Australia and New Zealand Banking Group Ltd v Koi [1994] FJHC 7; Hbc0231j.92s (10 January 1994)

IN THE HIGH COURT OF FIJI
At Suva
Civil Jurisdiction

CIVIL ACTION NO. 231 OF 1992

Between:

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
Plaintiff

- and -

1. GEORGE FRANK KOI
1st Defendant
2. MARK L. MUTCH
2nd Defendant
3. MERCHANT BANK of FIJI
3rd Defendant

Mr. H. Lateef for Plaintiff
No appearance for 1st and 2nd Defendants
Mr. J. Singh for 3rd Defendant

JUDGMENT

On the 11th of May '92 the plaintiff bank issued an originating summons seeking to recover possession of a motor vehicle in terms of a Bill of Sale which it held over the vehicle and which was duly registered under the Bills of Sale Act (Cap. 225).

The third defendant which presently has custody of the motor vehicle claims however, to be entitled to retain possession of it in terms of an unregistered antecedent Asset Purchase Agreement under which the vehicle was hired out to the first defendant.

The facts that give rise to this action are not in dispute and may be briefly summarised as follows: The earliest known history of ownership of the motor vehicle dates back to February 1991 when the motor vehicle was owned by a Farida Bibi. On the 28th of February 1991 the 3rd defendant purchased the motor vehicle for $15,000 and on the 1st of March 1991 the 3rd defendant and the 1st defendant entered into an Asset Purchase Agreement whereby the 1st defendant who was then a businessman trading under the name and style of 'Empire Auto Sales' offered to hire the motor vehicle from the 3rd defendant at a pre-determined monthly rental with an option to purchase the motor vehicle.

In particular the Asset Purchase Agreement contains the following relevant 'Terms and Conditions of Hiring':

Clause 4(d) requires the hirer (i.e. the 1st defendant):

"... to keep the goods in the personal control of the hirer and not to attempt or purport to sell dispose of or encumber the same.";

Than Clause 4(j) provides:

"... if the goods are a motor vehicle, to keep the same duly registered at all times as required by any relevant law in the name of the hirer as if the hirer were the owner ...";

By Clause (9), which is important, the hirer agreed:

"... that it does not have any right or property or interest in or to the goods and the hirer shall be a bailee thereof only, except such right or property or interest in the goods as may accrue to the hirer if it exercises its rights under Clause 10 hereof or as a result of the operation of Clause 11.";

By Clause (10) the hirer of the goods is given:

"... the option at any time ... to terminate the hiring of the goods and to thereupon purchase the goods from the owner ..."

by giving written notice of its intention to exercise the option and by paying the 'discharge amount' calculated according to a pre-determined formula.

By Clause (11) the hirer is given:

"... an option to terminate the hiring of the goods at any time prior to making payment of the last hiring instalment provided for in the schedule ...";

by returning the vehicle to the 3rd defendant and paying the 'discharge amount' calculated as at that date and finally:

Clause (13) provides:

"At the end of the period set out in the Schedule and after payment by the hirer to the owner of all moneys due under the Agreement property in and title to the goods shall thereupon vest in the hirer."

The Asset Purchase Agreement also expressly negatives and excludes "... all conditions and warranties whether arising under statute, by implication of law or by custom or usage with respect to the goods ..." (See: Clause 14). So much then for the terms of the 3rd defendant's Asset Purchase Agreement.

It is clear from the above terms and conditions that the 1st defendant took possession of the motor vehicle under what is commonly referred to as a "Hire Purchase Agreement". This type of agreement was recognised and validated as long ago as 1893 by the House of Lords in Helby v. Matthews (1893) A.C. 471. Lord Herschell L.C. described the 'real nature of the transaction' in terms which with slight amendments accurately describes the 3rd defendant's Asset Purchase Agreement when he said at p.475:

"Brewster was to obtain possession of the piano; and to be entitled to its use so long as he paid the plaintiff the stipulated sum of 10s 6d per month, and he was bound to make these monthly payments so long as he retained possession of the piano. If he continued to make them at the appointed times for the period of three years, the piano was to become his property, but he might at any time return it, and, upon doing so, would no longer be liable to make any further payment beyond the monthly sum then due."

Then dealing with the implied 'option to purchase' the piano the learned Lord Chancellor said at p.476:

"He had an option to buy it by continuing the stipulated payments for a sufficient length of time. If he had exercised that option he would have become the purchaser. I cannot see under these circumstances how he can be said either to have bought or agreed to buy the piano. The terms of the contract did not upon its execution, bind him to buy, but left him free to do so or not as he pleased and nothing happened after the contract was made to impose that obligation."

Finally in rejecting the argument that the case came within the 'mischief' intended to be provided against by Section 9 of the Factors Act 1889 [which is substantially reproduced in Section 26(2) of the Sale of Goods Act (Cap. 230)] his lordship said at p.477:

"I can see no reason for thus straining the language of the enactment. A person who is in possession of a piano under such an agreement as that which existed in the present case is no more its apparent owner than if he had merely hired it, and in the latter case anyone taking it as security would have no claim to hold it as against the owner."

To return then to the facts of the present case. Shortly after the execution of the Asset Purchase Agreement and in compliance with Clause 4(j) therein, the motor vehicle was registered with the licensing authority under the provisions of the Traffic Act (Cap. 176) in the name of the 1st defendant ("... as if the hirer were the owner".) Thereafter on the 17th of April 1991 unbeknown to the 3rd defendant and in clear breach of the Asset Purchase Agreement, the 1st defendant executed a Bill of Sale Book 91 Folio 1527 in favour of the plaintiff bank over the said motor vehicle.

The relevant Bill of Sale was duly registered under the Bills of Sale Act (Cap. 225) and in clear terms empowered the plaintiff bank in the words of the Act:

"... either with or without notice, at any time to seize or take possession of (the motor vehicle) comprised in or made subject to (the) bill of sale." (See: Clause 7)

It is convenient at this stage to dispose of any confusion that has arisen from the fact that the 3rd defendant's Asset Purchase Agreement similarly empowers the 3rd defendant to seize and take possession of the motor vehicle.

In this regard Section 7 of the Bills of Sale Act (Cap. 225) requires every 'bill of sale' to be attested and registered under the Act "... otherwise such bill of sale shall be deemed fraudulent and void".

Is then the 3rd defendant's Asset Purchase Agreement an unregistered 'bill of sale' and therefore illegal and unenforceable in terms of the above Section of the Bills of Sale Act? Counsel for the plaintiff bank without referring to any of the terms in the 3rd defendant's Asset Purchase Agreement so as to bring it within the wide category of dealings included in the definition of a 'bill of sale' for the purposes of the Bills of Sale Act (Cap. 225) merely referred to the decision of Byrne J. in B.N.Z. v. Ian Ripikoi and Anor. Civil Action No. 142 of 1991.

The document that was relied upon by the defendants in that case however and which the court concluded was a 'bill of sale' was entitled a Mortgage Agreement under which two motor vehicles were mortgaged to secure a substantial loan and which in terms empowered the forfeiture of the motor vehicles for default.

Even in the absence of any greater detail as to terms and conditions of the "Mortgage Agreement" or the rights of the parties thereunder, there is a crucial distinction to be drawn in this case in that the 'bill of sale' granted to the plaintiff bank by the 1st defendant was not given by "the owner" of the motor vehicle contrary to the first assertion in the Preamble of the plaintiff bank's Bill of Sale.

In McEntire v. Crossley Brothers Limited [1895] UKLawRpAC 25; (1895) A.C. 457 the House of Lords in construing a hire purchase agreement similar in terms to the 3rd defendant's Asset Purchase Agreement, discussed the nature of a 'bill of sale' and concluded that the hire purchase agreement was not within the Bills of Sale Act (U.K.) which is in almost identical terms to our Cap. 225.

In that case, Lord Herschell L.C. in identifying an essential requirement of a valid 'bill of sale' said at p.462:

"The Bills of Sale Act relates to assurances or assignments or rights to seize given or conferred by the person who owns the property. Therefore, if the true view (of the agreement) is that the property ... has never been out ... the property must still remain in them, and all the rights under the agreement must remain." (my underlining)

Then after critically examining the terms of the agreement with particular regard to the rights of the 'owner' upon default being made by the 'hirer', the learned Lord Chancellor said at p.466:

"... it seems to me impossible to bring the case within the Bills of Sale Act because the transaction may bear a resemblance to a transaction which would be within it on the ground that it is within the mischief, when the initial step to bringing the Bills of Sale Act into operation at all fails, namely, that there should have been an assurance, or an assignment or a licence to seize ... given (by the owner) to some other person." (my underlining)

To the same effect is the summary to be found in Halsburys 'Laws of England' 4th (edtn) Vol. 22 at para. 211 where the learned editor writes:

"A bona fide agreement in writing for the bailment or sale of goods which are not to become the property of the bailee or buyer unless and until the last instalment of the stipulated payments is made, and providing for the right of the owner or seller to retake possession in default of payment, is not a bill of sale and does not require to be registered under the Bills of Sale Acts. This is because no property is conveyed by such an agreement to the hirer or buyer during the effective currency of the agreement, and therefore the hirer or buyer not being the owner of the goods, the licence to seize only empowers the owner or seller to retake possession of his own goods."

Learned counsel for the plaintiff bank however seeks to overcome this difficulty again not by reference to any terms in the Asset Purchase Agreement inconsistent with the intention of the parties set out in the agreement that the property and title in the motor vehicle should not pass unless and until certain specified events occur, rather, counsel relies upon the provisions of Section 19(8) of the Traffic Act (Cap. 176) which provides:

"The person in whose name a motor vehicle is registered shall, unless the contrary be proved, be deemed to be the owner of such motor vehicle."

It is common ground that the motor vehicle in this case is registered in the name of the 1st defendant. That being so and by virtue of the above provision, the simple submission of counsel for the plaintiff is that the 1st defendant is "the owner" of the motor vehicle and therefore capable of granting a valid 'bill of sale' over it. I cannot agree.

I note that the legislative draftsman has adopted the "deeming" technique in the subsection, the effect of which was described by Lord Radcliffe when he said in St. Aubyn v. A.G. [1951] UKHL 3; (1952) A.C. 15 at p.53:

"The word 'deemed' is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description to include what is obvious, what is uncertain and what is in the ordinary sense impossible."

In my view and with all due regard to the submission of counsel for the plaintiff bank the word "deemed" as it appears in Sections 19(4) and 19(8) of the Traffic Act is used in the first and second senses, namely, to impose an artificial construction and put beyond doubt a construction of the term "owner" as it occurs in Section 19 of the Act.

I note that Section 19 contains within its provisions no less than 3 categories of 'owners' namely, 'the registered owner'; 'the new owner' and 'the owner'; Counsel for the 3rd defendant also correctly observed that: "... Section 19(5) is a code on its own as to the procedure concerning repossessions." The subsection also implicitly recognises that "the registered owner" in a hire purchase situation is different from "the person who has seized the vehicle" and who shall thereafter apply to be registered as "the owner" of the vehicle.

Furthermore the definition of "owner" in the Traffic Act (S.2) clearly recognises and includes within the meaning of the term, where a vehicle is the subject matter of a hire purchase agreement, '... a person in possession of the vehicle under that agreement.'

Needless to say such a person would not ordinarily nor indeed in law be considered 'the owner' of the goods albeit that he retains possession of them.

Nor can I accept that the provisions of the Traffic Act which seeks to regulate and control the use of motor vehicles on public roads was ever intended or meant to effect such a radical and fundamental change in the law pertaining to contracts generally and hire purchase in particular.

I am fortified in my view by the recent obiter dictum of the Fiji Court of Appeal in Sada Nand v. Ram Indra Civil Appeal No. 35 of 1991 where the Court observed at p.8:

"Finally, we might say a word whether registration of a vehicle under the provisions of the Traffic Act establishes (i) ownership, (ii) is necessary to establish ownership; (iii) is conclusive evidence of ownership; (iv) is merely evidence of ownership. Whilst it is unnecessary for the purposes of this appeal to do so, we nevertheless point out that (iv) above is clearly the situation."

Then after setting out the provisions of Section 19(1)(a) and 1(b) of the Traffic Act, the Court said at p.9:

"It quite clearly assumes or requires ownership before doing whatever has to be done in relation to registration. In particular it only appears to require registration of goods being a motor vehicle if it is to be used on a road."

Finally, even if the provisions of Section 19(8) of the Traffic Act was relevant to a determination of the present case (of which I have grave doubts), nevertheless I would have no hesitation in holding that on the evidence before the court the 3rd defendant has succeeded in proving "the contrary" i.e. that the 1st defendant although the person registered under the Traffic Act is not 'the owner' of the motor vehicle.

Having thus disposed of the Bills of Sale Act (Cap. 225) and the Traffic Act (Cap. 176) I now turn to the provisions of the Sale of Goods Act (Cap. 230) not because its provisions are necessarily implied into the 3rd defendant's Asset Purchase Agreement but rather because it conveniently codifies the established common law principles applicable to the circumstances of the present case.

However before dealing with Section 26(2) to which particular reference has been made by counsel for the 3rd defendant, it is necessary to refer to the provisions of Section 23 which provides inter alia:

"... 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 ..."

It is clear from the above that the section codifies for the purpose of the law relating to the 'sale of goods' the general common law rule encapsulated in the latin phrase: "Nemo dat quod non habet" and upon which the 3rd defendant relies in opposing the plaintiff's claim for possession of the motor vehicle.

The plaintiff bank on the other hand seeks to rely on an equally well-settled 'exception' to the rule and which is also conveniently codified in Section 26(2) of the Sale of Goods Act in the following terms:

"Where a person, having bought or agreed to buy goods, obtains with the consent of the seller, possession of the goods or the document of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or document 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 in possession of the goods or document of title with the consent of the owner."

Furthermore subsection (3) provides:

"In this section, the term 'mercantile agent' means a mercantile agent having, in the customary course of his business as such agent, authority either to sell goods or to consign goods for the purpose of sale or to buy goods or to raise money on the security of goods."

In this case there can be no doubt that the 1st defendant whatever else he might be, being a businessman trading under the name and style of Empire Auto Sales, was a 'mercantile agent' within the above definition of the term. Equally the plaintiff bank's Bill of Sale over the motor vehicle was a "transfer ... under pledge or other disposition".

This fact has not been mentioned by learned counsel for the plaintiff bank. Indeed so perfunctory has been the plaintiff's submissions on this aspect that reference has not been made either to Section 26(2) of the Sale of Goods Act or to its statutory or historical predecessor in "... the statutes of general application which were in force in England ... on the second day of January, 1875" and which forms part of the law of Fiji in terms of Section 22 of the High Court Act (Cap. 13).

I refer in particular to the provisions of the various Factors Acts of 1823 to 1842 (U.K.) the joint effect of which was conveniently summarised by Blackburn J. in Cole v. North Western Bank [1863] EngR 888; (1875) L.R. 10 C.P. 354 when he said at p.372:

"The general rule of law is, that, where a person is deceived by another into believing he may safely deal with the property, he bears the loss, unless he can show that he was misled by the act of the true owner. The legislature seem to us to have wished to make it the law, that, where a third person has entrusted goods or the documents of title to goods to an agent who in the course of such agency sells or pledges the goods, he should be deemed by that act to have misled anyone who bona fide deals with the agent and makes a purchase from or an advance to him without notice that he was not authorised to sell or to procure the advance. ... We do not think that it was wished to make the owner of the goods lose his property if he trusted the possession to a person who in some other capacity made sales, in case that person sold them."

But is the mere possession of the vehicle by the 1st defendant with the consent of the 3rd defendant enough to bring the dealing with the motor vehicle within the exception? I would think not.

In the first place as counsel for the 3rd defendant correctly points out the 1st defendant had neither "bought or agreed to buy" the motor vehicle; secondly, the 1st defendant had possession of the vehicle not in his capacity as a 'mercantile agent' but as a 'hirer' of the car and therefore was merely its bailee. This important distinction was commented upon by MacKinnon J. in Staffs Motor Guarantee Ltd. v. British Wagon Co. (1934) 2 K.B. 305 when he said at p.313:

"Because one happens to entrust his goods to a man who is in other respects a mercantile agent, but with whom he is dealing not as a mercantile agent but in a different capacity, I do not think that it is open to a third party who buys the goods from that man to say that they were in his possession as a mercantile agent and that therefore he had power to sell them to a purchaser and so give him a good title to them."

In so far as the absence of notice of the 3rd defendant's interest or of the 1st defendant's lack of authority to deal with the motor vehicle is concerned, counsel for the plaintiff seeks to rely on the statutory nature of a Bill of Sale as opposed to the 3rd defendant's unregistered Asset Purchase Agreement and more particularly criticism is levied at the terms of Clause 4(j) (op.cit) which specifically required the motor vehicle to be registered in the name of the 'hirer' as opposed to the true owner thereof (i.e. the 3rd defendant).

In these circumstances counsel forcefully argues: "the risks ... should be borne by the likes of the 3rd defendant who are prepared to finance on unregistered Asset Purchase Agreements."

With all due regard to the sentiments expressed by counsel for the plaintiff, the submission fundamentally misconceives the true nature and legal effect of a hire purchase agreement (of which the 3rd defendant's Asset Purchase Agreement despite its misleading title, is a modern example).

Under such an agreement no property passes to the 'hirer' and nemo dat none can pass from him.

Notwithstanding that, as to the question of whether the 3rd defendant in requiring the 1st defendant to represent himself as the owner of the motor vehicle, which was raised by counsel for the plaintiff would come within the relevant portion of Section 23 of the Sale of Goods Act (ibid), I would respectfully adopt the view of the Fiji Court of Appeal in Sada Nand's case (op.cit) where the Court observed at p.7 (cyclostyled judgment):

"We very much doubt if the section reaches out to allow someone who is not prepared to give evidence that he had any belief that he was the owner, (in this case in the absence of an affidavit from the 1st defendant to the same effect) wrongly to remove a vehicle and sell it off as his own. Where an owner who has no suspicion that his goods are going to be removed, unwittingly arms the person who removes them with the means of passing them off as his own, and who immediately takes action to prevent it which would probably have succeeded if the purchaser were bona fides, we would be very reluctant to find that it was his conduct that put the seller in a position to allege authority to sell."

Furthermore having regard to the view I take of the provisions of the Traffic Act I cannot accept that the passive nature of Clause 4(j) of the 3rd defendant's Asset Purchase Agreement can be said to raise some form of 'estoppel' against the 3rd defendant. Certainly none was directly raised in either of the submissions of counsel for the plaintiff.

In any event as was said by Lord Wilberforce in Moorgate Ltd. v. Twitchings (1977) A.C. 890 at p. 902ff:

"English law has generally taken the robust line that a man who owns property is not under any general duty to safeguard it and that he may sue for its recovery from any person into whose hands it has come ... He is not estopped from asserting his title by mere inaction or silence, because inaction or silence, by contrast with positive conduct or statement is colourless: it cannot influence a person to act to his detriment unless it acquires a positive content such that that person is entitled to rely on it. In order that silence or inaction may acquire a positive content it is usually said that there must be a duty to speak or to act in a particular way, owed to the person prejudiced, or to the public or to a class of the public of which he in the event turns out to be one."

and later at p.904 his lordship said:

"... there could be no doubt that, in the absence of special circumstances, for example some express representation, the finance company could not be prevented, by estoppel or otherwise, from reclaiming its property ..."

In this case there has been no express representation nor do I accept that the 3rd defendant owed any form of duty to the plaintiff or indeed to the public at large to take steps to safeguard others against loss arising from dealings with motor vehicles that are the subject matter of its Asset Purchase Agreement.

In the result and for the foregoing reasons the plaintiff's originating summons is dismissed with costs to the 3rd defendant to be taxed if not agreed.

(D.V. Fatiaki)
JUDGE

At Suva,
10th January, 1994.

HBC0231J.92S