Gamer's Motor Centre (Newcastle) Pty Ltd v. Natwest Wholesale Australia Pty Ltd

163 CLR 236
72 ALR 321

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(Decision by: Toohey J)

Between: Gamer's Motor Centre (Newcastle) Pty Ltd
And: Natwest Wholesale Australia Pty Ltd

Court:

Judges: Mason CJ
Brennan J
Dawson J

Toohey JGaudron J

Subject References:
Sale of Goods

Hearing date: 3 March 1987
Judgment date: 24 July 1987

Sydney (heard in Canberra)

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Decision by:
Toohey J

In Bishopsgate Motor Finance Corporation, Ltd. v.  Transport Brakes, Ltd. - Winsor Garage, Third Party [1949] 1 KB 322 , at pp 336-337 Denning L.J. said: 

"In the development of our law, two principles have striven for mastery.  The first is for the protection of property:  no one can give a better title than he himself possesses.  The second is for the protection of commercial transactions: the person who takes in good faith and for value without notice should get a good title.  The first principle has held sway for a long time, but it has been modified by the common law itself and by statute so as to meet the needs of our own times."

In this appeal the Court is required to consider and apply the two competing principles.

The respondent is a finance company.  On 17 November 1978 it entered into a "Used Vehicle Bailment Agreement" with Evans & Rose Motors Pty. Limited, a car dealer.  The agreement was a form of floor plan arrangement by which the respondent financed the dealer in purchasing motor vehicles. The dealer agreed to sell each vehicle so financed to the respondent and then to take it on hire and hold it as bailee for the respondent for display purposes.  In July 1979 the respondent, pursuant to the terms of the agreement, purported to buy eight motor vehicles from the dealer.  The dealer signed eight documents, each addressed to the respondent and described as "Delivery Receipt for Trade-in or Used Vehicles".  The respondent paid the dealer ninety per cent of the agreed price of each vehicle, in accordance with the agreement.

Before the "purchase" of the eight vehicles by the respondent, the dealer had agreed to buy them from the appellant which was a motor vehicle wholesaler. The dealer did not pay for the vehicles; nevertheless the appellant gave possession of them to the dealer which took them to its premises.  Clause 4 of the invoice regulating the sale of each vehicle from the appellant to the dealer read: 

"Where payment is made other than in full settlement and in cash, all property rights in the vehicle remain in the vendor."

It was common ground that, by reason of cl.4, no property in any vehicle passed from the appellant to the dealer until payment of the purchase price.

Late in July the appellant seized the vehicles because of non-payment of the purchase price by the dealer.  In the District Court of New South Wales the respondent was awarded damages against the appellant for the value of motor vehicles unlawfully detained by the appellant.  An appeal to the Court of Appeal was dismissed.  By this appeal the appellant seeks to set aside the order of the Court of Appeal and the judgment of the District Court against it.

Section 28(2) of the Sale of Goods Act 1923 (NSW) reads: 

"(2)

  Where a person having bought or agreed to buy goods obtains with the consent of the seller possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or documents of title under any sale pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have the same effect as if the person making the delivery or transfer were a mercantile agent intrusted by the owner with the goods or documents of title."

The contest between the parties largely turns on the question whether "delivery" in s 28(2) means actual delivery or whether it includes constructive delivery.  The dealer, having agreed to buy the motor vehicles from the appellant, obtained possession of those vehicles with the appellant's consent. Each delivery receipt document addressed by the dealer to the respondent referred to the dealer having "taken delivery" of the vehicle in question from the respondent in terms of the bailment agreement between them. But there had been no prior actual delivery or transfer of the motor vehicles or the documents of title relating to them from the dealer to the respondent. It followed that the respondent could not claim the benefit of s 28(2) unless constructive delivery fell within the language of the sub-section.

There is no doubt where the common law stood, at least until the nineteenth century.  The principle underlying the aphorism nemo dat quod non habet has been described as an "article of faith" (Goode, Commercial Law, (1982) p 392). The rule is enshrined in s 26(1) of the Sale of Goods Act in these words: 

"(1)

  Subject to the provisions of this Act, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell."

With the development of commerce and the provision of credit it became apparent that some protection was necessary for the innocent purchaser "if goods were to move freely in the stream of trade" (Goode, p 392). Nevertheless the defences available at common law to an innocent purchaser against the true owner of goods were very limited.  They were enumerated by Willes J. in Fuentes v. Montis (1868) LR 3 CP 268, at pp 276-277.

Statutory inroads into the common law's insistence that a transferor of goods could give no better title than he himself possessed came initially through the Factors Acts.  They had what the Privy Council described in Pacific Motor Auctions Pty. Ltd. v. Motor Credits (Hire Finance) Ltd. (1965) 112 CLR 192 , at p 199; [1965] AC 867 , at p 882 as: 

"... the object of mitigating the asperity of the common law towards an innocent party purchasing goods from a person who has all the trappings of ownership but in truth has no proper title to the goods."

Through the Factors Acts (UK) of 1823, 1825, 1842, 1877 and the consolidation of 1889, a measure of protection was given, at first to those who dealt with mercantile agents in possession of goods and later to those who dealt with such agents in possession of documents of title. Thereafter protection was extended to those who dealt with a seller who, having sold goods, continued in possession of them or their documents of title and to those who dealt with a buyer who, having bought or agreed to buy goods, obtained possession of them or their documents of title.  Sections 8 and 9 of the Factors Act 1889 were incorporated in s 28(1) and (2) of the Sale of Goods Act of New South Wales.

While the Factors Acts and the relevant provisions of the Sale of Goods Acts represented a clear movement away from the common law, they did not abrogate the common law rules in their entirety.  Some of the limitations of the English equivalent of s 28(1) are explored by Rutherford and Todd in "Section 25(1) of the Sale of Goods Act 1893:  The Reluctance to Create a Mercantile Agency", (1979) Cambridge Law Journal, 346.

And it is not the case that sub-ss.(1) and (2) of s 28 are entirely complementary.  There are important differences between them; those differences are explored by Professor Sutton in Sales and Consumer Law in Australia and New Zealand, 3rd ed. (1983), pp.330-335.  Sub-section (1) requires that there be a sale by the person who continues or is in possession of the goods or documents of title. Sub-section (2) applies where a person has "bought or agreed to buy goods".  Thus it is enough in the present case, for the purposes of sub-s(2), that the dealer bought or agreed to buy the motor vehicles from the appellant. Sub-section (1) does not require that the seller be in possession with the consent of the buyer; sub-s(2) makes the seller's consent to the buyer obtaining possession necessary.  In the present case the dealer was in possession of the motor vehicles with the consent of the appellant.

The important question, as already noted, is whether the reference to "delivery" in sub-s(2) is confined to actual delivery or whether the term embraces constructive delivery. Section 28 validates the delivery or transfer of goods or documents of title in the circumstances there mentioned by giving that delivery or transfer the same effect as if the person making the delivery or transfer were a mercantile agent entrusted by the owner with the goods or documents of title.  But the statutory title conferred on the innocent third party depends on the delivery or transfer and not on the prior bargain:  see Cahn v. Pockett's Bristol Channel Steam Packet Company [1899] 1 QB 643 , at pp 654-655; City Fur Manufacturing Company, Ltd. v. Fureenbond (Brokers) London, Ltd. [1937] 1 All ER 799 , at p 802.

In my view, the "delivery" spoken of in s 28(2) is actual delivery to a third party.  There was no actual delivery to the respondent, hence the sub-section did not operate to confer any title on the respondent.

A similar view of "delivery", as it appears in s 28 and its equivalents, is implicit in the judgment of North J. in Nicholson v. Harper (1895) 2 Ch 415, and explicit in the judgments of Helsham J. in Bank of New South Wales v. Palmer (1970) 2 NSWR 532 and O'Regan J. in N.Z. Securities & Finance Ltd. v. Wrightcars Ltd. (1976) 1 NZLR 77.

Bank of New South Wales v. Palmer concerned a contract by a boat builder to build a catamaran for the defendant. Under the agreement payments were to be made during construction but the defendant became the owner of the boat from the time construction began.  The plaintiff, which was the boat builder's bank, sought security for his overdrawn account.  The boat builder gave the plaintiff a false picture of his arrangements with the defendant, asserting that he (the builder) was the owner of the boat.  The plaintiff accepted a trader's bill of sale in its favour; the boat remained with the builder. Helsham J. dismissed the plaintiff's claim for possession of the boat, saying at p 536: 

"I am of the view that the words of the section must be read in a way that restricts their operation to cases in which such a change in physical possession of goods or title deeds occurs, and I do not think to read the words in this way is other than in accordance with how they appear in the section and what was intended to be the operation of the section.  ...  What does matter is that the section does not in terms refer to property in goods being the subject of any transfer, nor does it expressly refer to any transaction which is ordinarily accompanied only by a transfer of the property in goods rather than the goods themselves.  That being so, I can see no reason for reading the words of the section in a way that would extend their operation beyond situations which are referred to, namely the delivery or transfer of goods or their documents of title.  I believe that the view which I have formed is reinforced by the use of the word 'receiving' in relation to the person involved as purchaser, pledgee or disponee in the second or subsequent transaction."

His Honour's reference to "receiving" is a reference to sub-s(1) of s 28; but the word appears also in sub-s(2), lending support to the notion that actual delivery is intended.

It follows that I respectfully dissent from the view of McHugh J.A. in the present appeal that Bank of New South Wales v. Palmer and the earlier English decision of Nicholson v. Harper were wrongly decided.  His Honour regarded it as significant that "Other sections of the Sale of Goods Act 1923 show quite clearly that there can be delivery i.e. 'a voluntary transfer of possession' for the purposes of the Act without a change in the physical custody of goods: ss 32(3) and 43(2)."  But, so far as s 32(3) is concerned, the sub-section itself recognizes that delivery may be constructive.  It lies within Pt IV of the Act, entitled "Performance of the Contract".  It is concerned only with the relationship between seller and buyer, a quite different situation from that to which s 28 is directed.  It provides that where goods, at the time of sale, are in the possession of a third person, there is no delivery by seller to buyer "unless and until the third person acknowledges to the buyer that he holds the goods on his behalf".  Even then, there is a proviso that "nothing in this section shall affect the operation of the issue or transfer of any document of title to goods".  But it is apparent that the purpose of sub-s(3) is to withhold the notion of delivery between seller and buyer until the third person acknowledges to the buyer that he holds the goods on his behalf, a step that requires no actual delivery of the goods.

I do not think that s 43(2) recognizes that there can be delivery without a change in the physical custody of goods. The sub-section is concerned with an unpaid seller's lien and simply permits the exercise of the right of lien, even though the seller is in possession as agent or bailee for the buyer.  The sub-section is not concerned with delivery but with ensuring that the possessory lien conferred by s 43(1) extends to the seller even though his possession is as agent or bailee for the buyer.

The word "delivery" is defined in s 5(1) of the Sale of Goods Act to mean, unless the context or subject otherwise requires, "voluntary transfer of possession from one person to another".  It is true that for certain purposes the law has recognized that there may be a change in possession without a physical movement of goods.  An example is in the area of enforceability of contracts for the sale of goods. Pollock and Wright, Possession In The Common Law, (1888), comment at p 72: 

"The authorities both on acceptance and actual receipt within the Statute of Frauds and on the rights of unpaid vendors show that in several ways there may be a change of possession without any change of the actual custody.  Such a change of possession is commonly spoken of as constructive delivery."

Whatever view may be taken of possession and its transfer in the situations to which the authors refer, the context of s 28(2) and the plain meaning of the words it uses lead to the conclusion that the "delivery" it speaks of is actual delivery.  The sub-section requires for its operation that there be a delivery or transfer of goods or documents of title and that there be a person "receiving the same in good faith ...".  These are ordinary words and I agree with the learned President of the Court of Appeal, Kirby P., that they should be given their ordinary meaning. If a third party deals with a person in possession of goods or documents of title without taking actual delivery or a transfer of those goods or the documents of title relating to them, there are no evident policy considerations that warrant giving some extended meaning to the language of the sub-section.

Counsel for the respondent pointed to what he said would be the unfortunate commercial consequences of confining "delivery" in s 28(2) to actual delivery. But such a pessimistic view is not warranted.  Speaking of the expression "continues in possession" in s 28(1), the Privy Council said in Pacific Motor Auctions Pty. Ltd. v. Motor Credits (Hire Finance) Ltd., at pp 204-205; p 888 of AC: 

"Their Lordships do not think that such a view of the law which they believe Parliament to have intended could in practice create any adverse effect.  It would mean that when a person sells a car to a finance house in order to take it back on hire purchase the finance house must take physical delivery if it is to avoid the risk of an innocent purchaser acquiring title to it."

It is true that some commodities do not readily lend themselves to physical delivery.  However s 28(2) contemplates a change in the physical possession of goods or their documents of title in order that the sub-section might operate. Whether symbolical physical delivery meets the requirements of the sub-section is a matter upon which it is unnecessary to comment:  see Sutton, p 337.

I am of opinion that the appeal should be allowed, the order of the Court of Appeal be set aside, the judgment of the District Court be set aside and that in lieu thereof there be judgment for the appellant.