Appellants v Respondents

1 At the heart of this dispute lies a claim to possession of a Porsche motor vehicle. The respondents, Mr and Mrs Shacklock, (Shacklock) sought possession and sale of the Porsche in Magistrates' Court proceedings against Paul & Paul Pty Ltd, (the first appellant) and Mykola Denysenko (Mykola), following the non-repayment of a $50,000 loan. Shacklock alleged a charge over the Porsche secured the obligation to repay the loan. The ownership of the Porsche passed from G&D Performance Tuning Pty Ltd (G&D) to Paul & Paul and then to RV Investments (Australia) Pty Ltd (the second appellant). Each of these companies was related to the Denysenkos.

2 On 19 April 2013, a magistrate ordered that Mykola, Paul & Paul, and RV Investments, or such of them who has actual possession of the Porsche, deliver it to Shacklock forthwith. The magistrate noted in his reasons that the parties would be heard on any other orders sought, including the declarations sought, damages, interest, and costs. The magistrate ordered that the appellants sign all documents and do all such acts necessary to transfer registered legal ownership of the Porsche to Shacklock by 26 April 2013. Shacklock undertook not to dispose of the Porsche and keep it in good order until further order of the court. On 23 September 2013, the magistrate ordered the sale out of court of the Porsche by Shacklock. Paul & Paul, and RV Investments appeal the primary judgment under s 109 of the Magistrates' Courts Act 1989, contending that the magistrate erred in law.

3 In his reasons, the magistrate explained the familial and corporate relationships and made findings about the dealings with the Porsche. Mr Shacklock was the solicitor to the Denysenkos and a friend of Bodhan (or Danny) Denysenko (Bodhan). Bodhan had two sons Mykola and Matthew. Shacklock had made loans to the Denysenkos on previous occasions. Bodhan's de facto partner was Rosa Villella, sole director and secretary of RV Investments. G&D owned a motor car trading business under the business name Cars on Plunkett, which was conducted by the Denysenkos.

4 G&D, whose directors were Mykola and Matthew, purchased the business of Cars on Plunkett from Li Wen Liang. Oxdam Pty Ltd was a prior owner of the Porsche but owed $28,000 for repairs to it. Apparently, the Porsche was in the possession of Cars on Plunkett, subject to a repairer's lien, at the time of the sale by Mr Li to G&D.

5 Bodhan contacted Mr Shacklock seeking a loan to buy the Porsche. Bodhan said it was an urgent matter and he was happy to grant security over the vehicle. Bodhan faxed documents identifying the engine, chassis and registration numbers of the Porsche to Shacklock who prepared an Acknowledgement of Debt in respect of a loan advance of $50,000. Shacklock advanced the loan sum. Addressed to Shacklock and executed as a deed by Mykola for Cars on Plunkett on 4 September 2008, the key terms of the Acknowledgement were:

I DO HEREBY ACKNOWLEGDGE that I am indebted to you for the sum of FIFTY THOUSAND DOLLARS ($50,000).

1. I hereby charge a my interest in:

[identifying particulars of the Porsche set out]

2. The debt shall be due and payable on demand.

1. You agree not to make demand so long as I make the following payments on interest:-

(i) first day of October 2008 - $550.00;

(ii) first day of November 2008 - $550.00; and

(iii) first day of each month thereafter -$600.

...

1. UPON DEMAND the full amount of the debt and interest at the rate of 15% pa shall thereupon become immediately due and payable.

[The words in italics represent a variation later agreed and handwritten on the document].

6 The magistrate found that Mr Li never owned the Porsche although Mr Li's motor car trader's licence was used to transfer ownership to G&D from Oxdam. Although the transaction was never clearly explained by the magistrate, I infer that G&D purchased the Porsche directly from Oxdam with the assistance of the Shacklock loan. The magistrate found that G&D was bound by the Acknowledgement, which Mykola signed in his capacity as director. At the relevant time, G&D owned both the Cars on Plunkett trade name and the associated motor car trading business.

7 At the time of the alleged loan, Mykola was also a director of both G&D and Paul & Paul. As at 1 July 2011, Mykola held 88 of the 100 ordinary shares issued by Paul & Paul and held the motor car trader licence used by Paul & Paul. Mykola transferred ownership of the Porsche from G&D to Paul & Paul on 11 March 2009, and on 6 May 2011 Paul & Paul transferred ownership to RV Investments. There were unexplained County Court proceedings involving Westpac Bank that settled and the transfer of the Porsche to RV Investments occurred in that context. Paul & Paul held a motor car trader's licence associated with its trading name 'Carsmart'. Villella was also a director of both G&D and Paul & Paul. As at 20 October 2008, Villella owned all 1000 of the shares in RV Investments. From 1 December 2009, RV Investments held a fixed and floating charge over Paul & Paul. From 6 September 2012, RV Investments held 88 of the 100 ordinary shares in Paul & Paul.

8 Shacklock registered the Acknowledgement describing it as a 'security interest as a mortgage'. Shacklock initially expected the loan to be a bridging loan. Interest payments were made on the nominated dates. Mykola sought an extension and the Acknowledgement was amended in handwriting to reflect an oral agreement between Mykola and Shacklock. The amendment was not initialled, but G&D made subsequent interest payments pursuant to this amendment.

9 On realising that the repayment of the loan may take longer than expected, Shacklock prepared a loan agreement. Mykola and his brother Matthew signed the undated loan agreement in December 2008. The loan agreement followed the Acknowledgement in terms of the principal amount loaned and the repayments and it identifies the same Porsche as security for the loan. The loan was not repaid and Shacklock issued the Magistrates' Court proceeding.

10 By their amended notice of appeal, the appellants raised the following grounds of appeal, which I have grouped into issues:

(a) Grounds (c)-(f): The learned magistrate erred in law in giving the Acknowledgement continued effect beyond the creation of the loan agreement. That decision was not open and was a misapprehension of the facts. The magistrate should have been found that the Acknowledgement ceased to have effect once the loan ceased to be short term, and that Acknowledgement was no longer security for the loan.

(b) Grounds (g)-(l): It was not open to the learned magistrate to find that the Acknowledgement created any security interest within the meaning of s 3 of the Chattels Securities Act 1987 and Motor Car Traders Act 1986, as the Acknowledgement did not provide that it charged the Porsche to secure repayment of the $50,000 loan.

(c) Grounds (m)-(n): The magistrate erred in law when he concluded that the security interest in the Porsche survived G&D's breach of s 48(1) of the Motor Car Traders Act 1986 when it disposed of the Porsche to Paul & Paul without first procuring the cancellation of the security interest. The correct finding that a breach of s 48(1) did not create a private right of action should have resulted in the finding that the security interest did not survive the disposal of the Porsche.

11 The appellants abandoned other grounds of appeal seeking to set aside the default judgment entered against Mykola and the award of indemnity costs against the appellants in the court below. Shacklock entered judgment in default of an appearance against Mykola that the magistrate set aside on Shacklock's application when Paul & Paul and RV Investments contended that the default judgment precluded Shacklock from pursuing damages against them.

12 At the hearing, the appellants applied to add a further ground of appeal: that the magistrate erred by failing to disclose the path of his reasoning when he found that the loan agreement was devoid of all legal effect and that the Acknowledgement conferred a right to immediate possession of the Porsche against the appellants. Shacklock opposed this application, which is considered below.

13 The magistrate was satisfied that Shacklock made the loan to G&D for it to buy the Porsche from Oxdam, over which it had a $28,000 repairer's lien.

14 G&D was never formally recorded on any Vic Roads vehicle register as having owned the Porsche. Based on the documentation tendered, the Porsche was transferred from Oxdam Pty Ltd to Li Wen Liang trading as Cars on Plunkett on 4 September 2008. This occurred after the transfer of the loan amount from Shacklock to G&D. While Mr Li was the owner of the motor car trader licence of Cars on Plunkett on 4 September 2008 when the Acknowledgement was signed, Mr Li was not the owner of Cars on Plunkett.

15 The magistrate held that Mr Li did not buy or sell the Porsche as asserted by Paul & Paul and RV Investments. Mr Li never owned the Porsche, and the registration of the Porsche under his name reflected a wide use of Li's motor car trader licence within Cars on Plunkett. It did not to reflect the legal ownership of the vehicle. From 1 August 2008, one month prior to the Acknowledgement, G&D owned the trading name Cars on Plunkett and the associated motor car trading business.

16 In the Acknowledgement, Mykola, for G&D agreed to 'hereby charge all my interest in' the Porsche identified by the registration, engine and chassis numbers included in the document. The magistrate held that no particular form of words was required to create an equitable mortgage or charge. His Honour was satisfied that the natural and ordinary meaning of the 'all my interest in' included both proprietary and possessory interests in the vehicle. The right to possession was not otherwise dealt with. The use of the words 'charge all my interest in' combined with the very specific identification of the charged object satisfied the magistrate that the parties intended to give Shacklock rights in the Porsche which 'reduced or deducted from' G&D's ownership rights.

17 In the context where G&D exercised the repairer's lien over the Porsche and paid an additional consideration to purchase the vehicle funded by the loan, the magistrate found that the parties intended by the Acknowledgement to give Shacklock a right, in the event of default, to resort to the vehicle to satisfy or discharge the loan, and to this extent at least, the Acknowledgement deducted from G&D's rights of ownership. It went beyond a mere possessory lien and created a charge over G&D's proprietary rights in the Porsche. The magistrate concluded that the words 'hereby charge all my interest in' created for Shacklock an immediate right of possession of the Porsche in the event of a default.

18 The magistrate held that handwritten amendment of the Acknowledgement reflected an agreement between Shacklock and G&D to vary the loan terms when the loan was extended from being a short term bridging loan. The magistrate noted five interest payments of $600 were later made.

19 The magistrate was not satisfied that the loan agreement had any meaningful effect. On its face, that agreement was between Mykola and his brother Matthew as borrower and Shacklock as lender. Matthew had no official role or status in G&D, Paul & Paul or RV Investments. The agreement did not involve the trading entity Cars on Plunkett, it did not purport to transfer the debt from Cars on Plunkett or G&D to Mykola and Matthew, and it did not purport to replace the earlier Acknowledgement. There is no express reference to the Acknowledgement. The agreement made no reference to any of G&D, Paul & Paul or RV Investments. Apart from a reference to the year 2008 in the opening paragraph, it was not dated. Provision was made for a guarantor, but none was named in the schedule. Neither Mykola nor Matthew agreed to guarantee repayment of the loan. The loan agreement also stated that nothing within it 'shall operate to merge extinguish postpone lessen or otherwise prejudice any other obligation or security from time to time binding the Borrower in favour of the Lender'.

20 The magistrate described the agreement as Shacklock's 'desperate' and 'poorly thought out' attempt to 'secure his $50,000 loan when it quickly became apparent' that the loan would not be short term as was initially assumed. In closing submissions before the magistrate, Shacklock withdrew the pleaded reliance on the loan agreement contending the Acknowledgement was the agreement by G&D to borrow $50,000, limiting the basis of their claim to reliance on the Acknowledgement.

21 On 11 March 2009, when ownership of the Porsche was transferred from G&D trading as Cars on Plunkett to Paul & Paul, the magistrate was satisfied that there was no doubt that Paul & Paul was aware of the outstanding loan and Shacklock's security interest in the Porsche. On 6 May 2011, when Paul & Paul transferred ownership of the Porsche to RV Investments as part of a County Court settlement in litigation involving Westpac Bank, Villella was director of both Paul & Paul and RV Investments. The magistrate was satisfied that both Paul & Paul and RV Investments were aware of the outstanding loan and Shacklock's security interest in the Porsche when negotiating the transfer of ownership of the Porsche in the Westpac settlement.

22 When G&D and Paul & Paul each disposed of the Porsche, they used motor car traders licences, and were motor car traders as defined by the Motor Car Traders Act 1986. The magistrate considered G&D's use of the Cars on Plunkett licence was highly problematic because Mr Li apparently still owned that licence. In order to be a motor car trader and holder of that licence according to s 3(1) of the Motor Car Traders Act 1986, a person, otherwise than in the capacity of an employee, carries on the business of trading in motor cars or holds out in any way as carrying on the business of trading in motor cars. Even if G&D did not own the motor car trader licence it used, as it was in Li's name, it held itself out to be a motor car trader. As such, both G&D and Paul & Paul were subject to s 48(1) of the Motor Car Traders Act 1986, which creates a criminal offence for a breach with a maximum penalty of 12 months' imprisonment or 100 penalty units. The section reads:

A motor car trader must not sell, exchange or otherwise dispose of a motor car without first procuring the cancellation of any security interest in the motor car registered under the Chattel Securities Act 1987.

23 The magistrate held that G&D created a security interest in favour of Shacklock that was binding pursuant to s 3(1) of the Chattels Securities Act 1987, where security interest is defined as follows:

an interest in or power over goods (whether arising by or pursuant to an instrument or transaction or ...) 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.

24 Section 21 of the Chattels Securities Act permitted Shacklock to extend the registration of their security interest without G&D's further agreement. While the registration of the security interest expired on 21 December 2010, the magistrate held that the security interest was not extinguished when registration lapsed. The loan had not been repaid, despite ownership of the Porsche transferring from G&D to Paul & Paul and to RV Investments.

25 The security interest was not extinguished by operation of the Chattel Securities Act 1987, as it then was, because the requirements of ss 7 and 8 were not fulfilled. By their directors, Paul & Paul and RV Investments knew of the existence of the charge at the time of the respective transfers. The magistrate considered that Shacklock's interest in the Porsche was a security interest in a motor car and that Shacklock was not in possession, but his Honour held that neither Paul & Paul nor RV Investments was a purchaser for value in good faith without notice as required by ss 7 and 8 for the security interest to be extinguished. It was noted by the magistrate, that s 89 of the Motor Car Traders Act 1986 provided that other rights or remedies are not limited except as expressly provided by the Act.

26 The magistrate concluded that at the time of each transfer of the Porsche, a breach of s 48(1) of the Motor Car Traders Act 1986 was committed.

27 RV Investments contended before the magistrate that any claim against it was, in the alternative, a claim for breach of statutory duty based on s 48(1)(a) of the Motor Car Traders Act 1986, but, after an analysis of the purposes of the Act, the magistrate held that a breach s 48(1) of the Act was not intended to give rise to a private right of action.

28 On the question of whether Shacklock was entitled to an order for possession, the magistrate looked to the differences between an equitable mortgage, equitable charge and possessory lien. The equitable charge reflected an intention that the creditor could, in the event of default, have the property appropriated to meet the debt.

29 Interlocutory orders were made on the publication of reasons for judgment, as I have set out above. Then, following further submissions, an order for a judicial sale of the Porsche by Shacklock was made.

30 Grounds (c) to (f) of the amended notice of appeal seek to impugn the Court's conclusion that the Acknowledgement of Debt had 'continued effect' despite its anterior findings that:

(a) the relevant $50,000 loan was a short term bridging loan, and it was for that purpose that the Acknowledgement was executed; and

(b) the loan agreement was a desperate and poorly thought out attempt by the First Respondent to secure his $50,000 loan when it became apparent it was not going to be the short term loan he had anticipated, and the Court could not be satisfied the loan agreement had any meaningful legal effect.

31 The attack was made on the basis that it was 'not open' to the Court to uphold the Acknowledgement of Debt (grounds (c) and (d)), or that the Court otherwise 'misapprehended the facts' (grounds (e) and (f)).

32 These grounds were not elaborated on by the appellants in written or oral submissions.

33 The respondents contended that these grounds should be rejected. An appeal under s 109 of the Magistrates' Court Act 1989 is limited to questions of law. The appellants can only succeed if on any reasonable view, the evidence cannot support the primary court's finding.[1] They must show that the primary court's impugned finding was simply not open to it.[2] To meet this burden it will not be sufficient to show that the finding was against the evidence or the weight of the evidence.[3] The respondents argued that the appellants had not discharged this burden.

34 The appellants did not explain why the primary court must necessarily have found that the Acknowledgement had no continued effect, and that contention was entirely incomprehensible as a logical proposition. Even if the loan was intended to be short term, it cannot logically follow that the Acknowledgement ceased to have effect at any particular time, or at all, while the loan remained unpaid. There was no evidence to support a finding that liability under the Acknowledgement was intended to be extinguished in the event the loan ceased to be short term, or as a consequence of the Loan Agreement either having, or not having, legal effect. The finding that the loan agreement was 'poorly thought out' and of 'no legal effect' did not mean that the Acknowledgement had been voided or abandoned.

35 The Acknowledgement does not specify a temporal limit on the advance. By clauses 2 and 7, the debt is said to be repayable 'upon demand' without any requirement that the demand be made on or before a particular date. No part of the document is capable of founding an argument that the borrower's indebtedness was to be extinguished after a certain period even where the loan remain unpaid, and such a construction would be manifestly uncommercial.

36 To the extent that these grounds were not abandoned, I reject them. The respondent's submissions are plainly correct. The $50,000 loan was to be a short term bridging loan when it was first advanced under the terms of the Acknowledgement. However, it was open to the magistrate on the evidence to find that the understanding of the undocumented arrangement under which Shacklock would call up the loan in the short term was varied by agreement with the borrower not to do so. That course was open to Shacklock consistently with the terms of the Acknowledgement and the appellants did not suggest otherwise. Plainly, in consideration of the loan continuing to be repayable on demand, the borrower agreed to pay monthly interest. I can see no error in the magistrate's analysis of the loan agreement and its impact on the enforceability of the Acknowledgement.

37 By these grounds, the appellants assert that the primary court erred in finding that the Acknowledgement created a security interest within the definition of that term in s 3 of the Chattels Securities Act 1987 or s 3 of the Motor Car Traders Act 1986. The Acknowledgement did not in its terms provide that the charge secured the payment of the loan of $50,000 or any other debt.

38 As with the previous grounds, the attack on this finding was that it was 'not open' to the primary court to find that such a security interest had been created (grounds (i) and (j)), or that the court otherwise 'misapprehended the facts' (grounds (k) and (l)). An additional, un-particularised iteration asserts that the conclusion amounted to an error of law (grounds (g) and (h)).

39 By their written submission, the appellants abandoned these grounds of appeal insofar as they are predicated on findings of fact. The appellants accepted that the findings of fact supporting the impugned conclusion were open to the magistrate. The error contended for was limited to the primary court's finding that the Acknowledgement conferred either a right of possession to the Porsche or a right of possession as against the appellants. The appellants submitted that it was not open to the magistrate to make findings of fact to that effect, and further that the magistrate failed to disclose a path of reasoning in his judgment.

40 These grounds were not elaborated on by the appellants in their written or oral submissions. However, they were, effectively recast as a further ground (q), which the appellants sought to argue with my leave.

41 The respondents submitted that the qualification of the grounds, and the extent to which grounds (g) to (l) were abandoned was not clear, as the abandonment was limited to the extent to which the grounds were based on 'certain' unidentified findings of fact. Grounds (g) to (l) did not give rise to any question of whether the Acknowledgement conferred a right of possession to the Porsche and/or a right of possession as against the Appellants. Those grounds focused on the issue of whether a charge, as defined in either statute, was created at all. The grounds did not speak to the different question of the proper remedy enforcing the charge, and did not relate to whether possession could be ordered. The concession was confusing.

42 The respondents submitted that on their plain and ordinary meaning grounds (g) to (l) contended that the Acknowledgement was ineffective to create a charge because the charging clause therein did not in terms secure the $50,000 debt (plus interest) against the Porsche. Although the charging clause (clause 1) does not itself specify the debt which is to be secured, the debt of $50,000 plus interest was acknowledged in the document. The proper question was whether it was open to the primary court to find that the charge was enforceable by reading the Acknowledgement as a whole to identify the secured debt, or whether the charging clause itself was required to specify that debt.

43 I am satisfied that the appellants have not demonstrated any error by the magistrate and these grounds must fail.

44 In McMillan v Dunoon & Anor,[4] Gillard J applied the following test to determine whether a document gave rise to an equitable charge:

It is noted that the issue comes down to whether the Court can fairly gather from the words of the agreement an intention by the parties that the property referred to in the agreement was to be charged with payment of the debt. In other words, did it constitute a security?

In AVCO Financial Services Ltd v White,[5] Gillard J enunciated a similar test, citing Romer J in Cradock v Scottish Provident Institution,[6] who said:

To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used. It is sufficient if the Court can fairly gather from the instrument an intention by the parties that the property therein referred to should constitute a security.

45 The magistrate's approach to the issue was supported by authority. A charging clause does not need any specific verbal formula and reference may be had to the instrument as a whole to determine whether the creation of a charge was intended. Nothing in these older authorities dealing specifically with charges is inconsistent with the last word from the High Court of Australia on the interpretation of contracts. In Electricity Generation Corporation v Woodside Energy Ltd,[7] the High Court stated:

The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".

46 I have set out above the findings of the magistrate about the surrounding circumstances known to the parties and the commercial purpose or objects to be secured by the Acknowledgement. A reasonable businessperson would have understood that the words 'I hereby charge all my interest' in clause 1 of the Acknowledgement were intended to charge the Porsche with the debt referred to in the other paragraphs of the document, namely, the debt of $50,000, plus interest. This is the only debt referred to in the agreement, and it is obvious that the charge was intended to secure the repayment obligation. The appellants' construction treated the charging clause as not referring to any particular debt at all. That construction would be absurd, ignoring the proper assumption that the parties intended by this document to produce a commercial result. In my view, there was no error by the magistrate in preferring a construction that avoided a capricious, unreasonable, and uncommercial consequence.[8]

47 Grounds (m) and (n) challenge the primary court's finding that the charge created by the Acknowledgement survived the transfer of the Porsche by the creator of the charge, G&D, to Paul & Paul, and then to RV Investments. The magistrate held that the appellants each knew of G&D's breach of s 48(1) of the Motor Car Traders Act 1986, which meant that they acquired the Porsche subject to Shacklock's interest as chargee. The appellant contends that this finding contradicted the primary court's conclusion that a breach of s 48(1) of the Act did not create a 'private right of action'.

48 Again, these grounds were not developed by the appellants in written or oral submissions.

49 The respondents submitted that the primary court's finding - that no private right of action was created on breach of s 48(1) of the Motor Car Traders Act - did not contradict its conclusion that the appellants acquired the Porsche subject to the charge over the vehicle. The magistrate correctly found that G&D and Paul & Paul were motor car traders as defined by the Motor Car Traders Act when they disposed of the Porsche. Each of G&D and Paul & Paul failed to comply with s 48(1) in that they had not procured the cancellation of Shacklock's security interest before completing the transfers of the Porsche. The appellants did not challenge these findings.

50 The respondents also submitted that the magistrate held that the appellants knew of the respondents' unsatisfied charge over the Porsche at the respective times they acquired ownership of the vehicle: 'There is no doubt [Paul & Paul] was aware of the loan and security interest'. This key finding was also not challenged. This finding was central to the magistrate's conclusion that the appellants must now acknowledge the existence of the charge by transferring the Porsche to the appellants. The magistrate noted that the appellants had not contended that the charge had been extinguished by s 7 or s 8 of the Chattels Securities Act 1987 - which afforded priority to a bona fide purchaser for value without notice against prior equitable encumbrances - but as he had found that the appellants could not be described as purchasers for value in good faith without notice, those sections would not assist the appellants.

51 The respondents submitted that the magistrate's reasons for finding that the appellants acquired ownership of the Porsche subject to the respondents' charge were sound and clear. To make out a cause of action to enforce a charge against a person in possession of a chattel, a creditor must identify the instrument that created the charge; show that the chargee had title to the charged chattel when the charge was made, and that at the time of the transfer of property into another's hands, the transferee knew of the charge, so its conscience was tainted. When these elements are satisfied, equitable doctrine allows the enforcement of the charge. The appellants' knowledge of the charge at the date of their acquisition of the Porsche respectively resulted in each of them being bound by the charge and to have taken ownership of the Porsche subject to it. The charge was, on the unchallenged findings made by the magistrate, enforceable against the appellants as G&D's successors in title.

52 Finally the respondents submitted that the primary court's finding that the charge was enforceable against the appellants was not based on any liability under a private right of action conferred by the Motor Car Traders Act 1986. The magistrate reasoned that the appellants' respective unlawful acquisitions of the vehicle with knowledge of the respondents' charge precluded the appellants from asserting legal title or the respondents' in specie rights against the Porsche. The appellants did not challenge the primary court's finding that the Acknowledgement gave rise to an equitable charge or that the appellants knew of it.

53 The respondent contended that the following reasoning justified the outcome. An equitable charge creates an equitable interest in the Porsche.[9] Assuming that the appellants acquired legal ownership of the Porsche at the time of their respective acquisitions of that vehicle, the contest between the respondents prior equitable interest as chargee, and the appellants interests as subsequent legal owners was a priorities contest. The appellants could not suggest they acquired indefeasible title by statute, so the contest was to be resolved on general law principles, and a subsequent legal owner of a chattel taking title other than as a bona fide purchaser for value without notice of the prior equitable interest holds that chattel subject to the charge. The primary court's finding was consistent with that principle and as such, was not based on a liability under a private right of action conferred by the Motor Car Traders Act. The appellants' acquisition of the vehicle with knowledge of the respondents' charge preserved its priority over the appellants' legal title.

54 To the extent that these grounds were not abandoned, I reject them. The respondent's submissions that the grounds are based on unimpeachable findings of fact are correct. The legal effect of a breach of s 48(1) of the Motor Car Traders Act was not the point. All that finding demonstrates is the fact that each of Paul & Paul and RV Investments has knowledge of the prior charge when they took title to the Porsche from a related party. The unchallenged factual findings, which were plainly open to the primary court on the evidence, support the magistrate's reasoning that the priority of Shacklock's charge was always preserved on general principles.[10]

Should leave be given to allow a further ground

55 At the hearing the appellants sought to introduce a new ground of appeal, contending that the magistrate's error lay in failing to give adequate reasons. Ultimately this was the only ground substantively addressed by the appellants. The proposed new ground was:

1. The learned Magistrate erred in law in failing to give any reasons or any sufficient reasons for his findings:

(i) that the loan agreement is devoid of all legal effect and can be put to one side;

(ii) that the Acknowledgement of Debt conferred a right to possession of the Porsche;

(iii) that the Acknowledgement of Debt gave a right of possession as against the Appellants.

56 Procedure on an appeal from a magistrate is governed by Order 58 of the Supreme Court (General Civil Procedure) Rules 2005. By r 58.08(3), the court may give leave to amend grounds of appeal or make any other order to ensure the proper determination of the appeal. The appellants relied on DPP v Hinch[11] in which an appeal under s 92 of the Magistrates Court Act 1989 on a question of law from a final order in a criminal proceeding was before the court. The provisions that govern such appeals are substantially identical to appeals in civil proceedings under s 109 of the Magistrates' Court Act 1989. Mandie J doubted that r 58.13 (the predecessor to r 58.08) empowered the court to deal with any questions that arise at the hearing but accepted that, in an appropriate case, the court could direct that the appeal be decided on the questions of law identified and canvassed in the arguments advanced, where this was necessary for the effective, complete, and economic determination of the proceeding and was otherwise just and convenient.[12]

57 The appellants contended that this was such a case as the particular questions sought to be raised were squarely argued below. The appellants did not explain why the new ground was not originally included in the amended notice of appeal. From the conduct of the appeal, I infer that new counsel have taken a different view of what are the real issues to be determined on the appeal.

58 The respondents opposed the application for leave, submitting that the question of law raised bore no connection with the issues raised on the appeal. The appellants were seeking to circumvent the applicable time limits for appeal under s 109 of the Magistrates' Court Act 1989 by raising a new appeal ground at the hearing. The appellants were required to show 'exceptional circumstances' by s 109(5)(a) of the Act and had failed to do so. That section reads:

(5) The Supreme Court may grant leave under subsection (4) and the appellant may proceed with the appeal if the Supreme Court -

(a) is of the opinion that the failure to institute the appeal within the period referred to in subsection (2)(a) was due to exceptional circumstances; and

(b) is satisfied that the case of any other party to the appeal would not be materially prejudiced because of the delay.

59 The respondents relied on Mond v Lipshut[13] where Ashley J (as his Honour then was) denied leave to the appellants to raise an appeal point which had not been raised by the defence nor articulated at trial. His Honour said:

The rules require the Master by order to state each question of law that the appellant shows to be raised by the appeal. As a general proposition, it would be quite wrong if a question of law shown to be raised by the appeal in connection with a particular issue was permitted to be used to support argument upon another issue altogether - a fortiori where the first issue was not pursued at all on the appeal. To permit such a course would tend to subvert the intent of s 109(2)(a) of the Magistrates' Court Act 1989. In substance it should be considered an attempt to bring an appeal out of time without confronting the "exceptional circumstances" requirement of s 109(5)(a) of that Act. The circumstances in the present case could not be considered analogous to those which arose in DPP v Hinch (Mandie J, judgment 5 August, 1994, unreported), where a particular solution was adopted by which a point identified and canvassed in the arguments on appeal was able to be addressed.

60 The respondents contended that the amendment was 15 months out of time, and if it was the case that the ground was not taken earlier by oversight, then this does not constitute exceptional circumstances.[14] The respondents contended that the appellants' real point to agitate on the appeal was only raised about two weeks prior to the hearing. The appellants have, by inference or conduct in effect abandoned all the other grounds in their notice.

61 This case is materially different from Mond v Lipshut in that the issues raised by the proposed amendment to the notice of appeal were ventilated below; the legal effect of the loan agreement, and the question of whether the Acknowledgement conferred in Shacklock a right of possession of the Porsche were central issues at trial on which the magistrate made finding of fact. The circumstances were analogous with those in Hinch. I informed that parties that I would hear substantive argument on the proposed ground at the same time as the leave application.

62 In oral submissions, the respondents argued that the appellants' submissions on the proposed ground extended far beyond what was advanced by the proposed amendment and that, without identification of specific errors, the appellants had contended that any error seen in the magistrate's path of reasoning must be appealable. The respondents contended that they had in good faith addressed the proposed ground. However, I did not understand the appellants' submissions to be so wide and considered that the appellants confined their contentions within the proposed ground. The respondents conceded that there was no issue of prejudice. I am satisfied that the proposed ground was connected with the issues otherwise raised on the appeal and raised issues that were alive at the trial. It is in furtherance of the overarching purpose under the Civil Procedure Act 2010 (Vic) that the appellants be granted leave under r 58.08 to amend the notice of appeal.

63 I will grant leave to the appellants to amend the notice of appeal to add, and argue, ground (q).

64 In Franklin v Ubaldi Foods Pty Ltd,[15] Ashley JA (Warren CJ and Nettle JA agreeing) stated:

But one thing is clear. Reasons must be such as reveal - although in a particular case it may be by necessary inference - the path of reasoning which leads to the ultimate conclusion. If reasons fail in that respect, they will not enable the losing party to know why the case was lost, they will tend to frustrate a right of appeal, and their inadequacy will in such circumstances constitute an error of law.

65 The appellants submit the court's path of reasoning to the findings that the loan agreement was devoid of all legal effect and that the Acknowledgement was the only source of a written agreement was inadequate. The appellants say that the loan agreement was important because G&D was not a party to it; it was signed by Mykola and Matthew. The reasons failed to address the change in the identity of the borrowers, except to say that according to Shacklock, these individuals became party to the loan agreement because he knew they had a capacity to repay the loan. Having found that the Acknowledgement was short term finance, no reasoning is apparent for the primary court's finding that the Acknowledgement should have continuing effect. Although he described the loan agreement as 'perplexing', the magistrate did not consider it in assessing the respondents' claim.

66 The appellants argued that the loan agreement had legal effect and the magistrate's reliance on the Acknowledgement was misplaced, as the loan agreement governed the legal relationships of the parties. On that basis, the appellants were not liable to the respondents, rather Mykola and Matthew were liable to repay the debt. The magistrate fell into error in giving effect to the subjective intentions of Mr Shacklock, who maintained in evidence that the agreement between the parties was contained in the Acknowledgment and not in the loan agreement.

67 This submission must be rejected, for, as the respondents submitted, the finding that the loan agreement was legally irrelevant to the claims against Paul & Paul and RV Investments was amply supported by the magistrate's reasons. The magistrate stated:

Whatever the intended purpose of the Loan Agreement it is not an agreement involving the trading entity Cars on Plunkett, it does not purport to transfer the debt to (Mykola and Matthew Denysenko) from Cars on Plunkett, it does not purport to annul or replace the earlier Acknowledgement of Debt and it does not amount to (Mykola and Matthew Denysenko) assuming the role of guarantors of the debt.

68 The magistrate described the loan agreement as a 'very poorly thought out attempt by Peter Shacklock to secure his $50,000 loan'. Although the loan agreement in isolation did not indicate that it related to the existing debt owed by G&D, it was patently clear from the surrounding circumstances that this was the case. The loan agreement was an attempt by Shacklock to obtain an additional security against persons who were not parties to the proceeding sued on that agreement.

69 The magistrate's reasoning about the operative effect of the loan agreement is clear. Mykola Denysenko was reinstated as a party to the proceeding when the default judgment against him was set aside, but the magistrate was adjudicating on claims against the appellants not Mykola. The magistrate was not satisfied that the loan agreement had any meaningful effect when determining the liability of Paul & Paul and RV Investments to the Shacklocks. The appellants were not parties to the loan agreement, they were parties to the Acknowledgement.

70 The loan agreement was signed by Mykola and Matthew as borrowers. It did not render them liable as guarantors of G&D, but as principal borrowers of a sum that had been advanced to G&D. The agreement did not transfer the existing debt from G&D to the Denysenko brothers, it did not replace or supersede the earlier agreement, nor did it refer to either of the appellants. It was not dated and although provision was made for a guarantor, none was named.

71 There was ample basis in the evidence for the magistrate to make his factual findings about the loan agreement and his reasons disclose a clear path to his conclusion, with which I agree, that the loan agreement had no relevance to the liability of the appellants, for that is what he meant when he said the loan agreement had no legal effect.

72 The respondents relied on the magistrate's conclusion that cl 9(c) of the loan agreement stated that the agreement does not extinguish or otherwise override any earlier agreement. The Acknowledgement was not necessarily cancelled by the loan agreement, as earlier agreements were expressly preserved. This submission, like the magistrate's reasoning in respect of it, was misconceived. The clause states that nothing contained in the agreement shall operate to merge extinguish postpone lessen or otherwise prejudice any other obligation or security from time to time binding the Borrower in favour of the Lender and all securities covenants and obligations shall be deemed collateral. That clause is not relevant to the dispute. The borrower under the loan agreement was the Denysenko brothers and they were not relevantly bound by any other obligation or security. Whether parties intended by a contract to extinguish a prior contract is a matter of fact, and it was open to the magistrate to make the findings set out above at [19] and [20].

73 The appellants argued that there was no discernable path of reasoning leading to the finding that the Acknowledgement gave rise to an immediate right to possession of the Porsche.

74 The magistrate concluded that the Acknowledgment created an equitable charge, not an equitable mortgage. The appellants submitted that it is settled law that an equitable charge does not give any right to possession, let alone an immediate right. Yet the magistrate concluded that the Acknowledgement entitled Shacklock to possession of the Porsche against G&D, and against the appellants.

75 The appellants submitted that there was no claim in detinue supporting a right to delivery up of the Porsche and how the 'claim for damages' against the appellants came about was completely unclear. However, the submission was misconceived. There was no judgment in damages entered against the appellants and detinue was not the cause of action that supported the order for possession.

76 The respondents' submitted that the right to possession was incidental to the right of sale afforded by the equitable charge. An order for sale may include ancillary orders that are necessary to give effect to that sale. So it may, for example, include an order for possession, but the appellants submitted that it cannot be assumed that just because there was an order for sale that there was a prior right of possession. The equitable charge may entitle the chargee to an order for judicial sale, but if the court could not first grant possession, that order for sale might not be made. The magistrate did not discuss any of these matters in his reasons, and they cannot now be advanced to fill gaps in the reasoning.

77 The respondents submitted that the steps of the magistrate's reasoning were discernable. In his liability reasons, the magistrate found that under the Acknowledgement, G&D charged 'all its interest' in the Porsche, and the natural and ordinary meaning of that expression created an equitable charge over G&D's proprietary interest in the Porsche. There was nothing in the Acknowledgement that excluded the right of possession of the Porsche for the purposes of a sale to enforce the charge. An equitable charge permitted the creditor, Shacklock, to seek court assistance to appropriate the Porsche to meet the debt on default.

78 It is necessary when examining the sufficiency of the magistrate's path of reasoning to look to the further course of the proceeding. The magistrate's orders made on 19 April 2013 for transfer of possession and registered ownership of the Porsche were interlocutory. The court directed that it would hear the parties as to any further orders and it further ordered that Shacklock 'undertake not to dispose of the Porsche and keep it in good order until further order of the court'.

79 The appellants appealed the orders of 19 April 2013 and the appeal came on before Hargrave J, sitting in the Practice Court, when the appellants sought a stay on the order for delivery up of the Porsche to the respondents. Hargrave J recognised the interlocutory nature of the magistrate's orders under appeal and stayed the appeal until 14 days after the magistrate had determined all outstanding issues. His Honour required the respondents to comprehensively insure, and not drive, the Porsche, and directed that the appellants file and serve an amended notice of appeal after final orders were made.

80 The respondents submitted to the magistrate, correctly, on 26 June 2013 that the 19 April order was interlocutory and further orders were needed before the proceeding was completed. At that further hearing, Shacklock applied to the court for orders for a judicial sale of the Porsche.

81 On 23 September 2013, the magistrate declared that Shacklock held a valid charge against the Porsche, which it was entitled to enforce to recover the debt ($89,000) under the Acknowledgement. The magistrate made orders for its sale out of court, to be conducted by Shacklock. The orders detailed the manner of sale, bidding rights, and the application of the proceeds of sale. The orders of 19 April 2013 regarding possession and registration were confirmed for the purposes of Shacklock complying with the judicial sale order.

82 The magistrate published further reasons, essentially concerning costs, on 1 November 2013. In respect of judicial sale orders, the magistrate recorded that these orders were made 'largely by agreement or with only formal opposition on the substantive matters'. I should add that counsel for the appellants submitted that the appellants did not consent to the judicial sale order. Having read the transcript of the relevant exchange with the magistrate, I am satisfied that the magistrate's description of the appellant's position in respect of the judicial order was reasonable. This is, of itself, a powerful reason to dismiss ground (q). However, I will state my reasons for concluding that the ground must otherwise fail because the magistrate did not err by failing to disclose in his written reasons, and the orders that he made, the path of his reasoning beyond the appellants' consent.

83 It is correct that an equitable charge does not give rise to a right to immediate possession of the charged property; the proper remedy is judicial sale or the appointment of a receiver. Under the general law, a charge can be enforced only by application to a court for an order for the sale of the charged property, not by the chargee taking unilateral action out of court.[16] Garfitt v Allen[17] has long stood as authority for the proposition that an equitable charge was not entitled to possession without a court order.

84 The respondents conceded that the relief granted on 19 April 2013 was inappropriate as final relief according to the law of charges. Had the 19 April 2013 orders stood as final orders, the magistrate would have erred in law, but the court's orders were interlocutory followed up by the order for judicial sale after the proper relief to be granted was addressed by the parties. The respondents submitted that Rule 59.01 of the Magistrates' Court General Civil Procedure Rules 2010 permitted this outcome. That rule enabled the Court to make orders for sale despite the fact that such orders had not been sought in the respondents' pleadings. By their express terms, the 19 April orders were interlocutory and transferred ownership and registration of the vehicle to vest it in Shacklock pending final orders. It is plain that the magistrate contemplated that further orders were needed.

85 I see no error in the course adopted, or the orders made, by the magistrate and his path of reasoning to the final orders is evident. The appellants' contention that the respondents had made no claim in detinue is misconceived. The claim was for enforcement of an equitable charge over the Porsche. The order for possession and registration of the Porsche in the respondents' name, although interlocutory, facilitated a judicial sale of the vehicle. The undertaking noted in the court's interlocutory order preserved the status quo.

86 The right to possession of the chattel was incidental to the right of sale afforded to an equitable chargee. In a recent case, Harden Shire Council v Richardson,[18] Johnson J in the New South Wales Supreme Court examined the statutory power of sale to recover unpaid rates to determine the entitlement of the local council to possession of the property. His Honour's observations are pertinent in the present context.

I accept that vacant possession is a normal incident of sale, the availability of which is generally necessary for completion of the sale. The vendor's obligation to give vacant possession to the purchaser should occur concurrently with the payment of the purchase price and the transfer of title. A mortgagee exercising power of sale is obliged to recover physical possession of the property from the mortgagor. Mortgagees normally take possession as a preliminary to sale, so that the property can be sold with vacant possession.

It is true that the detailed statutory scheme for sale of land for unpaid rates and charges in the LG Act [Local Government Act 1993] does not contain an express power for a council to take possession of property as part of the process of sale. However, I accept the submissions of Mr Rogers that a purposive process of construction of various provisions to which reference has been made will bring about a logical and common sense outcome in this case. The construction to be adopted does not, in my view, contradict or offend any relevant statutory provision. Nor does it contradict any applicable principles of statutory construction.

After discussion principles of statutory interpretation not presently relevant, Johnson J continued:

The entitlement of the Plaintiff to obtain possession of the Jugiong property from the Defendant may be implied in the scheme in the LG Act because it is necessary (that is, reasonably required or legally ancillary) to the Plaintiff's statutory power to sell the property to Mr Smith, and to give vacant possession to him on completion as an incident of the sale.

It is a principle of construction that "Whoever grants a thing is deemed also to grant that without which the grant itself would be of no effect". Although this principle relates to construction of contracts, it sheds light here upon the appropriateness of an implied entitlement to be found in the relevant statutory scheme, which will necessarily involve a contract for sale to give effect to the statutory power of sale.

The statutory power of sale in the LG Act carries with it the entitlement of the Plaintiff to take possession of the land so that it may give vacant possession to Mr Smith on payment of the balance of the purchase price.

87 The respondents contended that the sale could not have proceeded in an orderly fashion without the transfer of possession and registration of the vehicle to a purchaser in accordance with Division 2 of the Road Safety Act 1986. The interlocutory orders for registration of ownership of the Porsche in the respondents, and possession of the vehicle, were appropriate for two reasons: to maintain the fruits of the judgment for the successful party pending final orders and to facilitate completion of a sale to a purchaser.

88 I am satisfied that a judicial sale was lawfully ordered, and the prospect of error arising from any possible misapprehension about the proper relief to be granted in enforcing an equitable charge never came to pass. The magistrate quite properly made interlocutory preservation orders and heard further submissions from the parties on final relief. An order for judicial sale out of court would have been ineffectual without the capacity for the selling party, Shacklock, to give both possession of and a registration transfer for the Porsche to a purchaser. The magistrate adequately revealed by his reasons for judgment and orders, beyond the appellants' consent or non-opposition, the path of his reasoning for adopting this course.

89 The appellants' proposed ground of appeal focuses on the interlocutory order in isolation. The appellants were aware that the possibility of error in the magistrate's reasoning evident from the relief granted on 19 April 2013 was subsequently corrected by the order for a judicial sale. It was only when the amendment to the grounds of appeal was formulated that the validity of the final orders of the primary court were challenged.

91 The appeal will be dismissed. I will hear counsel on the question of costs.

[1] Young v Paddle Bros Pty Ltd [1956] VicLawRp 6; [1956] VLR 38, 41.

[2] S v Crimes Compensation Tribunal [1998] 1 VR 83, 89.

[3] TAC v Hoffman [1989] VicRp 18; [1989] VR 197, 199.

[4] [2005] VSC 440, [30].

[5] [1977] VicRp 62; [1977] VR 561.

[6] (1893) 69 LT 380, 382.

[7] [2014] HCA 7, [35] (citations omitted).

[8] SeaRoad Logistics v Patricks Stevedores [2014] VSC 170, [11]-[15].

[9] Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) [1965] HCA 17; (1965) 113 CLR 265.

[10] As to which see generally Sykes & Walker, The Law of Securities, 5th Ed., Law Book Co, Ch 17.

[11] Unreported, [1994], Supreme Court of Victoria, (Mandie J, 5 August 1994), p 21.

[12] See now s 8 Civil Procedure Act, 2010 (Vic).

[13] [1999] VSC 103; [1999] 2 VR 342, 349 [35].

[14] Kenneth Ayres (Aust) Pty Ltd v Dennis M. Goldenberg & Associates, unreported, [1994], Supreme Court of Victoria (McDonald J, 21 June 1994)..

[15] [2005] VSCA 317, [38] (citation omitted). See also Osmond v Public Service Board of New South Wales, (1984) 3 NSWLR 447, 467-470 (Kirby P), Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247, 279 (McHugh JA), and the thorough review by Osborn JA (Beach JJA agreeing) of the authorities in the context of the obligation of a magistrate to give reasons in Ta v Thompson & Anor [2013] VSCA 344, [27]-[44].

[16] Tennant v Trenchard (1869) LR 4 Ch App 537, 542; Melbourne Tramways Trust v Melbourne Tramway & Omnibus Co Ltd [1887] VicLawRp 96; (1887) 13 VLR 487 at 490; In re Owen [1894] 3 Ch 220. Re Lloyd [1903] 1 Ch 385, 404, United Travel Agencies Pty Ltd v Cain [1990] 20 NSWLR 566; King Investment Solutions v Hussain [2005] NSWSC 1076, [51]; Tyler, Young & Croft, Fisher & Lightwood's 'Law of Mortgage', 2nd Australian Edition, 2005, [2.8].

[17] (1887) 34 Ch D 48, 50.

[18] (2012) 188 LGERA 200, 231 [167]-[168], [175]-[177], [2012] NSWSC 622 (citations omitted).