the property (if any) in the goods of the creditor who has the registrable interest is divested from the creditor and vested in the purchaser; and (b) the purchaser acquires the goods freed and discharged from the registrable interest. ( 3) Goods are purchased as provided by this sub- section if the goods are purchased - (a) by a person who is not a dealer in the goods from a dealer in the goods; ( b) except as provided by paragraph (c) - in good faith and for value; and ( c) with or without notice of the registrable instrument. ( 4) Goods are purchased as provided by this sub- section if the goods are purchased otherwise than as referred to in sub-s. (3)(a) - -- 9 of 15 -- 9 (a) from the debtor under the registrable instrument to which the goods are subject; (b) in good faith and for value; and ( c) without notice, at the time of payment of the purchase price, of the registrable instrument." An Order in Council published in the New South Wales Government Gazette No. 136 of 28th August, 1987 at page 4947 limited the scope of operation of s. 9 (relevantly) to vehicles which were not stolen and were registered in New South Wales. That was amended on 25th January, 1990 (N.S.W. Govt. Gaz. No. 14 p. 587), in consequence of the 1989 amendments to the Act, so that the operation of s. 9 was extended to vehicles "located in New South Wales". It should be noted that relevantly a "dealer" is defined as "a dealer within the meaning of the Motor Dealers Act 197 4"; that legislation provides for the licensing of such dealers and regulates the conduct of their business within New South Wales. There is nothing in the New South Wales legislation as it was at the material time comparable to s. 39 of the Queensland Act; extensive amendments were made in 1989 directed to such problems. Again I am of the view that the New South Wales Act is concerned with "registrable interests" created by an instrument the proper law of which is New South Wales. The indicators pointing to that conclusion are similar to those to which I have already drawn attention with respect to the Queensland Act. The fact that the legislation as it stood prior to 1989 was concerned only with vehicles registered in New South Wales confirms that -- 10 of 15 -- 10 view. Further, the specific reference to "motor dealer" strongly points to the fact that s. 9, the critical provision, was concerned with transactions in New South Wales. There is no doubt that there is a general principle of private international law that the lex situs governs the validity of the assignment of a chattel and generally regulates the effect of a transfer of a chattel on proprietary rights (see, for example, Dicey and Morris, The Conflict of Laws (10th ed.) p. 555, and Sykes and Pryles, Australian Private International Law (2nd ed.) pp. 612 and 615). The extent to which a thief may pass title in stolen goods to a purchaser will be governed by the law of the place where that latter transaction occurs (Winkworth v. Christie Manson and Woods Ltd. {1980) Ch. 496), but that does not necessarily mean that s. 26 of the Queensland Act applies to the transaction of 26th June, 1987 so as to extinguish the interest of Beneficial. That question must be answered by considering the intent of the legislation and the scope of its operation. Counsel referred to two decisions in support of the submission that s. 26 applied to the subject transaction. Ryan J. was concerned with a similar problem in Woods v. Nissan Finance Corporation Ltd. (1987) 5 M.V.R. 436. The purchaser A bought a motor vehicle from B in Queensland and subsequently ownership was claimed by C, a Northern Territory hire purchase company. The evidence indicated that the vehicle in question was the subject of a hire purchase agreement made in the Northern Territciry where the vehicle had originally been registered. No security interest was registered under the Queensland legislation and there was evidence of some searches, or attempts at searches, -- 11 of 15 -- 1 1 made by or on behalf of A of that register prior to the transaction. The learned Judge held that Chad no right to possession of the motor vehicle as the purchaser A had no notice of any security interest, and acquired the vehicle for value in good faith. However it would appear (as was the position when this matter came before me last December) that both counsel assumed the relevance of the Queensland registration; in consequence the judgment does not address the problem which I regard as critical. Nevertheless I must accept that a Judge of this Court has in effect held that s. 26 of the Queensland Statute operates to extinguish a security interest created by a transaction the proper law of which was the Northern Territory. Counsel for the respondent also referred to the decision of the South Australian Court of Criminal Appeal in Attorney-General's Reference No. 1 of 1987 (1987) 47 S.A.S.R. 152, a case concerned with the Consumer Transactions Act 1972. The defendant acquired possession of a motor vehicle in New South Wales by entering into a hire purchase agreement in that State. While the vehicle was still on hire she purported to sell the vehicle to a purchaser in South Australia without informing the prospective purchaser that it was still subject to the hire purchase agreement. Certain questions were raised for the consideration of the Court of Criminal Appeal by way of case stated after she faced trial on a charge of false pretences. All three Judges (King CJ., Mohr and Matheson JJ.) considered that the proper law of the hire purchase agreement was that of New South Wales, and each considered that s. 24(1) of the South Australian Act (which related to the passing of property under -- 12 of 15 -- 12 a hire purchase transaction) was not intended to have extra-territorial effect; it did not apply merely because the vehicle, the subject of a hire purchase transaction, was brought within the State of South Australia. Section 36 of the South Australian Act was broadly the equivalent of s. 26 of the Queensland Act. It was not necessary for the Court to rule on the relevance of s. 36 but King CJ., after observing that it could have no bearing on the question under consideration, went on to say: "Even where it applies, s. 36 does not convert a bailee into the owner or render a encumbered vehicle unencumbered. It merely validates the title of the person who has acquired the vehicle, notwithstanding the defect in the title constituted by the want of ownership or the encumbrance. A representation by a person that he is the owner of goods of which he is not the owner or that goods which are encumbered are free of encumbrance, is false notwithstanding that the section operates to pass a good title to a representee who acquires the goods without notice of the true position." Counsel for the respondent contended that in that passage there was an assumption by King C.J. that s. 36 could apply notwithstanding that it might extinguish an interest created by the New South Wales hire purchase legislation. I do not read the passage in that way. Particularly bearing in mind what all the members of the court said as to the legislature not intending s. 24 to have extra-territorial effect, it would be surprising for him to conclude that s. 36 had just that effect. Rather I think that King CJ. was saying no more than that, even if s.. 36 had the extra-territorial effect contended for, it would not avail the defendant. -- 13 of 15 -- 13 In consequence I do not c:onsider that either of those decisions specifically addresses the point which now falls for determination. For the reasons which I have already indicated I have come to the conclusion that the "security interest" extinguished by s. 26 is a "security interest" evidenced by an instrument the proper law of which is Queensland. Before leaving the Queensland legislation I should also deal with the submission by Counsel for the applicant that the rights of ownership vested in a lessor are not caught by the definition of "security interest". It followed from that argument that ass. 26 only extinguished security interests it did not extinguish rights of ownership which would remain (in this case) vested in Beneficial. Thus such rights of ownership would not have passed to the applicant in the transaction of 26th June, 1987. There are numerous provisions of the lease agreement between Beneficial and Schaffer (clauses 2, 3, 8(a)(b), 13(a), 13A, 14(a)(ii)(1)(2), 19, 20, 24, 27(vi) and 32) which indicate that the lessor's rights of ownership are suspended unless and until there is some breach by the lessee of a provision of the lease. In my view that indicates that the right to exercise the powers of ownership are retained "by way of security''. Further, I cannot attribute any meaning to the final words of the definition - "includes the interest of . a lessor in respect of the liability of a lessee" - unless the expression "security interest" encompassed ownership rights in the lessor; the only rights which the lessor could exercise upon default by the lessee would be ownership rights. -- 14 of 15 -- 14 There was a "registrable interest" pursuant to the New South Wales Act arising from the lease transaction of 1985 and in consequence one has to have regard to the New South Wales Act in resolving the issues raised by this application. However, the transaction of 26th June, 1987 did not come within either of paras. (3) and (4) of s. 9; the respondent was clearly not a "dealer in the goods" within that expression as defined in the Act. It follows that s. 9 of the New South Wales Act did not operate to extinguish on the facts of the case the interest of Beneficial. It therefore follows that Beneficial' s interest in the subject motor vehicle was not extinguished either by the New South Wales or Queensland legislation. It follows that Beneficial was entitled to retake possession of the motor vehicle and that there was a total failure of consideration with respect to the transaction between the applicant and the respondent. The applicant is therefore entitled to the judgment it seeks. There will therefore be judgment for the plaintiff for $45,000.00 together with interest on that sum at the rate of 1S -...:i1rper cent per annum from 26th June, 1989 to the date of judgment. There will also be an order that the respondent-defendant pay the applicant-plaintiff's costs of and incidental to the action, and of and incidental to the application, including reserved costs, to be taxed. -- 15 of 15 --