Palgo Holding Pty. Ltd. v. Gowans [2003] NSWCA 204 - NSWCA 2003 case summary — Zoe

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Palgo Holding Pty. Ltd. v. Gowans [2003] NSWCA 204

[2003] NSWCA 204

Court of Appeal (NSW)|2003-06-11|Before: Handley JA, Beazley JA, Hodgson JA, Sperling J

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Source facts

Court

Court of Appeal (NSW)

Decision date

2003-06-11

Before

Handley JA, Beazley JA, Hodgson JA, Sperling J

Source

Original judgment source is linked above.

Judgment (40 paragraphs)

[1]

CITATION : Palgo Holding Pty. Ltd. v. Gowans [2003] NSWCA 204 revised - 24/09/2003 HEARING DATE(S) : 11 June 2003 JUDGMENT DATE : 25 July 2003

[2]

JUDGMENT OF : Handley JA at 1; Beazley JA at 9; Hodgson JA at 10 DECISION : 1. Leave to appeal granted, and order that a Notice of Appeal be filed within 14 days. 2. Appeal dismissed. 3. Appellant to pay respondent's costs of the application and the appeal.

[3]

CATCHWORDS : BAILMENTS -Pledges - Whether pledge inconsistent with mortgage - MORTGAGES - Chattel securities - Whether mortgage inconsistent with pledge - CRIMINAL LAW - Further appeal from conviction of lending money on the security of pawned goods without a licence - Whether documentation of transactions as mortgages inconsistent with goods being "pawned goods". LEGISLATION CITED : Pawnbrokers and Second-hand Dealers Act 1996 s.6 Cosslett (Contractors) Ltd., In Re [1998] Ch 495 Dalco v. FCT (1988) 82 ALR 669 CASES CITED : Esanda Ltd. v. Burgess [1984] 2 NSWLR 128 Hubbard, Ex Parte. In Re Hardwick (1886) 17 QBD 690 Official Receiver, Ex Parte. In Re Morritt (1886) 18 QBD 222 Paintin & Nottingham Ltd. v. Miller Gale & Winter [1971] NZLR 164 PARTIES : Palgo Holding Pty. Limited t/as Cash Counters Byron - appellant Kelvin Gowans as a public officer on behalf of the Director General of Department of Fair Trading - respondent FILE NUMBER(S) : CA 40962/02 COUNSEL : Mr. L.J. Aitken for appellant Mr R. Greenaway for respondent SOLICITORS : Hewlett & Company, Brisbane for appellant D.I. Catt for respondent

[7]

Friday 25 July 2003 PALGO HOLDING PTY. LIMITED V. GOWANS Judgment 1 HANDLEY JA: In this application for leave to appeal I have had the benefit of reading the reasons for judgment of Hodgson JA in draft form. His Honour comprehensively sets out the evidence, the findings of the magistrate, the history of the proceedings, and the legislative provisions, and I have no need to repeat this material. 2 The question in this case, as Sperling J recognised, was not whether the transactions between the appellant and its customers could be characterised as mortgages. As his Honour said, plainly they were. The question was whether the transactions were pledges and could also be characterised as such. 3 The transactions exhibited all the essential elements of a pledge at common law because there was a bailment of goods by their owner to the appellant as security for a debt, and the appellant had possession of the goods pursuant to that bailment. The appellant possessed additional rights under its mortgages, but in my judgment these additional rights were not inconsistent with a common law pledge of the goods. Those additional rights did not deny or exclude any of the essential features of a valid pledge but merely conferred additional rights on the pledgee. 4 This is clear in principle and is not denied by any authority to which we were referred. Thus in Ex parte Hubbard in re Hardwick (1886) 17 QBD 690 Bowen LJ said at 698: If the pledge is accompanied by a written document, still the essence of the transaction is that actual possession of the goods should be given to the pledgee. 5 Although, in that case, the document only recorded the pledge and did not purport to confer additional rights as a mortgagee on the pledgee, this analysis is still relevant. 6 In Ex parte Official Receiver in re Morritt (1886) 18 QBD 222 Cotton LJ, delivering the judgment of himself, Lindley and Bowen LJJ, said at 232-3: A pledge of personal chattels as a rule is and must be accompanied by delivery of possession. It is out of the possession given him under the contract that the pledgee's rights spring. A contract of pledge carries with it the implication that the security may be made available to satisfy the obligation, and enables the pledgee in possession (though he has not the general property in the thing pledged, but a special property only) to sell on default in payment and after notice to the pledgor ... A mortgage of personal chattels involves in its essence, not the delivery of possession, but a conveyance of title as a security for the debt. A mortgage of personal chattels may, however, be accompanied with a transfer of possession ... But I am of opinion that a mortgagee of personal chattels which are in his possession is not in a worse position than a pledgee, and that, where there is no express power of sale given by the mortgage, he has, after default in payment, and after he has given the mortgagor a reasonable time to pay the money due, a power to sell and give a good title to the purchaser .... 7 The important point, for present purposes, is that a mortgagee of personal chattels which are in his possession is not in a worse position than a pledgee. If he has all the rights of a pledgee plus the additional rights conferred by his mortgage, including the general property in the goods, then the transaction can fairly and properly be characterised as a combined pledge and mortgage. Such transactions are clearly within the Act. 8 I agree therefore with the orders proposed by Hodgson JA. 9 BEAZLEY JA: I agree with Hodgson JA and the additional reasons of Handley JA. 10 HODGSON JA: The applicant Palgo Holding Pty. Limited was convicted in Lismore Local Court on the following charge: Between 16 October, 2000 and 1 March, 2001 at Byron Bay in the State of New South Wales that the defendant did carry on the business of lending money on the security of pawned goods within the meaning of the Pawnbrokers & Second-hand Dealers Act 1996 whilst not being the holder of a licence contrary to the Act or Regulations.

[15]

13 Particulars of the bill of sale incorporated in the document included the name of the appellant as "Mortgagee", the name of the borrower as "Mortgagor", and a description of the goods as "Mortgaged Property". Then followed a particular "Location of Goods" against which, in all cases, the following words appeared: "In storage at mortgagors request". The terms of the bill of sale/goods mortgage were attached. 14 The mortgage included the following terms: 1(a) If the Mortgaged Property is situated in Queensland, New South Wales, the Australian Capital Territory, Tasmania, South Australia or the Northern Territory, you transfer title in the Mortgaged Property to us as security for the repayment of the Secured Moneys. … 5.1 You must keep the Mortgaged Property in good condition and repair. 5.2 You must keep the Mortgaged Property in your possession and custody. ... 6.2 You must take out comprehensive insurance (a) you must maintain insurance in connection with the Mortgaged Property against loss, theft, damage, accident, fire, storm, tempest and any other risk that a prudent owner would insurance against; (b) you must insure the Mortgaged Property for any value that we may reasonably require; (c) you must insure our interest as well as your interest in the Mortgaged Property and you must note our interest on any insurance policy. 6.3 You must provide evidence of any insurance. Upon request, you must show us evidence that satisfies us of any invoice and its currency in connection with the Mortgaged Property. 15 The primary judge's summary continued as follows: 14 Ms J Rafter gave evidence in relation to three of the subject transactions. As to the first of them, she said that she pooled certain goods with two other persons, that the transaction went through in her name, and that the one sum of money was lent which she split up with the other two. She said that the manager of the appellant just took the goods, the implication being that there was no suggestion that she and her friends had the option of taking the goods away with them and that there was no request by them for the appellant to store the goods during the currency of the loan. There was then evidence of two further transactions entered into by Ms Rafter. In relation to those transactions there was explicit evidence that no suggestion was made that the goods could be taken away and there was no request for the appellant to store the goods. She said she was not asked at any stage whether she had insurance.

[25]

There is no definition of "pawned goods" in the Act. 18 It was common ground that the applicant had no licence during the relevant period, and also that money was lent on the security of goods. The only question at issue was whether, in the events that occurred, the goods over which security was provided were "pawned goods" within the meaning of the Act. The Magistrate found the offence proved, convicted the applicant, and imposed a fine of $6,000.00. 19 After considering the arguments presented to him, the Magistrate expressed his conclusions as follows: The act provides a definition of a Pawnbroker in these terms (vide section 3) "Pawnbroker means a person who carries on a business of lending money on the security of pawned goods". There is however no definition within the act of what is or is not pawned goods. The shorter Oxford Dictionary defines pawn as "a thing given, deposited or left in another's keeping, as security for a debt" and as a verb "to give or deposit as security for the payment of a sum of money." Sykes and Walker in the 5th edition of The Law of Securities describes pawning or pledging as arising "when one person transfers the possession of goods actually, constructively, or symbolically to another as security for the payment of a debt ... ... If the pawnor defaults the pawnee may have recourse to the chattel to sell it to satisfy the debt." In reality in all but one transaction the goods were left with the defendant and of course Exhibit 2 clearly demonstrates that in the event of the principal and interest not being repaid then the goods were to be sold. In Osborne Computer v Airroad Distribution 1995 37 NSWLR at page 389 (a case involving corporation law) His Honour Mr Justice Rolfe had cause to determine whether goods were held by lien or pledge and cited Herron A/CJ in Gunnedah Municipal Council v New Zealand Loan and Mercantile Co Limited (1963) NSWLR 1229 at p 1232 quoted with approval Cockburn CJ in Donald v Suckling (1886) LR 1 QB 585 at 618-619 "We are not dealing with a case of lien, which is merely the right to retain possession of the chattel, and which right is immediately lost on the possession being parted with ... ... ... In the contract of pledge, the pawnor invests the pawnee with much more than the mere right of possession. He invests his with a right to deal with the thing pledged as his own, if the debt be not paid and the thing redeemed at the appointed time." In Osborne Rolfe J went on to find in that case that the contract was one of pledge "the two essential elements being the possession by the defendant and the right to sell".

[36]

SUBMISSIONS 23 Mr. Aitken for the applicant, submitted that, because the primary judge found there was a chattel mortgage in each relevant transaction, there could not have been in each transaction a pledge or pawn: a pledge or pawn is a bailment, where the only security is possession of the goods. 24 Mr. Aitken referred to Ex Parte Official Receiver. In Re Morritt (1886) 18 QBD 222, per Cotton LJ at 232, where the following appears: In order to solve the question which I am now considering, it is necessary to consider the exact rights of sale which a mortgagee of personal chattels possesses. A pledge of personal chattels as a rule is and must be accompanied by delivery of possession. It is out of the possession given him under the contract that the pledgee's rights spring. A contract of pledge carries with it the implication that the security may be made available to satisfy the obligation, and enables the pledgee in possession (though he has not the general property in the thing pledged, but a special property only) to sell on default in payment and after notice to the pledgor, although the pledgor may redeem at any moment up to sale. A mortgage of personal chattels involves in its essence, not the delivery of possession, but a conveyance of title as a security for the debt. A mortgage of personal chattels may, however, be accompanied with a transfer of possession; and mortgages of personal chattels in cases where possession is retained by the mortgagor may, and commonly do, provide that on default the mortgagee may take that possession which is until default withheld from him. There is very little, if any, authority on the point. But I am of opinion that a mortgagee of personal chattels which are in his possession is not in a worse position than a pledgee, and that, where there is no express power of sale given by the mortgage, he has, after default in payment, and after he has given the mortgagor a reasonable time to pay the money due, a power to sell and give a good title to the purchaser, though, of course, the mortgagor has, at any time before sale, a right on payment of the money due, including expenses, to prevent the sale and redeem the chattels. 25 He referred to Halsbury's, Laws of England, 4th Ed., Vol.32, par.[312], where the following appears: 312. Mortgage distinguished from pledge or pawn. A pledge is a species of bailment whereby chattels are deposited by way of security with the pledgee, its key characteristic being the actual or constructive delivery of immediate possession of the chattels in exchange for the loan but without transfer of ownership. The pledgor's right to possession is deferred to the repayment of the debt; however, he retains the right to deal with the goods as title-holder subject to the pledge. It is said that the pledgor retains a general property in the goods, while the pledgee takes a special property, but this terminology has been criticised. The pledgee does not acquire title to the goods, but has the power to to (sic) sell the goods in default of payment at the stipulated time, if any, or at a reasonable time after demand and non-payment where no time for payment is agreed upon.

[38]

DECISION 30 I accept Mr. Aitken's submission that, considered as complete transactions, the subject transactions were not found to be shams. I accept that the circumstance that they were designed to avoid the relevant statutory provision is not a basis for finding the transactions to be shams: Esanda Limited v. Burgess [1984] 2 NSWLR 128. I accept that, in proceedings between the applicant and each customer, a tender of the signed document would establish the terms of the agreement between them, subject to the limited exceptions to the parole evidence rule. 31 However, it is also clear that, apart from the transaction involving Mr. Farrell, the goods were left with the applicant. Furthermore, in all cases, including Farrell, the signed document noted the location of the goods as "in storage at the mortgagor's request". 32 The fact of the applicant's retention of the goods, together with this note, shows that an arrangement was made which was contrary to the requirement of cl.5.2 of the document that the mortgagor keep the property in the mortgagor's possession. If the applicant had claimed that a mortgagor was in breach of cl.5.2, the answer to that claim was in the document itself, namely the acknowledgement that the goods were in the applicant's possession at the request of the mortgagor. Furthermore, if the mortgagor had required the applicant as mortgagee to return the property to the mortgagor's possession, without paying the loan back, it would have been open to the mortgagee to rely on the "request" referred to in the document; and it would have been possible for the mortgagee to claim that it would not have entered into such a transaction unless the "request" had been made and the goods handed over, and thereby to resist their return. I do not need to find that such resistance would have been legally justified: it is highly unlikely that there would be court proceedings over these items of small value. I am suggesting however that the document does not negative the reality that the applicant was relying on possession as security. 33 The primary judge went so far as to find that the formula that the goods were stored by the applicant at the borrower's request was a sham; and the same must also apply to the terms relating to possession, maintenance, access and insurance. In my opinion, that finding was justified. 34 In these circumstances, in my opinion the transactions (apart from that of Farrell) had all the elements of pledge or pawn transactions. The mode of entering into the transactions was typical of that of a pawnbroker's business, and the transactions had the essential elements of the passing of possession, substantial reliance on possession as security (rather than entitlement to take possession), and the ability to sell on default. In my opinion, the mere circumstance that the applicant had a document which gave it rights as a mortgagee is not sufficient to prevent these transactions being fairly described as pledges or pawns. 35 I do not think this view is inconsistent with the authorities cited by Mr. Aitken, referred to above, nor with what was said in Hubbard. At p.698 of that case, Bowen LJ said this: There are two well-known and entirely distinct kinds of transaction. There is a mortgage of chattels, when there is no delivery of the chattels to the mortgagee, but the general property in them passes to him by the mortgage deed. There is another entirely distinct transaction, which was known to the Romans, and has been long familiar to English law, the transaction of pawn or pledge, where there must be a delivery of the goods pledged to the pledgee, but only a special property in them passes to him, in order that they may be dealt with by him, if necessary, to enforce his rights - the general property in the goods remaining in the pledgor. 36 It is to be noted that Bowen LJ spoke of a mortgage of chattels as being where there was no delivery of the chattels; and of pawn or pledge as being where there must be a delivery of the goods. I do not think it is inconsistent with this to say that, if one has delivery of possession and reliance on possession by the lender, the fact that the lender also obtains a passing of title as mortgagee will not necessarily prevent the transaction from being a pawn or pledge. 37 There is another approach that can be taken also. The statute refers to "the business of lending money on the security of pawned goods". Where the applicant carried on business in the fashion of a pawnbroker, receiving possession of goods in circumstances where the intention of both parties was plainly that possession be retained until the loan was repaid and that the applicant could sell in the event of default, the goods in question are fairly described as "pawned goods" even if, on a technical legal analysis, they were subject to a mortgage contract and the transactions were not pledges or pawns strictly so called. If I were wrong to say that the transactions were pledges or pawns strictly so called, I would have accepted that alternative argument.