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Supreme Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]
SCA NO. 01 OF 2005
BETWEEN
KINA FINANCE LIMITED
Appellant
AND
MORNE INDUSTRIES PNG LIMITED
Respondent
Waigani: Hinchliffe, Jalina & Gabi, JJ
2007: 22 June
INSTRUMENTS ACT – Sections 4, 5, 8 & 10 – Construction and Application – Validity of Bill of Sale – Registration and Consideration to be truly set out – Meaning of "truly set out the consideration" – Non-compliance as to form does not invalidate bill of sale between the parties, but may invalidate it against third parties.
Cases Cited
Papua New Guinea Cases:
Anna Wemay v Tumdual [1978] PNGLR 173
JH Rayner v The Chief Collector of Taxes [1993] PNGLR 416
Tendi v MVIT [1996] PNGLR 379
Overseas Cases:
Charlesworth v Mills [1892] UKLawRpAC 18; [1892] A.C. 231
Davies v Goodman [1880] UKLawRpCP 16; (1880) 5 C.P.D. 128
Davis v Burton [1983] QBD 537
Graham v Hart [1917] 1 K.B 201
Hughes v Little [1886] UKLawRpKQB 146; [1886] 18 QBD 32
Lee v Official Assignee (1903) 22 N.Z.L.R. 747
National and Grindlays Bank Limited v Dharamshi Vallabhji and others [1967] 1 AC 207
Olsen v General Credits Limited [1985] 2 Qd.R. 506
Pettit v Lodge [1908] UKLawRpKQB 25; [1908] 1 K.B 744
Reg v Dibb Ido (1897) 15 N.Z.L.R. 591
Te Aro Loan Company v Cameron (1896) 14 N.Z.L.R. 411
Text
Professor Sykes, The Law of Securities (2nd Edition), The Law Book Company (1973)
Counsel
V Bull, for the Appellant
T Elemi, for the Respondent
DECISION
22 June, 2007
1. BY THE COURT: Introduction: This is an appeal against the decision of His Honour Kandakasi J. given on 26th November 2004, that the registered Bill of Sale No. BS3525/01 dated 29th June 2001 (hereinafter the "Bill of Sale") is void and ineffective for: (i) failing to truly set out the consideration; (ii) the witnesses’ failure to insert their place of residence and occupation; and (iii) the failure to describe the parties as grantor and grantee.
Background
2. On 29th June 2001, the respondent obtained a loan of K120, 000 from the appellant. As security for the loan, Mr. Greg Neville, a director of the respondent provided a personal guarantee and indemnity as evidenced by a Deed of Guarantee and Indemnity dated 29th June 2001 and the registered Bill of Sale over certain chattels was given by the respondent.
3. The respondent made a total of nine (9) irregular payments totaling K31, 087.70. On or about 8th October 2002, the respondent stopped making payments altogether. Consequently, the appellant issued two (2) notices for payment to the respondent and Mr. Greg Neville. The respondent failed to pay. On 29th February 2003, the appellant’s lawyers sent out a final letter of demand for payment, which had not been complied with. On 9th June 2003, the appellant issued two (2) repossession notices to the respondent under the Bill of Sale. On 9th and 10th July 2003, the appellant repossessed all the timber milling and dressing equipment the respondent had put up as security for the loan.
4. On 20th July 2003, the respondent issued proceedings WS No. 1026 of 2003 claiming that the Bill of Sale is invalid pursuant to ss 4, 5, 8 and 10 of the Instruments Act (hereinafter "the PNG Act"). On 26th November 2003, His Honour Justice Kandakasi gave judgment and held that:
(a) under s 4 of the PNG Act, to truly set out the consideration requires a precise statement of the specific amount of moneys advanced, the number and the amount of installment repayments, and the rate and amount of interest payable, failing which the bill of sale is void.
(b) under s 10 of the PNG Act, a bill of sale must be signed by a witness who must add his place of residence and occupation, failing which it is void.
(c) under s 8 of the PNG Act, the bill of sale must describe the parties as grantor and grantee and not in any other way, failing which it is void.
(d) the Bill of Sale was void and ineffective for:
- (i) failing to set out the consideration; and
- (ii) the witnesses’ failure to insert their place of residence and occupation; and
(iii) the failure to describe the parties as grantor and grantee.
The grounds of appeal
5. The grounds of appeal and the orders sought are:
GROUNDS
"(1) His Honour Justice Kandakasi erred in finding that the requirement of Section 4 of the Instruments Act Chapter 254 to truly set out the consideration for which a bill of sale was given, requires a precise statement of the amount of the advance, agreed interest thereon and the specific amount of periodical or installment payments.
(2) His Honour erred in finding that the English Bills of Sale Act (1878) Amendment Act 1882 and English cases based on that Act were applicable to the interpretation of the Instruments Act Chapter 254.
(3) His Honour erred in failing to give effect to Section 4 of the Instruments Act Chapter 254, in particular the requirement to truly set out the consideration for which a bill of sale was given, according to the ordinary meaning of the words used in the Section.
(4) His Honour erred in finding that a statement in registered bill of sale no. BS3525/01 dated 29 June 2001 that the consideration for the bill of sale was advances and accommodation from the appellant to the respondent to purchase and acquire the chattels described in the schedule to the bill of sale, did not satisfy Section 4 of the Instruments Act Chapter 254 and rendered the bill of sale void and ineffective.
(5) His Honour erred in finding that in order for an instrument to qualify for registration under the Instruments Act Chapter 254 the names of the parties would have to be "grantor" and "grantee".
(6) His Honour erred in finding that the terms of the loan agreement dated 29 June 2001 between the appellant and the respondent were a defeasance, condition or declaration of trust that was not contained in the body of the bill as required by Section 5 of the Instruments Act Chapter 254.
(7) His Honour erred in finding the prescribed form for a crop lien was relevant to the requirements of Section 4 of the Instruments Act Chapter 254.
(8) His Honour erred in finding that the absence of the witnesses’ place of residence and occupation from the attestation clause in registered bill of sale no. BS3525/01 rendered the bill of sale void and ineffective."
ORDERS SOUGHT
6. The appellant seeks the following orders:
"1. The decision of His Honour Justice Kandakasi given on 26 November 2004, insofar as it declares registered bill of sale no. BS3525/01 void and ineffective, be set aside.
7. The relevant provisions for our purposes are sections 4, 5, 8 and 10 of the PNG Act. We set them out in full hereunder:
"4. Requirements of bills of sale.
(1) A bill of sale shall –
(a) be registered in the manner prescribed by this Part; and
(b) truly set out the consideration for which it was given.
(2) A bill of sale has no effect as to chattels comprised in it, whether as between the parties to it or as against any other person, unless –
(a) it is registered within 60 days after the day on which it was executed; and
(b) the consideration is truly set out in it.
5. Manner of registration of bills of sale
(1) Each bill of sale, together with each schedule that is annexed to it or referred to in it, or a true copy of each bill of sale and of every attestation of its execution, shall be registered by being filed in the Registry.
(2) If a bill of sale is made subject to a defeasance, condition or declaration of trust not contained in the body of the bill, the defeasance, condition or declaration –
- (a) forms a part of the bill of sale; and
- (b) shall be written on the same paper or parchment before the registration.
(3) The registration of a bill of sale that does not comply with Subsection (2)(b) is void.....
8. Register of bills of sale
"(1) The Registrar shall cause –
(a) each bill of sale registered under this Part to be numbered; and
(b) the bill of sale, or the filed copy of the bill of sale, to be marked with the date of registration and the number; and
(c) particulars of the bill of sale to be entered in a register to be kept for the purpose in the prescribed form; and
(d) An index of the names of grantors and grantees of bills of sale to be kept with reference to the entries in the register of the bills of sale given by each grantor.
(2) The index referred to in Subsection (1)(d) shall be arranged in divisions corresponding with the letters of the alphabet, so that all grantors and grantees whose surnames begin with the same letter (and no others) are comprised in one division, but the arrangement within each division need not be strictly alphabetical.
(3) Where a bill of sale is made or given by a person under or in the execution of a process of a court –
(a) the name, residence and occupation of the person against whom the process issued; and
(b) the name of the grantee of the bill of sale,
shall be inserted in the register kept under this section....
10. Attestation of bills of sale
Sealing is not essential to the validity of a bill of sale, but each execution of a bill of sale shall be attested by at least one witness, who shall add his place of residence and his occupation."
8. Grounds 1, 2, 3, 4 and 7 all relate to the construction and application of s 4 of the PNG Act. There is no question of registration of the Bill of Sale. The only issue is whether the consideration was set out in the Bill of Sale. There is no case authority in this jurisdiction on the meaning of the expression "truly set out the consideration" in the PNG Act. One can therefore understand the trial judge’s reliance on the English law. It is obvious to us that the trial judge was heavily influenced by the English Bills of Sale Act (1878) Amendment Act 1882, the English cases and the Halsbury Laws of England commentary on that legislation.
9. We agree with the Counsel for the appellant that the English Act contains a prescribed form for a bill of sale. In Charlesworth v Mills [1892] UKLawRpAC 18; [1892] A.C. 231, Lord Halsbury L.C said at 235:
"My Lords, the Act of 1882 was directed to a totally different subject – matter. It was thought by the Legislature, rightly or wrongly, that a great number of impecunious debtors may be induced to sign documents the legal effects of which those persons did not understand. It was therefore intended by the Legislature, in order to protect them, to give a particular form of words which should plainly express the nature of the contract as to the loan and the security for the loan. The Legislature accordingly, in order to effect the object, gave a form of bill of sale, and made every bill of sale void unless it was in accordance with the form given by the statute."
10. A similar sentiment was expressed in National and Grindlays Bank Limited v Dharamshi Vallabhji and others [1967] 1 AC 207 at 213:
"The English Bills of Sale Acts of 1854, 1866 and 1878 specifically set out in the preamble the mischief which Parliament sought to remedy, namely, to prevent frauds being committed on creditors by secret transactions. In 1882 without a new preamble there was an amendment to introduce for the first time invalidity inter partes of the whole transaction. The Act of 1882, ss 8 and 9 introduced for the first time sanction between parties inter se as well as third parties."
11. The trial judge correctly stated the objectives behind the enactment of the English legislation. They were: (i) to prevent fraud
on creditors by secret bills of sale; (ii) to protect the needy and often times illiterate persons who sought to borrow money; and
(iii) to regulate the giving of bills of sale by way of security for loan of money by extortionate class of moneylenders. In order
to attain those objectives, the English Act prescribed a statutory form and a failure to follow the form makes the instrument totally
void: Davis v Burton [1983] QBD 537.
12. The prescribed statutory form is in these terms:
"This indenture made the day of between AB of the one part, and CD of the other part, witnesseth that in consideration of the sum of now paid to AB by CD, the receipt of which the said AB hereby acknowledges [or whatever else the consideration may be], he the said AB doth hereby assign unto CD, his executors, administrators, and assigns, all and singular the several chattels and things, specifically described in the schedule hereto annexed by way of security for the payment of the sum of and interest thereon at the rate of percent per annum (or whatever else may be the rate). And the said AB doth further agree and declare that he will duly pay to the said CD the principal sum aforesaid, together with the interest then due, by equal payments of on the day of [or whatever else may be stipulated times or time of payment]. And the said AB doth also agree with the said CD that he will [here insert terms as to insurance, payment of rent, or otherwise, which the parties may agree to for the maintenance of defeasance of the security].
Provided always, that the chattels hereby assigned shall not be liable to seizure or to be taken possession of by the said CD for any cause other than those specified in section seven of the Bills of Sale Act (1878) Amendment Act 1882.
In Witness etc" (see Halsbury’s Laws of England, 4th Edition, Volume 4(1) pages 426 to 427 paragraph 692).
13. This statutory form possesses fourteen characteristics, which must be in a bill of sale for it to be valid. They are:
" (1) the date of the bill; (2) the names and addresses of the parties; (3) a statement of the consideration; (4) an acknowledgement of receipt if the advance is a present advance; (5) an assignment by way of security of personal chattels capable of specific description (6) exclusion of any description of the chattels from the body of the bill and relegation of such description to the schedule; (7) the securing of a monetary obligation, as opposed to some other form of obligation; (8) a statement of the sum secured, the rate of interest and the installments by which repayment is to be made; (9) any agreed terms for the maintenance or defeasance of the security; (10) a proviso limiting the grounds of seizure ...; (11) signature and sealing by the grantor; (12) an attestation clause; (13) the name, address and description of the attesting witness; (14) a schedule in which a reference is made to chattels comprised in the bill" (see Halsbury’s Laws of England, 4th Edition, Vol. 4(1) at page 290, paragraph 680).
14. In Davis v Burton (supra), Brett, M.R said at page 540:
"The real principle of the form is that whatever may be the consideration for the sum of money secured by the bill of sale, a fixed sum shall be stated therein in figures and in direct terms, and that sum with rateable interest thereon shall be recovered by the holder; that interest shall be calculated up to the time when the sum mentioned as the principal amount shall be called in."
15. The English Act and the authorities including the Halsbury Laws of England commentary on the legislation must be understood in that context. The objective and the scheme of the Act were designed to deal with a specific mischief, which does not apply universally. It is clear to us that the English statutory form includes the following mandatory requirements: (i) the specific amount of money advanced; (ii) the number and amount of installment repayments; (iii) and the rate and amount of interest payable.
16. In his book, The Law of Securities (2nd Edition), The Law Book Company (1973), the learned author Professor Sykes said at page 441:
"The English Act of 1882 embodied a further object, viz. to protect needy borrowers from being induced to sign documents, the purport of which, they do not understand. It accordingly invalidated the document totally unless it conformed to a certain statutory form. The Australian statutes do not embody this policy though the provisions of the Victorian and Tasmanian Acts in making the unregistered security totally bad, and of the Queensland Act in protecting all third persons, go beyond what is really necessary for the attainment of the aim of protecting creditors."
17. Unlike the English Act of 1882, the Chattels Transfer Act 1889 of New Zealand (see Lee v Official Assignee (1903) 22 N.Z.L.R. 747; Ex parte Dalgety Farmers Limited [1987] 2 Qd R 481), the Australian statutes (see The Laws of Securities (2nd Edition) (supra)) and the PNG Act, do not prescribe any statutory form or embody the policy of invalidating a bill of sale totally for non – compliance with a statutory requirement. This is the fundamental difference between the English legislation, on the one hand, and the Australian, New Zealand and Papua New Guinea statutes on the other. Non – compliance with a statutory requirement as to form and contents does not invalidate a bill of sale as between the parties, but may make it invalid against third parties (see Ex parte Esanda Limited [1977] Qd. R. 162; Olsen v General Credits Limited [1985] 2 Qd. R. 506; Lee v Official Assignee (1903) 22 N.Z.L.R. 747; National and Grindlays Bank Ltd v Dharamshi Vallabhji [1967] 1 A.C. 207).
18. In Ex parte Dalgety Farmers Limited (supra), an instrument containing a stock mortgage over 200 cattle and a chattels mortgage over farm equipment was executed and registered as a bill of sale. The instrument did not contain sufficient particulars of where the cattle were depastured or kept to identify which of the grantor’s cattle were the subjects of the mortgage. Section 26 of the Bills of Sale and Other Instruments Act require the stock to be described in such a way as to be capable of being identified. The instrument was not in the form required by the Act in that it failed to describe the land or the premises on which the cattle were depastured or kept. The issue was whether the stock mortgage was valid under s 26. McPherson J. held that although the stock mortgage did not describe the stock sufficiently as required by s 26 but was registered it was valid inter parte but invalid against third parties. McPherson J. applied and followed Ex parte Esanda Limited (supra) and Olsen v General Credits Limited (supra). In the former case, E. S. Williams J. held that omission from a bill of sale of a matter required by s 19(1) to be stated therein invalidated the bill of sale except as between the parties. In the latter case, Moynihan J. held that a registered bill of sale not attested by any witness was valid only as between grantor and grantee.
19. Denniston J. in Lee v Official Assignee (supra) held that non – compliance with a statutory requirement as to form and contents did not invalidate a bill of sale as between grantor and grantee. That was a case in which a stock mortgage over horses failed to specify, as required by s 34 of the Chattels Transfer Act 1889 (N.Z.), the land or the premises on which the stock were. He said at 750 to 752:
"In my opinion, non – compliance with the provision in section 34 of ‘The Chattels Transfer Act, 1889’, requiring that the land or premises on which the stock comprised in any instrument are shall be described or mentioned therein or in some schedule therein, or with the provision in section 49 requiring every instrument to be attested by one witness in the manner therein provided, does not invalidate such instrument as between the parties. There is nothing in the Act which declares that such non – compliance shall, in either case, have such effect. The result of such non – compliance would seem only to make the instrument incapable of registration under the Act, or, if registered, to deprive the grantee of the benefit of such registration. Under the English Act of 1882 the consequence of non – registration is to avoid the instrument even between grantor and grantee: there is no such provision in the New Zealand Act. In Davies v Goodman [1880] UKLawRpCP 16; (1880) 5 C.P.D. 128 it was held that non compliance with the provision which required attestation by a solicitor did not render the instrument void as between grantor and grantee. In Reg. v Dibb Ido (1897) 15 N.Z.L.R. 591 the Court of Appeal held that an unattested instrument given by way of security was effectual as between the parties to transfer the property to the grantee. And see Te Aro Loan Company v Cameron (1896) 14 N.Z.L.R. 411."
20. The judgment of Denniston J. in Lee v Official Assignee was cited with approval by the Privy Council in National and Grindlays Bank Ltd v Dharanshi Villabhji (supra). In that case, the instrument was neither registered nor attested under s 15 of the Chattels Transfer Act, 1930 (Kenya). The issue was the validity as between the parties to the instrument, which had no attestation of the signatures of the plaintiffs as grantors. The plaintiffs contended that by reason of the absence of attestation the instrument was wholly void under s 15. The defendant bank contended that, though the instrument may have been invalid for the purposes of registration under the Kenya Act, it was valid as between the parties. Section 15 of the Kenya Act is equivalent to s 10 of the PNG Act. Lord Pearson delivered the majority judgment. He said at 224 to 225:
"Registration is needed in order to make the instrument effective against persons who are not parties to it, but without registration it can be effective as between the parties to it....In the absence of any express provision in section 15 as to the consequences of non – attestation of an instrument, the natural implication from the provisions of section 15 and its context and the scheme of the Act is that an unattested instrument is valid between the parties but incapable of registration and so ineffective against other persons."
21. Section 4 of the PNG Act is a "mandatory" provision. It imposes the requirements that an instrument shall be registered and "truly set out the consideration." No bill of sale shall have any effect as to any chattels comprised in it whether as between the parties to it or as against any other person unless the consideration is truly set out and it has been registered. Nowhere in the PNG Act is it stated that the "consideration" must be a precise statement of an exact amount of money advanced, the number and amount of installment payments and the rate and amount of interest payable. Central to validity of a bill of sale is the requirement to register. We are of the view that one of the main purposes of registration of an instrument is to enable a third party dealing with the debtor to check the public register to find out whether the chattel’s in the debtor’s possession are subject to a security interest. In other words, registration serves as notice to other persons wishing to check before lending money on the same goods.
22. In Hughes v Little [1886] UKLawRpKQB 146; [1886] 18 QBD 32, the consideration was expressed to be the payment of a sum 45l by the grantor of which 32l or thereabouts was then owing. The objection taken was that the consideration was not set forth within the meaning of the Bills of Sale Act (1879) Amendment Act (1882). It was held that the consideration for which the bill of sale was given was sufficiently set forth. Lord Esher, M.R. said at 34 to 35:
"First, it was said that the consideration was not set forth within the meaning of the Act. It is not alleged that there was anything untrue in the statement of the consideration. Of course, if any part of the statement were contrary to the fact, the consideration would not be truly set forth within the meaning of the section. But that is not the case and therefore the objection must be that, the consideration is not set forth with sufficient accuracy; that, although it is so far as it goes a true statement, it does not state the whole truth. That objection is taken on the mere form of the statement itself and not on any comparison of the form with the facts in relation to the consideration, of which we know nothing. The statement is, that the bill of sale is given in consideration of the grantee’s having become guarantee and signed a promissory note of the payment of a sum of 45l. by the grantor, of which 32l. or thereabouts is now owing. It is not as if the statement were that the sum owing was 32l. whereas it was really 320l..... I do not see why in that case the consideration would not be accurately set forth, and, therefore, it does not seem to me that there is anything to shew that this statement is not strictly accurate. But, even if there were a slight inaccuracy, so long as there is nothing untruly stated, I think a statement would be sufficient that in substance accurately stated the consideration."
23. The words "truly state the consideration" in s 4 must be given the natural and ordinary meaning (see s 109(4) of the Constitution, JH Rayner v The Chief Collector of Taxes [1993] PNGLR 416, Anna Wemay v Tumdual [1978] PNGLR 173, Tendi v MVIT [1996] PNGLR 379). The Bill of Sale states that the consideration are the "advances and accommodation" given by the grantee. There is no dispute that an amount of K120, 000 was advanced to the respondent (see schedule 2 to the loan agreement at page 38 of the Appeal Book). The consideration is a loan of K120, 000, which is borne out by the loan and the security documents. The instrument states the consideration truthfully and there is substantial compliance with s 4.
24. The trial judge, therefore, erred when he said at page 8 of the decision (Appeal Book, page 194):
"In my view, the Act has retained the essential features of a bill of sale as provided for under the English Act. Whilst there is not a prescribed form, a bill of sale in PNG should confirm (sic) to the requirements as to what should be in the bill."
25. The trial judge committed a further error when he cited the statutory forms in schedules 1 and 2 of the PNG Act as evidence that a Bill of Sale must contain "a precise statement of the advance, agreed interest thereon and the specific amount of periodical or installment repayments." The forms in schedules 1 and 2 are liens on crops and wool, which are not bills of sale (see s 1(n) of the PNG Act).
26. Ground 6 relates to the construction of s 5 of the Act.
27. The trial judge erred in our view in treating the loan agreement as a defeasance, condition or declaration of trust that was not contained in the Bill of Sale. The loan agreement was not a "condition" subject to which the Bill of Sale was made or given within the meaning of s 5 of the PNG Act. A "condition" under s 5 means a condition, term or bargain which affects the rights of grantor or grantee under the bill of sale, or affects the terms upon which the chattels comprised in the bill of sale were redeemable, or affects the right of entry of the mortgagee (see Pettit v Lodge [1908] UKLawRpKQB 25; [1908] 1 K.B 744; Graham v Hart [1917] 1 K.B 201).
28. Ground 5 concerns the parties to be included in a Bill of Sale for purposes of registration under s 8 the PNG Act. The trial judge was of the view that in order for a Bill of Sale to be valid the parties are to be described as "grantor" and "grantee."
29. There is no requirement for the parties to a bill of sale to be described as "grantor" and "grantee." The trial judge erred in our view in treating a generic term as a formal requirement with substantive effect.
30. Ground 8 deals with the attestation of the Bill of Sale under s 10 of the PNG Act. The trial judge decided that the Bill of Sale was void and ineffective as it did not contain the place of residence and occupation of the witness.
31. A failure by a witness to insert his place of residence and occupation does not invalidate an instrument as between the parties (see Olsen v General Credits Ltd (supra); Ex parte Dalgety Farmers Ltd (supra)). The scheme of s. 10 is not to invalidate a bill of sale for non – compliance. The omission in this case, therefore, does not affect the validity of the Bill of Sale as between the appellant and the respondent.
32. Accordingly, we allow the appeal and make the following orders:
(i). The decision of His Honour Kandakasi J. given on 26th November 2004, in so far as it declared registered bill of sale no. BS3525/01 void and ineffective, is quashed.
(ii). The respondent’s claim in WS No. 1026 of 2003 is dismissed in so far as it relates to registered bill of sale no. BS3525/01.
(iii). The chattels referred to in the schedule to registered bill of sale no. BS3525/01 are to be delivered to the appellant.
(iv). The respondent shall pay the appellant’s costs of and incidental to the proceedings in the National Court and this appeal.
______________________________________________________
Allens Arthur Robinson Lawyers: Lawyer for the Appellant
Rageau Elemi & Kikira Lawyers: Lawyer for the Respondent
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