General Motors Acceptance Corp Australia v Southbank Traders Pty Ltd

General Motors Acceptance Corp Australia v Southbank Traders Pty Ltd - [2007] HCA 19 - HCA 2007 case summary — Zoe

[40]

The question which arises is one of statutory construction. The meaning of the word "security" may vary according to context[5], but the outcome of this case turns upon the meaning with which the Victorian Parliament used the expression "security interest" in the Act.
In Clough Mill Ltd v Martin[6], the English Court of Appeal was concerned with the application of a provision of the Companies Act 1948 (UK) relating to registration of charges, and had to decide whether a retention of title clause in a contract for the sale of goods created a charge over the goods in favour of the vendor. For that purpose the Court of Appeal accepted an earlier judicial definition of "charge"[7] as embracing "any contract which, by way of security for the payment of a debt, confers an interest in property defeasible or destructible upon payment of such debt, or appropriates such property for the discharge of the debt". It was held that the contract of sale did not answer that description because it did not confer an interest in property on the vendor; rather, ownership of the goods never left the vendor because it was reserved by the contract of sale. Oliver LJ[8] said that there was no doubt that an important part of the purpose of the clause was to give the vendor security for the payment of the purchase price, but the protection given in the event of the insolvency of the buyer went beyond that. His Lordship also said that the operative word in the judicial definition of charge was "confers", and that was not apt to cover a reservation of title. The buyer conferred no interest in property on the vendor; rather, the vendor retained its interest. The House of Lords reached a similar conclusion in Armour v Thyssen Edelstahlwerke AG[9].
The issue that arose for determination by this Court in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq)[10], although it also concerned the alleged effect, as a charge, of part of a retention of title clause, was somewhat different, and it turned particularly on the distinction between two "building blocks of the law of property": the institutions of the trust and the charge[11]. Nothing in that decision cast doubt on what had earlier been said by the English courts. The statutory definition in issue in Associated Alloys (with its use of the technical expression "charge") may be contrasted with the definition in issue in the present case.

[45]

The potential width of the term "security" is reflected in the meaning given in Stroud's Judicial Dictionary[14] as "anything that makes the money more assured in its payment or more readily recoverable." In Butterworths Australian Legal Dictionary[15], with reference to Batchelor & Co Pty Ltd v Websdale[16], the word "security" is primarily defined as "something that secures or makes safe."
The Act clearly recognises the possibility of a conditional sale of goods under which title has not passed to the buyer. It does so in terms in s 3(3), and the definition of "inventory security interest", which applies to s 7(1)(b), refers to a "security interest" (as defined) that has been "reserved in or over goods in the possession or control of a dealer". The Court of Appeal pointed out that the present is not a case of possible extinguishment of a registered inventory security interest under s 7(1)(b). It is a case of possible extinguishment of an unregistered security interest under s 7(1)(a). Nevertheless, it is significant, as a matter of construction, that the definition of "inventory security interest" envisages that a security interest may be an interest that is reserved in or over goods, as well as one that is given by the owner of the goods.
In the reasons of the Court of Appeal, the legislative history of the relevant provisions was set out in some detail. In 1972, the Molomby Committee made a report to the Victorian Attorney-General entitled "Fair Consumer Credit Laws". The Committee recommended legislative reforms designed to deal with the substance, rather than the form, of chattel security transactions. It referred to the use of conditional sale agreements as a means of avoiding the registration requirements of bills of sale legislation and remarked that "functionally the retention of title by the vendor or owner under a non-registrable agreement is a security."[17] It recommended that transactions with the same commercial substance should be regulated in like manner, and that there should be no difference between the regulation of conditional sale agreements and of bills of sale and chattel mortgage securities[18].
In 1978, legislation substantially based on the Molomby Report was introduced in the Victorian Parliament. It included the Chattel Securities Bill. That Bill did not involve a registration system. The proposed legislation was stood over for public discussion. In 1981, legislation, involving redrafts of the 1978 proposals, was enacted. It included the 1981 Act, which provided for a system of registration of certain interests. It included, in s 2(1), a definition of "security interest" as:

[52]

The statement that the 1987 Act defines "security interest" by reference to creation is somewhat elliptical. It defines "security interest" by reference to debt or other pecuniary obligation. The definition of "debtor" says it means the person who created the security interest, and includes lessees and hirers. The lessee under a lease of goods and the hirer under a hire-purchase agreement do not in any strict legal sense create the interest of the owner, yet that interest is a security interest, and the lessee or hirer, in the definition of "debtor", is included in a class generally described as persons who created the security interest. This suggests that, in the definition of "debtor", the reference to the creation of a security interest is not intended to reflect a dichotomy between creation and reservation, for it is reservation which is more apt to describe what occurs in relation to the interest of a lessor or an owner under a hire-purchase agreement.
The Court of Appeal then turned to what it described as the "mystery" of s 3(3) of the 1987 Act. That provision deals with hirers or lessees of goods or buyers of goods under a conditional sale, and, for the purposes of the Act, deems them to have an interest in the goods notwithstanding that title or general property in the goods has not passed to the hirer, lessee or buyer. The Court of Appeal could find no purpose of the Act that was served by this deeming provision. It therefore concluded that the provision was of no assistance in construing the definition of "security interest". This reasoning was challenged by the appellant.
Sub-section (3) of s 3 makes it plain that conditional sales, under which title had not passed to the buyer, were intended at least in some respects to be affected by the Act. Furthermore, it deals compendiously with leases, hire-purchase agreements and conditional sales. Those matters cannot be ignored when considering the critical words of the definition of "security interest", which is said to include "any interest in or power over goods of a lessor, owner or other supplier of goods". "Owner" is defined by reference to hire-purchase agreements. Where there is reference, in one provision of s 3, to "a lessor, owner or other supplier of goods", and a question arises as to what kind of person was in contemplation as a supplier of goods, it is significant that in another provision of s 3 there is a reference to leases, hire-purchase agreements and conditional sales.
It was suggested in argument in the Court of Appeal that one purpose of s 3(3) was to enable s 7(1) to operate in the case of a sale of the relevant goods to a third party by a lessee, hirer, or buyer under a conditional sale agreement. Section 7(1) requires, for its application, a purchase or purported purchase of an interest in the goods. It is that which causes the extinguishment of the unregistered security interest. If the person (say, a motor trader) who effects the sale is a lessee or hirer of the goods or a purchaser under a conditional sale agreement, that person is deemed to have an interest in the goods in order to support the conclusion that there had been a purchase or purported purchase of an interest in the goods. Further, s 3(3) may be engaged in the case of successive, or back-to-back, financing arrangements. In such a case, a lessee, hirer, or buyer is deemed to have an interest in the goods. Section 3(3) cannot be ignored.
In the present case, the critical words are those of the definition of "security interest", which includes "any interest in or power over goods of a lessor, owner [of goods subject to a hire-purchase agreement] or other supplier of goods". The words "other supplier of goods" are wide enough to cover a vendor of goods under a conditional sale in which title or general property in the goods has not passed to the buyer. The provisions of s 3(3) suggest that the Act treated leases, hire-purchase agreements, and conditional sales in the same way. To do so would be consistent with the recommendations of the Molomby Committee as modified by the recommendations of the Viney Committee.
To be a "security interest" the interest, relevantly, must be one that "secures" payment of a debt or other pecuniary obligation. Reference has been made above to the potential width of that term. The express inclusion of the interests of lessors, and owners of goods subject to hire-purchase agreements, demonstrates that the concept of security is not used in any narrow sense. In a strict sense, those interests are not conferred or created by the lessee or hirer. The right of ownership never passes from the owner. Such interests are, however, security in a broader sense, and it is in that sense that the Act speaks of an interest which secures payment. If it were otherwise there would be an internal inconsistency in the definition.
The words in parentheses in the definition of "security interest" speak of an interest "arising by or pursuant to an instrument or transaction". Again, since the definition includes the interests of a lessor or owner (in the case of a hire-purchase agreement), and since the rights of ownership of such a person exist before and apart from the lease or hire-purchase agreement, then the words "arising by or pursuant to an instrument or transaction" cannot be used in a technical sense and, in particular, cannot be intended to distinguish between an interest which owes its existence entirely to the instrument or transaction in question and an interest reserved by such instrument or transaction. The same may be said of the word "created" in the definition of "debtor", which also includes leases and hire-purchase agreements.
A conclusion that the definition of "security interest" includes conditional sales is consistent with the purpose of the legislation, the statutory context, and the text, understood in the light of the potential width of the language used. It is to be preferred to the conclusion reached by the Court of Appeal. On this issue, the appellant succeeds.

[53]

Both the primary judge and the Court of Appeal addressed the further question, raised by s 7(1) of the Act (if it applied) as to whether GMAC's purchase from Kingstrate was for value in good faith and without notice. The primary judge answered that question favourably to GMAC. The Court of Appeal, after examining the detail of the evidence, and without expressing any concluded view of its own, decided that there was error in the way the primary judge reasoned on the point and said that, if GMAC had succeeded on the first issue, it would have been necessary to remit the matter for retrial. That conclusion has not been challenged in this Court. Nevertheless, GMAC raised in this Court, and in the Court of Appeal an argument which, if accepted, would outflank Southbank's reliance on the matters referred to.
The argument was based on s 10 of the Act, which deals with priorities. In brief, the argument was that GMAC had a security interest, and, since GMAC registered its security interest before Southbank, then, GMAC's security interest took priority. To this argument, Southbank replied, without much elaboration, that there were deficiencies in GMAC's registration which defeated its reliance on s 10. There was said to be at least a triable issue as to what, if anything, GMAC achieved by its registration. The Court of Appeal did not express a view upon this point.
In this Court, there were three grounds of appeal. Ground 1 related to what was earlier described as the principal question in this appeal, that is, the meaning of "security interest". Ground 2 was that the Court of Appeal erred in not dealing with s 10 of the Act. Ground 3 was that the Court of Appeal erred in not dealing with an argument based on s 67 of the Goods Act 1958 (Vic). Ground 1 should be resolved in favour of the appellant. As to the remaining grounds, and as to the issues outstanding under s 7(1) of the Act, the matter should be remitted to the Court of Appeal to be dealt with in accordance with the reasons of this Court. That may or may not involve remitting the matter to a trial court, as the Court of Appeal considers necessary.

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