Palgo Holdings Pty Ltd v Gowans & Anor [2002] NSWSC 894 | Case summary

(c) making such other orders as it thinks just, (d) remitting the matter to the Magistrate who made the conviction or order, or imposed the sentence, to hear and determine the matter of the appeal. 7 Of the grounds of appeal in the notice of appeal, only ground 1 was argued. It was as follows. The learned Magistrate erred in law in finding the transactions relied upon by the prosecution to establish that the appellant was carrying on the business of a pawn broker were pawns or pledges. 8 The evidence adduced below was relevantly as follows. 9 A statement by Mr K W Gowans, an inspector with the Department of Fair Trading was tendered (Exhibit 1). He also gave oral evidence. The following is an extract from his statement. 17. On the 16th February 2001 I returned to the Byron Bay Police station to continue my enquiries. This included a taped interview with a Leon Murray who had carried out transactions with Cash Counters Byron Bay that were current at that time. Mr Murray indicated that he had carried out various transactions with Cash Counters Byron Bay and all had been on the basis. He would enter the store, Darrin would say how much he was prepared to loan, the paperwork was then signed, the goods left as security and Mr Murray would then leave with the money. 18. On the 20th February 2001 I again went to the Byron Bay Police Station to check evidence and again was involved in a taped interview with a Guy Bampling. Mr Bampling had a current transaction in place with Cash Counters Byron Bay at that time. He said that Darrin had offered a sum as a loan on the goods and when agreed to had taken the goods into storage as security and gave him the cash. He indicated that he had 7 days to pay back the money with interest to redeem the goods. 19. I continued my enquiries over the next 2 months approx and interviewed other persons in relation to transactions carried out by them at Cash Counters Byron Bay. 20. All persons interviewed indicated they had taken in goods which were valued by the manager of Cash Counters Byron Bay Mr Darrin Page. They all indicated that when the details were agreed to Mr Page took the items into storage as security and gave them a loan against the goods. The money along with the interest had to be paid within 7 days or the goods were sent to auction in Brisbane. 10 A statement by Senior Constable D L Hurt was tendered (Exhibit 4). He also gave oral evidence. On 15 February 2001, he executed a search warrant in relation to the appellant's premises. A quantity of goods were seized, including computers, jewellery, CDs, stereos, surfboards, mobile phones and tools. 11 Five ring binders containing copies of some hundreds of transaction documents numbered 144 to 949, found on the premises, were tendered (Exhibit 5). The transactions occurred between 16 October 2000 and 1 March 2001. 12 The transaction documents in Exhibit 5 included the 36 transactions particularised. The documentation was in standardised form, having been generated by computer on the premises in relation to each transaction. It consisted of sections entitled "Secured Loan Agreement" and "Bill of Sale/Goods Mortgage". 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. These included the following terms. 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. … … … 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. 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. 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. 15 Mr Z S Jacobs gave evidence of several transactions with the appellant. He said he did not request the manager, with whom he dealt, to hold the goods. No suggestion was made that he could retain the goods and there was no request by him that the appellant store them. 16 A statement by Mr R M Ferris was tendered. He said that on 12 February 2001 he borrowed $80 on the security of a portable radio and a mobile phone. After the documents had been signed, the appellant's manager with whom Mr Ferris dealt, said he would keep the goods at the shop. Mr Ferris said in his statement that he assumed he had to leave the goods with the appellant because that is the way a pawnbroker normally works. 17 A statement by Ms K A Vagne was tendered. She said that on 9 February 2001 she borrowed $60 on the security of a microwave and a set of speakers. She had dealt with the appellant previously. She had asked a few times where the goods were kept and the appellant's manager had said they were kept out the back. He had said that the goods would be kept there until the loan was paid off. She had noticed the reference in the documentation to the goods being kept in storage at the borrower's request. She said she had never quite understood what that meant. She had never been asked about it and had assumed that that was necessary to get the loan. The implication was that she had never been given the option of taking the goods away and had never requested that they be stored by the appellant. 18 A statement by Ms M C Boyne was tendered. She said that on 8 January 2001 she had borrowed $40 on the security of a ring. Before the documentation was completed, the ring had been put in a plastic bag and taken out the back. She said she was not made aware that she did not have to leave the ring as security in order to get the loan. Indeed, the person with whom she dealt had said that she would have to leave the ring as security. She took this to be the usual thing. 19 A statement by Mr M S Hunt was tendered. He said that on 2 February 2001 he borrowed $60 on the security of a guitar. Before the documentation was prepared, the person with whom he dealt took the guitar out the back. Mr Hunt said he was not told that he was not required to leave the guitar there, and he did not make a request to have it kept in storage. 20 A summary of a taped interview with Mr G N Bampling was tendered. In the transaction to which he referred, a radio/CD player and a video player had been provided as security. He had left the goods because he believed that was part of a normal hock transaction. He did not make any request to have the goods stored at the shop. 21 A statement by Mr P R Farrell was tendered. He had borrowed $100 on the security of a Ford Falcon motor car. He left with the car. He was not requested to leave the car with the appellant. The formula "In storage at mortgagors request" nonetheless appeared in the documentation relating to this transaction. 22 That was the evidence for the prosecution. 23 In all, apart from the tender of documentation in the very large number of transactions in Exhibit 5, evidence was adduced, by statement or orally, in relation to 17 transactions entered into between 17 October 2000 and 28 February 2001, involving eight separate borrowers. 24 Mr M C White was called for the appellant. He was administration officer for Cash Counters Pty Limited. The appellant was a licensee of that company which carried on a lending business in Queensland. He said the paperwork tendered was in a standard format used by the company in Queensland, where it had been approved by the relevant state government department. He had seen Mr Page, the manager of the Byron Bay business, doing particular loans. Mr White was permitted to give an explanation for the formula appearing in the documentation to the effect that the goods were stored at the borrower's request. This was that the borrower was under a contractual obligation to insure the property. Borrowers did not have insurance. Accordingly, the company, at the borrower's request, performed the borrower's obligations in that regard by keeping the goods on the premises where they were covered by the appellant's insurance policy. In that regard, Mr White said, the appellant was acting as agent for the borrower in relation to the borrower's obligation to keep the goods insured. 25 Mr White said that the manager of the Byron Bay store at the time of the relevant transactions, Mr Darren Page, was no longer employed by the appellant and was now in Perth. He conceded in cross-examination that Mr Page was a relative of one of the directors of Cash Counters Pty Limited and that Mr White had made no inquiry as to Mr Page's availability to attend court and give evidence. 26 The learned magistrate gave reasons for his decision in writing. These included the following passages. The defendant company is charged with an offence under Section 6 Pawnbrokers and Second-hand Dealers Act 1996 which is in these terms "A person must not carry on a business of lending money on the security of pawned goods except in accordance with a licence held by the person." At the outset it was conceded by the defendant that it did not at the relevant time hold a licence under the provisions of the act and early in the proceedings it was conceded that the issue in the case relates to the need for such a licence bearing in mind the method of lending adopted by the defendant. 27 His Worship then described the nature of the business and the standard documentation. He continued: Each of the lay witnesses indicated an expectation that, except in respect of one transaction concerning a car that the goods would remain with the defendant until the loans were repaid. Clause 4.1 provides that default occurs if, as a borrower: (1) you do not repay any of the secured money to us when due; (2) you do not make a repayment in full by the due date under the loan contract … you are in default under the loan contract Clause 4.2 provides "If you are in default under this Goods Mortgage we may send you a default notice. This notice will tell you (a) what the default is; (b) what you have to do to remedy the default". Further clause 4.3 provides "If you do not comply with the default notice: (a) you become liable to pay us immediately the secured moneys, and (b) we may repossess and sell the mortgaged property; and (c) we will apply the proceeds of sale towards repayment of the secured moneys". In practice it is difficult to imagine that the machinery provided above would be activated for loans of the nature and amount provided by the defendant and of course the formal documentation is at odds with the reality of the evidence of civilian witnesses and the provisions of the supplementary documentation (exhibit 2) which indicates an expectation on the one part and a notice on the other that the goods would on default be sold without notice. In a similar vein the provisions requiring the borrower to insure and keep insurance unless the good are "stored" with the defendant are clearly not in accordance with the practical and actual position. The goods with rare exception remained with the defendant until redeemed. The civilian witnesses gave evidence to the effect that goods were taken to the defendant premises with the expectation that a cash advance would be provided as security for the goods and that the sum borrowed plus interest would be repaid in a time frame failing which the goods would be sold by the defendant. Exhibit 2 before me contained notices in this form:- "CUSTOMERS NOTE! If loans are not paid by the due date the items left as security will be sold". Evidence was given that goods not the subject of repayment were shipped to Brisbane and disposed of by auction or such other method as the defendant determined. In respect of goods taken to the premises by the witness Jodie Rafter evidence was given by her that the loan received was for goods owned by her together with goods owned by friends, pooled for the purpose of a single loan transaction. She gave uncontradicted evidence that this method was known to and approved by Darren Page the manager of the defendants business. I accept Ms Rafters evidence. The mortgage documentation in respect of that transaction was clearly a sham as the title to the goods, or part of them, were incapable of being the subject of a bill of sale or any form of security as they were not owned by the borrower, to the defendants knowledge. 28 The reasons for decisions then continue: The defendant contends that it is not the subject of the legislation due to the manner in which the loan agreement is structured, that is for the goods to be in effect "mortgaged", the goods theoretically remaining in the possession of the borrower (para 2 of the loan agreement) and the lender being requested (See "location of Goods" in the loan agreement) to store the goods on the borrowers behalf. The prosecution on the other hand contends that the transaction is in realistic terms an act of pawning and is caught by the legislation. The clear contention of the prosecution is that the documentation does not reflect the reality of the arrangement and indeed the purported transactions were a sham. Certainly at one time the defendant believed that the legislation applied because a second hand dealers licence issued from the Department of Fair Trading (part of Exhibit 3) on the 6th September 2000. This in turn brought in to play the Pawnbroker provisions but that licence was surrendered at the Defendants request on or about the 13th December 2000.

That was a mistake. The appellant had taken out a second-hand dealer's licence for a short time, not a pawnbroker's licence. 29 His Worship 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 @ PAGE 1232 quoted with approval Cockburn CJ in Donald v Suckling (1886) LR 1 QB 585 @ 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". I am satisfied that the documentation relied upon by evidence was created and worded with the express intent to circumvent the Pawnbrokers Act and the reality of the transactions reflects that the goods were in fact pawned or pledged. They satisfy the actual tests of (1) transfer of possession, (2) the right to redeem by tendering the appropriate sum and (3) the right of sale in the pledgee of default. I am therefore satisfied that the provisions of the Pawnbrokers Act apply and it follows that I find the offence proved. 30 It was properly conceded in argument on appeal that the evidence of each of the borrowers whose evidence was adduced, whether by statement or orally, was that they were not asked if they wished to keep the goods and that they did not request storage of the goods. It was also properly conceded that the trial had proceeded on the basis that this was the factual situation. 31 It was a further common factor in the transactions that, in each of them, the goods were handed over to the appellant at the time of the transaction (with the exception of Mr Farrell's motor car). That evidence was unchallenged. It was a further common factor in the transactions that the documentation recorded that storage of the goods by the appellant was at the mortgagor's (ie the borrower's) request. 32 No notice of contention was filed. However, I waived that requirement and gave leave to the Crown to seek to support the decision on grounds other than stated by the learned magistrate, namely, that the learned magistrate was bound to find that, in the course of the appellant's business, borrowers were not asked if they wished to keep the goods, that they did not request the appellant to store the goods, that the goods were handed over to the appellant at the time of the transaction (with the exception of Mr Farrell's motor car) and that the documentation recorded that handing over the goods to the appellant for storage was at the borrower's request; and that, on the basis of such findings, the learned magistrate was bound to hold that the appellant was carrying on the business of lending money on the security of pawned goods within the meaning of and contrary to s 6 of the Act. 33 The legal elements of a pawnbroking transaction are not controversial. It is necessary only to quote the following passage from Palmer and Kendrick, Interests in Goods 2nd ed (at page 621): It [a pawnbroking transaction] arises whenever one person (the pledgor or pawnor) transfers the possession of goods actually, constructively, or symbolically to another as security for the payment of a debt or for the performance of some other obligation. If the pledgor or pawnor defaults the pledgee or pawnee may have recourse to the chattel and sell it to satisfy the debt. 34 It is a feature of a mortgage of goods that ownership passes to the mortgagee, with a covenant to reconvey the goods to the mortgagor. 35 The transfer of title in the goods was, as I have recorded earlier, an express term of the subject transactions. 36 There are cases which distinguish between a mortgage transaction, on the one hand, and a pawnbroking transaction, on the other, on the basis that a transfer of title as distinct from a mere transfer of possession is a feature of a mortgage transaction. Indeed, it is commonplace that under a bill of sale or goods mortgage, possession of the property does not pass to the mortgagee/lender but is retained by the mortgagor/borrower (for example, a bill of sale over shop fittings or over a motor car). 37 The question in the present case, however, is not whether these transactions were mortgages. Plainly, they were. The question is whether they were pawnbroking transactions. It does not seem to me that there is any legal reason why they cannot have been both. If, notwithstanding the transfer of title (as occurred), the transactions had all of the features of a pawnbroking transaction as understood by the law, including the transfer of possession as security for the loan, it seems to me that the transactions must be held to have been pawnbroking transactions. No case was cited to the contrary of that approach and I have discovered none. 38 There is a legislative context. It would be extraordinary if the legislature had intended that a transaction having all of the features of a pawnbroking transaction would not be covered by the legislation if the transaction contained the additional element that title in the goods passed to the lender. That would mean that ordinary pawnbroking transactions could be removed from the purview of the Act at the stroke of the pen, which cannot have been intended. 39 The only contentious element in the present case is whether possession passed to the appellant, in the subject instances, as security for the repayment of the respective loans. 40 The learned magistrate was bound to find that it did. The following subsidiary findings were mandated on the evidence: the borrowers were not asked if they wished to retain the goods; they did not request that the appellants store them; with the exception of Mr Farrell, they simply handed over the goods at the time of the respective transactions and the goods were then put away by the appellant's employee. The only rational reason for such a transfer of possession was as security for the respective loans. On those subsidiary findings, it was inescapable that the transactions, with the exception of the Farrell transaction, involved the lending of money on the security of pawned goods. 41 A competing thesis was that advanced by Mr White. His explanation for the transfer of possession necessarily involved that, in each of the hundreds of transactions recorded in Exhibit 5, the borrowers had gone through the mental process of deciding to leave the goods with the appellant in order to avoid being in breach of the term requiring them to keep the goods insured, rather than retain possession themselves. The thesis was implausible and was inconsistent with the evidence of the borrowers who gave evidence and whose statements were tendered. 42 The standard formula that the goods were stored by the appellant at the borrower's request was a sham. It did not record the true situation. That the same formula was used in Mr Farrell's transaction, in particular, shows that the formula was utilised automatically and without regard to the reality of the situation. 43 Whether the court below was bound to make the relevant findings is a question of law. Whether the goods the subject of the transactions were pawned goods within the meaning of the act is a question of law: Hope v The Council of the City of Bathurst (1980) 144 CLR 1. 44 For the reasons I have given, the learned magistrate was bound to find that the offence charged was made out. The appeal should accordingly be dismissed. 45 As to the appeal against sentence, no error has been demonstrated. The maximum penalty for breach of s 6 of the Act is 100 penalty units. That translates to $11,000. The penalty imposed was a fine of $6,000. 46 In submissions as to penalty placed before the learned magistrate, it was submitted on behalf of the appellant that its standard documentation had been approved in Queensland (as Mr White said in his evidence). The further submission was made that, based on legal advice, the appellant was led to believe that it did not require the relevant licence to conduct its business in New South Wales. There was no evidence of that. 47 It was submitted that the offence was committed on the basis of a mistake of law and that no more than a minimal penalty was warranted. The learned magistrate obviously gave no weight to that submission. There was no error on his part in that regard. I do not doubt that legal advice, if sought, would have informed the appellant that to carry on business in New South Wales, utilising the documentation which was in fact utilised, would require a licence under the Act. There was an obligation to obtain such advice and no evidence that this had been done. 48 The offence constituted a serious breach of important regulatory law. Licensing under the Act is not merely a revenue raising exercise. It is the means whereby pawnbroking businesses are brought within a regulatory scheme designed to minimise the trafficking in stolen goods and to provide consumer protection to borrowers of a class least able to protect themselves. 49 The penalty imposed was not excessive and the appeal against sentence should be dismissed. 50 The appeal against conviction and sentence is dismissed. -o0o-

Palgo Holdings Pty Ltd v Gowans & Anor

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