New South Wales Court of Appeal CITATION : Montedeen Pty Limited v Rossfield Nominees (ACT) Pty Limited [2000] NSWCA 112 FILE NUMBER(S) : CA 40253/98 HEARING DATE(S) : 15/04/2000 JUDGMENT DATE : 5 May 2000 PARTIES : Montedeen Pty Limited Rossfield Nominees (ACT) Pty Limited JUDGMENT OF : Sheller JA at 1; Powell JA at 2; Beazley JA at 3 LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT 1327/97 FILE NUMBER(S) : LOWER COURT Santow J JUDICIAL OFFICER : Appellant: G Sirtes COUNSEL : Respondent: B Debuse Appellant: Kempson & Co (Melbourne) by their city agents Forshaw Neill SOLICITORS : Respondent: Sullivans CATCHWORDS : Competing interests in registrable goods - Bona fide purchaser for value without notice - Nemo dat rule Road Safety Act 1986 (Vic) LEGISLATION CITED : Chattel Securities Act 1987 (Vic) Goods Act 1958 (Vic) CASES CITED: Registrar, Security Interests v Psarros (1989) 51 SASR 318 DECISION : Appeal allowed THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40253/98 CL 47/96 SHELLER JA POWELL JA BEAZLEY JA Friday, 5 May 2000 MONTEDEEN PTY LIMITED t/as DELTA CAR AND TRUCK RENTAL v ROSSFIELD NOMINEES (ACT) PTY LIMITED FACTS Capital was a franchisee of one of the appellant's car and truck hire businesses. The respondent, a car financier, leased five vehicles to Capital but permitted Capital to register the vehicles in Victoria as owner. Capital had possession of the vehicles. Capital purported to sell the vehicles to the appellant. The respondent and appellant both claimed title to the vehicles. The respondent claimed as owner and relied on s 27 of the Goods Act 1958 (Vic) (the nemo dat rule). The appellant claimed that the respondent's interest in the vehicle was extinguished by s 7(1) of the Chattel Securities Act 1987 (Vic) (the Act), relying on the bona fide purchaser for value doctrine under that section. The respondent had registered its interest in three of the vehicles under the Act but had provided incorrect registration details. It had not registered its interest in the other two. The result was that its interest in each vehicle was classified as an unregistered security interest under the Act. HELD (i) The vehicles were registrable goods under the Act: ss 3(1) and 13. (ii) Section 7 of the Act is directed at determining priorities between a party with a security interest in registrable goods and a third party purchaser of those goods. (iii) It provides an exception to the nemo dat rule: s 27 of the Goods Act . (iv) The appellant established that it was a bona fide purchaser of the registrable goods for value without notice within the meaning of s 7 of the Act. ORDERS (i) Appeal allowed; (ii) Orders 1 and 2 of Santow J set aside; (iii) In lieu thereof Order that the Summons be dismissed; (iv) The appellant to have liberty to apply in relation to costs of the trial within seven days of today. Any such application to be supported by written submissions. The respondent to file written submissions in reply within seven days of receipt of the appellant's application and submissions; (v) The respondent to pay the appellant's costs of the appeal, but to have a certificate under the Suitor's Fund Act 1951 (NSW) if so qualified; (vi) Cross-appeal dismissed; (vii) Cross-appellant to pay the cross-respondent's costs of the cross-appeal. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40253/98 CL 47/96 SHELLER JA POWELL JA BEAZLEY JA Friday, 5 May 2000 MONTEDEEN PTY LIMITED t/as DELTA CAR AND TRUCK RENTAL v ROSSFIELD NOMINEES (ACT) PTY LIMITED JUDGMENT 1 SHELLER JA: I agree with Beazley JA. 2 POWELL JA: I agree with Beazley JA. 3 BEAZLEY JA: This appeal involves the construction of s 7(1) of the Chattel Securities Act 1987 (Vic) (the Act). The matter is being determined in this Court as the proceedings, which involved a claim in detinue in respect of five motor vehicles, were commenced here by the respondent (Rossfield), whose head office is in New South Wales. The matter otherwise had no connection with this State. An application to cross-vest the proceedings to Victoria was unsuccessful. 4 The appellant (Delta) carried on a car and truck hire business. In 1995 it entered into a franchise agreement with Capital Automotive Traders Pty Ltd (Capital). The respondent is a car financier. It had leased the five cars subject of the proceedings to Capital, but had permitted Capital to register the vehicles in Victoria as owner under the Road Safety Act 1986 (Vic). Capital had possession of the vehicles. On 28 or 29 October 1996, Capital purported to sell the five cars to Delta. Almost immediately thereafter, an administrator was appointed to Capital. 5 Both Delta and Rossfield claim title to the vehicles. Rossfield claims as owner. Delta claims Rossfield's interest in the vehicles was extinguished by the operation of s 7(1) of the Act. The Act 6 The Act deals with securities over certain personal chattels and determines priorities between parties with competing claims to goods which are subject to security arrangements. Part 3 of the Act provides for the keeping of a register in respect of certain goods, including motor vehicles of the type subject of these proceedings: s 15. Such goods are called "registrable goods": ss 3(1) and 13. Application may be made for registration of a security interest in registrable goods. "Security interest" is defined in s 3(1) to mean: "an interest in or power over goods (whether arising by or pursuant to an instrument or transaction) which secures payment of a debt or other pecuniary obligation or the performance of any other obligation and includes any interest in or power over goods of a lessor, owner or other supplier of goods, but does not include a possessory lien or pledge." 7 Lease, lessee and lessor are also defined in s 3(1). Lease means "a contract for the hiring of goods or for the grant of a licence to use goods and a contract for the hiring or bailment of goods for display purposes but does not include a hire-purchase agreement". Lessee means "the person to whom the goods are hired under the lease or to whom a licence to use the goods is granted under the lease". Lessor means "the person who hires the goods to another person under the lease or grants to another person under the lease a licence to use the goods". 8 Rossfield as lessor of the motor vehicles to Capital had a security interest in the goods. It was entitled to its interest registered under Pt 3 of the Act. However, it had provided wrong registration details in respect of three of the vehicles and had not attempted to register its security interest in respect of the other two. It was accepted that as a result of the error in registration details of three vehicles (see Registrar, Security Interests v Psarros (1989) 51 SASR 318 at 326) and the absence of registration of the other two, Rossfield's interest in each vehicle was classified as an unregistered security interest under the Act. 9 Section 7 provides that in certain circumstances, an unregistered security interest may be extinguished. The section invokes the bona fide purchaser for value doctrine, with the consequence that a third party interest may attain priority over that of a security interest provided the requirements of the section are satisfied. 10 The terms of s 7(1) are: "Subject to section 8, if a secured party has-- (a) an unregistered security interest (whether or not over registerable goods); or (b) a registered inventory security interest -- in goods but not in possession of the goods and a purchaser purchases or purports to purchase an interest in the goods (otherwise than at a sale in pursuance of a process of execution issued by or on behalf of a judgment creditor) for value in good faith and without notice when the purchase price is paid (or, if the price is not paid at one time, when the first part of the purchase price is paid) of the security interest from a supplier being -- (c) the debtor; or (d) another person who is in possession of the goods in circumstances where the debtor has lost the right to possession of the goods or is estopped from asserting an interest in the goods against the purchaser-- the security interest of the secured party is extinguished." Section 8 is not relevant this case. 11 Notice of a security interest for the purposes of the Act including s 7(1) is defined in s 3(5) to mean: "(a) if the person has actual notice of the security interest; or (b) if the person has been put upon inquiry as to the existence of the security interest and has deliberately abstained from inquiry or further inquiry when the person might reasonably have expected the inquiry or further inquiry to reveal the security interest." Findings of the Trial Judge 12 The trial judge held, on findings of fact to which I shall advert later, that Delta had satisfied the requirements of s 7(1) but that, as a purchaser from a party without title to goods, it also had to overcome the nemo dat rule, statutorily encoded in s 27 of the Goods Act 1958 (Vic). 13 Section 27 of the Goods Act provides: " Sale by person not the owner Subject to the provisions of this Part and of any express enactment where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell." 14 The trial judge held that Rossfield was not precluded by its conduct from denying Capital's authority to sell the vehicles. The result was that Capital could not confer title in the vehicles on Delta and Rossfield's ownership of the goods or title to the goods as owner remained intact. 15 Delta does not appeal against the trial judge's findings which led to that conclusion. The point taken is simply that s 27 of the Goods Act had no part to play in the resolution of the issues between the parties. Section 27 is expressly made subject to "any express enactment" and s 7(1) of the Act was such an exception. Accordingly, as the trial judge had found that Delta had satisfied the provisions of s 7(1), Rossfield's security interest, and therefore, in the circumstances of this case, title to the goods, was extinguished. 16 I agree. Not only does this construction accord with the words of the section, but also, to construe it otherwise would be to rob it of any effect. 17 There does not appear to be any authority which deals directly with the point in issue on this appeal. The construction of s 7 has, however, been the subject of analysis in a number of authoritative texts. In The Law of Securities, Sykes & Walker (1993 5th Ed) at 569-600, the operation of the section is explained as follows: "Before the enactment of Chattel Securities legislation, where goods were subject to a security interest and a person (the third party) purported to acquire title to the goods from the debtor, the rights of the third-party purchaser depended upon what type of security arrangement had been employed. … Where the nemo dat rule applied, a third-party purchaser of goods might find that the vendor had no right to sell the goods and that a financier could claim the goods as the owner. The nemo dat rule operated so that the secured party prevailed over a third-party purchaser even though the purchaser did not know of the security arrangement and had no way of knowing it existed. … … but [the legislation] establishes registers for the registration of security interests in registrable goods. … The legislation … supplants the nemo dat rule with a provision that, in the case of a security interest which is not registered, a bona fide purchaser of registrable goods for value without notice takes free of that security interest . Thus, although registration of a security interest in a motor vehicle is not compulsory, failure to register may result in a purchaser of a motor vehicle taking free of the security interest." (emphasis added) 18 In Consumer Credit Law in Australia, Cavanagh & Barnes (1988), the authors state at 489-490: "Where s 7(1) applies, if the secured party is not in possession of the goods and a purchaser for value in good faith and without notice of the security interest when the purchase price is paid, purchases an interest in the goods from the debtor the security interest will be extinguished. In such event the secured party would have no claim against the goods ." (emphasis added) 19 The authors point out that the personal liability of the debtor to the secured party remains. 20 As I have indicated, this construction is clearly correct. I consider the alternative construction favoured by the trial judge renders the section unworkable, as is readily demonstrated in the instant case. On the trial judge's construction, the security interest which was extinguished was Rossfield's interest as lessor. That interest only engages Capital as lessee. As on the trial judge's construction, Rossfields interest as lessor only was extinguished, the extraordinary consequence followed that Capital as the defaulting lessee was be relieved of its obligations as lessee and Delta, as the third party purchaser for value without notice of Rossfield's interest, was left without an interest in the goods. That construction overlooks the fact that s 7 is directed at determining priorities between a party with a security interest as defined, in this case Rossfield, and a third party purchaser, in this case Delta. 21 In my opinion, therefore, subject to Rossfield's Notice of Contention, the appeal should be upheld. The Notice of Contention 22 Counsel for Rossfield submitted that even if the construction of s 7 which the appellant favours is upheld, the trial judge wrongly construed s 3(5)(b) of the Act in considering that: "the preferred view of [s 3(5)(b)] is that the reference to the word 'the' before security interest means being put on inquiry as to the actual security interest of the Plaintiff or of an ascertained group and in relation to particular motor vehicles." 23 Whilst I consider that there is merit in this submission, I consider it unnecessary to express a concluded view as Rossfield is faced with the insuperable difficulty that there was no finding of fact that Delta "deliberately abstained" from inquiry, and no evidence upon which such a finding could be based. 24 The Notice of Contention therefore fails. Cross-appeal as to Costs 25 Rossfield cross-appealed against the trial judge's order that there be no order as to costs. Counsel properly conceded however that the cross-appeal could only succeed if Rossfield was successful in upholding the trial judge's judgment on the point upon which it was successful at trial. That has not been the case. In those circumstances, the cross-appeal should be dismissed. 26 Accordingly, I propose the following orders: (i) Appeal allowed; (ii) Orders 1 and 2 of Santow J set aside; (iii) In lieu thereof Order that the Summons be dismissed. (iv) The appellant to have liberty to apply in relation to costs of the trial within seven days of today. Any such application to be supported by written submissions. The respondent to file written submissions in reply within seven days of receipt of the appellant's application and submissions; (v) The respondent to pay the appellant's costs of the appeal, but to have a certificate under the Suitors Fund Act 1951 (NSW) if so qualified; (vi) Cross-appeal dismissed; (vii) Cross-appellant to pay the cross-respondent's costs of the cross-appeal. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.