General Motors Acceptance Corporation Australia & Anor v Southbank Traders Pty Ltd
[2007] HCATrans 14
•31 January 2007
[2007] HCATrans 014
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M132 of 2006
B e t w e e n -
GENERAL MOTORS ACCEPTANCE CORPORATION AUSTRALIA
First Appellant
AUTO GROUP LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Second Appellant
and
SOUTHBANK TRADERS PTY LTD
First Respondent
GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
HEYDON J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 31 JANUARY 2007, AT 10.20 AM
Copyright in the High Court of Australia
MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR A.P. TRICHARDT, for the appellants. (instructed by Corrs Chambers Westgarth)
MR W.T. HOUGHTON, QC: If the Court pleases, I appear with my learned friend, MR I.W.D. UPJOHN, for the respondent. (instructed by Browne & Co)
GLEESON CJ: Yes, Mr Jackson.
MR JACKSON: Your Honours, this case concerns the provisions of the Chattel Securities Act 1987 (Vic) and in particular sections 7 and 10. It concerns motor vehicles which are registrable goods for the purposes of that Act. Your Honours will see that from section 13(1)(a). As one might expect from the name “registrable goods”, there is a relevant register, provision for which is made by section 15(1). It is a register of information and the information relates to “security interests”, a term to which I will come in a moment, “in registrable goods”.
Registration is dealt with by section 16 and there are consequences which follow from registration or failure to register. May I come to them in just a moment after referring to the facts which are not in contest. Your Honours, the facts, if I may state them very, very shortly, are that there was a motor vehicle retailer, Kingstrate Pty Ltd, in October and November 2002. It was the buyer of 10 vehicles from the respondent. The purchase was in each case on terms similar to those set out in the sample invoice which appears on page 97 of the appeal book.
Your Honours, may I say about it that the most relevant parts of that are under the heading “Terms and Conditions”. They are difficult there to read, but they are set out in full in the Court of Appeal’s reasons at page 135 going over to page 136.
KIRBY J: It is not unusual for these clauses to be difficult to read and to be in very small print.
MR JACKSON: Yes, that may happen, perhaps to the satisfaction of both sides of these things sometimes, your Honour, but your Honours will see that if one goes to the terms and conditions set out at pages 135 and 136, in paragraph (1):
Property in the vehicle(s) . . . shall not pass to the purchaser until such time as the vehicle(s) . . . and all other vehicles supplied by the vendor to the purchaser, have been paid in full ‑ ‑ ‑
GLEESON CJ: Is there a word left out there?
MR JACKSON: No, your Honour, that is actually the way it appears in the original, I should say. What your Honour has just said to me is something I had thought myself but I understand not to be the case –“paid for”, one might expect, but that is the sense of it. Your Honours will see what appears in paragraph (2):
Until property . . . passes to the purchaser, or until the vehicle(s) is or are sold by the purchaser as agent to the vendor –
then the four matters there referred to in the subparagraphs are set out including particularly paragraph (2)(d) and then paragraph 3:
Until property . . . passes to the purchaser, the purchaser shall not sell, encumber or dispose of the vehicle(s) except –
that, and your Honours will see paragraphs (a), (b) and (c), paragraph (b) setting out the trust of the proceeds of sale.
Now, your Honours, I will come back to those provisions a little later if I may, but may I say that Kingstrate, however, sold the vehicles to us.
GUMMOW J: What was Kingstrate’s business?
MR JACKSON: Kingstrate’s business was a seller of vehicles, your Honour.
GUMMOW J: Retail?
MR JACKSON: Yes, your Honour. Yes, it was a motor vehicle retailer.
GLEESON CJ: A motor trader they call them.
MR JACKSON: Yes. Your Honour, they sold the vehicles to us. We bailed them back to it under a floor plan arrangement. I will not go to the terms of it at this moment. It is in the appeal book. I will have to go to its terms briefly a little later. But it was a floor plan arrangement which allowed Kingstrate to display the vehicles for sale.
GLEESON CJ: Was the sale to you a sale in the ordinary course of business?
MR JACKSON: Well, it was, in a sense, your Honour, yes. It was a sale to us. One of our businesses is that we will finance in a number of ways ‑ ‑ ‑
GLEESON CJ: It has to be the ordinary course of Kingstrate’s business.
MR JACKSON: Yes, your Honour. It is a motor vehicle retailer. We are a financier which provides finance, to put it loosely, in a number of ways. One of the ways is that we will, at the request of a motor dealer, buy vehicles for them and bail them to them so they are able to display them on terms and conditions which are set out in the agreement. One of the provisions of the agreement allows them to sell us vehicles that they have and we then allow bailment back again for display or other purposes specified. These were cases where it was the case of the latter kind and the terms of the agreement I can perhaps take your Honour to very briefly in that regard. It may be convenient to do so at this point. Your Honours will see that document is at page 33.
GLEESON CJ: I presume it was an ordinary finance agreement between a motor trader and a financier.
MR JACKSON: Of a type.
GLEESON CJ: A floor plan arrangement.
MR JACKSON: Yes, it is a type, your Honour, you will see at page 33. The most relevant parts, your Honours, I think are these, recital B:
The Bailee has requested GMACA to supply it with goods for display in its business for the purpose of wholesale and retail sales.
You will see at about line 28 on that same page a definition of “display goods”.
KIRBY J: Just pause there. “Supply it with goods for display”. Were the goods not already there?
MR JACKSON: Well, they were, but, your Honour, they were sold to us and then we bailed them back - sold to us by Kingstrate.
GUMMOW J: But what we do not have is any documentation of the sale to you.
MR JACKSON: I think that is right, your Honour, because it was not a matter in contest. It was an agreed fact, I think.
GUMMOW J: The bailment agreement is the next step. The step before that is the sale, I guess.
MR JACKSON: Yes. Could I just say, however, that this ‑ ‑ ‑
GUMMOW J: That is why the recitals do not give the whole story really.
MR JACKSON: I am sorry, your Honour, I was dealing with the relationship post sale. The fact of a sale to us was at the heart of the other side’s case because that was said to be a conversion of the vehicles. So there was a sale to us ‑ ‑ ‑
GUMMOW J: On what terms as to price and payment?
MR JACKSON: Yes, just to price – the vehicles and the price. You will see in the document to which I was referring – I will try to find the detail of that in the pleadings if I may and give your Honours a reference later. I do not think it was a matter in issue and really lay at the heart of their case.
GLEESON CJ: Did property in the goods pass to your client?
MR JACKSON: In our submission, yes, your Honour.
GLEESON CJ: That would have to be on the basis that the sale was a sale in the ordinary course of Kingstrate’s business.
MR JACKSON: Yes, subject to the operation of section 7(1) of the Act. Section 7(1) of the Act, if there were not otherwise a sale to us, would – I am sorry, section 7(1), subject to the sale being in good faith and without notice of the existing interest of the other side, would be effective. That is the first question in the case. There was a finding at first instance that the sale to us was one which was in good faith and without notice. That finding was one that the Court of Appeal said that if they had not found for the other side on the basis that there was no security interest in the respondent, they would have set aside that finding and sent the matter back to trial. If we succeed on the section 7 point, then that consequence, we accept, would follow. The matters to which your Honour has been directing my attention in a sense are ones that do not really, with respect, arise at this point, but I think I need to make that out a little further.
Could I perhaps, while I am at this document, just refer to the other most relevant provisions. Your Honours will see in clause 2.1 on page 34:
The goods to be bailed under this agreement will comprise new goods and used goods and will include . . . goods acquired pursuant to clauses 3 and 5 –
Your Honours will see in clause 2.3:
On the acquisition of any goods by [us] at the request of the Bailee pursuant to clauses 3 and 5 . . . the Bailee shall be deemed to have taken possession . . . on the terms and conditions of this agreement.
May I simply refer your Honours to clause 5(d) on page 35 which allows us:
at the request of the Bailee purchase any goods owned by the Bailee.
That is elaborated further.
GLEESON CJ: This was not a purchase of goods owned by the bailee, was it?
MR JACKSON: It was a purchase of goods which apparently were owned by the bailee. That is the nature of that transaction, your Honour. If it be that they had no title to it, no title capable of being passed over, then we would not, subject to statutory provision, have an entitlement, but that is a question with respect to the statutory provisions.
Your Honours, I mentioned 10 vehicles before. One vehicle, in fact, had been sold by Kingstrate so only nine vehicles remain involved. We became aware in December of that year, 2002, that Kingstrate was insolvent. We registered under the Act a security interest on 10 December and in January 2003 we sold the remaining vehicles to the second appellant. We, the first appellant sold to the second appellant and in mid‑January 2003, after we had done so, the respondent registered the security interest.
GLEESON CJ: Was the security interest you registered the interest created by the bailment agreement?
MR JACKSON: Yes, your Honour, and I will come to the provisions of the Act dealing with that aspect of it when I come to section 10. Your Honours, if I could say in relation to section 7 first what our essential contention is and it is this and if I could take your Honours to the Chattel Securities Act 1987, section 7. Our contention is that the circumstances attracted the operation of section 7(1)(a) of that Act with the consequence that the interest of the respondent in the goods was extinguished. That is the ultimate consequence we would seek to establish in relation to section 7(1)(a). If I could go to the words of section 7(1)(a), it states the proposition that if a “secured party”, and that is a defined term to which I will come, has an “unregistered security interest”, again a defined term to which I will come:
in goods but is not in possession of the goods and a purchaser purchases or purports to purchase an interest in the goods -
so it covers both purchasing and purporting to purchase -
for value in good faith and without notice . . . of the security interest -
then, from the “debtor”, again a defined term, then the security interest is extinguished.
Your Honours, I will come to the definitions and the reasoning in a moment, if I may, but our contentions are that the interest of the respondent, under its contract to sell the vehicles to Kingstrate, was a security interest, as defined. The respondent was not in possession of the goods. The first appellant purchased or purported to purchase an interest in the goods assuming that it did so for value in good faith and without notice of the respondent’s security interest and the purchase was one from the debtor as defined. At the heart of the matter is the question whether the respondent’s interest was a security interest ‑ ‑ ‑
GLEESON CJ: What exactly was the interest that was extinguished? Title?
MR JACKSON: I am sorry, your Honour?
GLEESON CJ: What was the interest that was extinguished?
MR JACKSON: Your Honour, it was the interest that the ‑ ‑ ‑
GLEESON CJ: Was it ownership?
MR JACKSON: Well, it was ownership and it was the – I am sorry, your Honour. It was, to put it more accurately, I suppose, the rights that it had pursuant to the contract of which the clauses that I have taken your Honours to were part.
GLEESON CJ: One of those rights was title, property.
MR JACKSON: Yes, your Honour, it had title to property and it had the right to retake the property and it had the right to sell the property and a number of other rights under it. However, your Honours, by reason of the statute there was another right, or at least by reason of the statute, there was another right in the property and that was an interest, not particularly defined, but an interest conferred on Kingstrate by virtue of the statute. I will come to that in a moment, if I may.
GLEESON CJ: Was this a case of a purchase or a purported purchase?
MR JACKSON: Your Honour, I suppose it is probably right to say that it is a purported purchase rather than a purchase, but because the Act covers both it is not necessary to decide the issue. Now, your Honours, could I say this, the ‑ ‑ ‑
GLEESON CJ: Where is that agreed fact about the sale? It was actually the sale that brought about the extinction, was it not?
MR JACKSON: Yes, if one is looking at the decision of the Court of Appeal in relation to it, your Honour, you will see it in page 136, paragraphs 3 and 4, and in the primary judge’s reasons, page 99, paragraphs 1 to 5 and paragraph 6, I think, also, your Honour.
GLEESON CJ: On your argument the extinguishment would have occurred even if your client had not registered a security interest.
MR JACKSON: Quite, your Honour, yes. Registration of our own qualifying as having a security interest is relevant not to section 7, but to section 10. Section 10 is a priority that would give us priority if both parties have a security interest because our registration was earlier.
GLEESON CJ: But if you are right about the extinguishment, how would a question of priority arise?
MR JACKSON: Well, it arises in this way, your Honour. Really in a sense of the course of proceedings, if I can put it that way, and this will take me a moment to say, but at first instance we succeeded on the issues that arose under section 7(1), that is, we succeeded in, relevantly, I suppose, two matters. One was that the respondent had a security interest as defined and, secondly, that we succeeded on the basis of our not having notice of that security interest and our having acquired the vehicles in good faith and without notice of it. So we succeed on both those issues. So it was not necessary for the primary judge to deal with the section 10 issue. He found entirely in our favour.
When it came to the Court of Appeal, the Court of Appeal found against us on the security interest issue and found it was unnecessary to deal finally with other issues. With a qualification or two I say that, but so far as section 7 is concerned, the court said if they had been wrong in finding in favour of the respondent on the security interest issue, they thought that the judge had misdirected himself on the good faith and without notice issue and that they would not decide that issue but would have remitted the matter to the County Court for further hearing of that issue.
Your Honours, we accept that proposition on that question. If we were otherwise to succeed on the section 7(1) issue, then the appropriate order would be that that matter would go back to the Court of Appeal. There was another issue relating to section 7(7) raised by the respondent. Again, it was allowed to be raised on appeal and, again, we will accept the proposition that if we otherwise succeeded on the security interest issue, that matter too would go back to the County Court.
A different question arises in relation to section 10 because that gives rise to a question of priorities. I think we have said in our written submissions that a decision on the section 10 issue would in any event bring the matter practically to an end because our claim would have priority over the claim of the respondent. Because of the financial condition of the parties, that would effectively be the end of the matter.
GLEESON CJ: But if you are right in your main case, when Kingstrate sold or purported to sell these vehicles to your client prior to the floor plan agreement and for the purposes of the floor plan arrangement, then Southbank lost whatever interest it had in the vehicles.
MR JACKSON: Yes, it did. I have to say, your Honour, that is subject of course to our purchase having been in good faith and without notice of that.
GLEESON CJ: I meant to include that in what is your main case.
MR JACKSON: Yes, quite.
HAYNE J: The pleading of the sale is I think found in paragraph 7A of the amended defence at pages 23 and following and that has to be read with what is described as the “PROPOSED AMENDED REPLY” at page 28 which seems to be cast in terms that admit the facts alleged.
MR JACKSON: Yes.
HAYNE J: That is not as clear as it might have been but that seems to be the footing in the pleadings, does it not?
MR JACKSON: Yes, I think that is so, your Honour. I should check that if I may do so.
HAYNE J: Of course.
MR JACKSON: But I think that is so, your Honour.
GUMMOW J: We need to look at section 7(6), do we not, as well, just to make us understand the legal framework?
MR JACKSON: Yes, one does in a sense because ‑ ‑ ‑
GUMMOW J: New South Wales, notably section 28 of Sale of Goods Act 1923 derived from older English legislation, obviously.
MR JACKSON: I think your Honour should have the Goods Act to which section 7(6) refers and you will see section 31 of the Goods Act which deals with the sale of goods. Section 31 says most relevantly:
Where a person having bought or agreed to buy goods obtains with the consent of the seller possession of the goods . . . the delivery or transfer by that person . . . of the goods . . . 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 –
The result of that, your Honours, to put it shortly, would seem to be that if Kingstrate, having agreed to buy goods from the respondent, obtained possession of the goods, the disposition of the goods to a person, us, receiving them in good faith and without notice of any other right, would be effective to give us title of the goods, to put it very shortly.
Your Honours, having said that you will see that section 7(6) of the Act excludes the operation of section 31 if the goods are registrable goods, as these goods were, and that is because that issue is dealt with by the earlier provisions of section 7, including section 7(1).
GUMMOW J: Dealt with but with the superimposition of a registration requirement and an extinction of title sanction. That is what is new about this system, so to speak.
MR JACKSON: Yes it is, your Honour. However, my hesitation in answering your Honour is this. If your Honour looks at section 7(1)(a) it speaks of:
an unregistered security interest (whether or not over registrable goods -
Section 7(1)(a) is covering a field, if I can put it that way, which deals with the acquisition of an unregistered security interest even though the goods may not be registrable. So, your Honour, it is a slightly wider field than just registrable goods.
May I come to the definition of “security interest” which your Honours will see in section 3(1). Your Honours will see in the first place, and I say in the first place because the section does have, in a sense, two aspects to it. In the first place, the term means:
an interest in or a power over goods . . . which secures payment of a debt or other pecuniary obligation or the performance of any other obligation –
If one pauses just at that point, in our submission, it is apparent that the respondent had both an interest in and a power over the goods. In the first place it retained property in the goods – surely that is an interest in the goods one might think – secondly, it had various powers over the goods ‑ ‑ ‑
GLEESON CJ: Mr Jackson, those words in parentheses, do they cover the whole field, as it were? Does the interest or power have to be one that either arises by or under or pursuant to an instrument or transaction or that arises on the execution of a penalty enforcement warrant?
MR JACKSON: May I make two answers to that, your Honour. The first is, in our submission, not, and I will come back to that in a moment. The second is that if it be the case then the powers that the respondent had were ones that arose at least pursuant to the transaction that was evidenced by each of the contracts in question.
No doubt some of the powers that are referred to there were powers which existed prior to entry into the transaction, but they were powers the nature of which was thereafter regulated by the terms of the transaction. So that the powers that the respondent had were ones that arose at least, your Honours, pursuant to an instrument or, if one likes to call it, a transaction, pursuant to that transaction.
But if I could go back, your Honour, to the first of the answers I gave your Honour. Our submission would be this. The words in parentheses in the definition are simply endeavouring to indicate two, perhaps three, of the possible ways in which an interest in or power over goods might arise as distinct from setting out exhaustively the ways in which it could arise.
Your Honour, in our submission, it is not necessary to determine the issue finally for the reasons that I gave, but we would submit that the words in brackets do not exhaust the possible ways in which it might arise. One might think, for example, that some interest in goods could arise in some cases pursuant to statutory provisions and so on.
If I could pause at that point, your Honours. Our submission is that the opening part of the definition, that is the part I have been to so far, was satisfied and then the next question was whether the respondent’s retention of those interests in or powers over the goods secured are payment of it, either payment of a debt or other pecuniary obligation or performance of any other obligation.
Now, your Honours, that part of the provision gives rise to a number of potential questions. Before coming to those, may I refer to one further provision of the Act and that is section 3(3). Your Honours will see that section 3(3) provides amongst other things that:
For the purposes of this Act, a hirer or lessee of goods or a buyer of goods under a conditional sale is deemed to have an interest in the goods notwithstanding that –
the buyer does not have title to them. Now, may I say also that your Honours will see that as well as the buyer of goods under a conditional sale, which of course the sales in question here were, it refers also to the position of a hirer or lessee of goods, and if I might just say one thing about it. Your Honours will see those three categories seem to have a relationship between the three – there seems to be a relationship between the three categories as they are expressed and the three categories referred to in the concluding words of the definition of “security interest” to which I have not yet come and they are the words in the last three lines:
and includes any interest in or power over goods of a lessor, owner or other supplier of goods -
Your Honours, I will come to that in a moment if I may, but I simply wish to draw attention to the relationship.
If I could go back to section 3(3) for a moment, it is right to say immediately that section 3(3) does not further define or delineate the precise nature of the interest in the goods which it deems the purchaser to have for the purposes of the Act under a conditional sale, but there are two features which are clear from section 3(3), in our submission. The first is that it makes it really absolutely clear that it is dealing with contracts involving retention of title clauses. That is:
buyer of goods under a conditional sale is deemed to have an interest in the goods notwithstanding that title or general property in the goods has not passed to the . . . buyer.
That is the first point.
The second thing about section 3(3) is that its operation means that there are two interests in the goods for the purposes of the Act. The vendor of course has the ownership of the goods. The vendor has the right to retake possession of them. The vendor’s interests or powers are held to ensure payment to the vendor of the price for the sale of the vehicle sold and the unpaid purchase price of all other vehicles sold to the purchaser. If the vendor exercises those rights, then the interest brought into being by section 3(3) will be extinguished.
GUMMOW J: …..purposes of the Act to which 3(3) could have any application?
MR JACKSON: Your Honour, it has an application in relation to the definition of “security interest”, and may I come to that in just a moment. Perhaps I could come to that now first of all. Your Honours will see the concluding words of the definition of “security interest”:
and includes any interest in or power over goods of a lessor, owner or other supplier of goods.
There are three interests in or powers over goods that are there referred to. That is the interest as a lessor, as an owner or as an other supplier of goods. The one of importance for present purposes, your Honours, is “or other supplier of goods”, but may I just say something about each.
The interest in or power over goods of a lessor is not directly relevant because that is a term itself defined by section 3(1) and it takes its meaning from the definition of “lease” and “lessee”. The presence, however, of the reference to the position of lessor is that it suggests, in our submission, that a relatively broad meaning, not necessarily an absolutely technical meaning, is to be given to the concept of “which secures” used in the definition of “security interest”.
Your Honours, the second category, “owner”, used in the definition of “security interest” is also not directly applicable because it too is defined and it is defined to have the same meaning as in the Hire Purchase Act 1959 which your Honours should have. That definition is in section 2 of that Act at the bottom of page 4 of the extract but it means “the person letting hiring or agreeing to sell goods under a hire‑purchase agreement” which your Honours will see defined in that Act.
Once again, your Honours, its presence indicates that “secures” when used in the definition of “security interest” is unlikely to be used in a very technical sense. I said that those two phrases, “lessor” and “owner” were not directly relevant but they do have the degree of relevance to which I referred. The provision which is particularly apposite in the definition of “security interest”, in our submission, is the term “other supplier”.
HAYNE J: Just before you come to this aspect of it, and I understand its importance, can I just delay a minute about leases and lessors and lessees. Leases would include, as defined, would they not, floor plan arrangements?
MR JACKSON: Yes, they would include our floor plan arrangements.
HAYNE J: Yes, therefore, coming away from the particular facts of this case and just looking for a moment at floor plan arrangements, is a consequence of the deeming done by 3(3) a consequence that both dealer and financier, under a floor plan arrangement, have an interest in the goods?
MR JACKSON: Yes.
HAYNE J: In what commercial setting would it be said that the lessee of goods, in this case the dealer in the example I am considering, has an interest which secures payment of the debt or other pecuniary obligation?
MR JACKSON: Absent the statute, your Honour, or in accordance with the statute?
HAYNE J: According to the statute. What is the kind of commercial arrangement which – go back a stage. I see 3(3) which deems lessees, amongst others, to have interests. That satisfies the first part of the “security interest” definition. What I do not understand at the moment is the kind of commercial setting in which it would be said that the lessee, sticking with the floor plan arrangement, the dealer has an interest which secures payment of a debt or other pecuniary obligation.
MR JACKSON: But, your Honour, it is the other side of the transaction.
HAYNE J: Yes, I understand the other side of the transaction has such an interest but ‑ ‑ ‑
MR JACKSON: I am sorry, I suspect that your Honour and I may be at cross‑purposes. May I seek to answer?
HAYNE J: Yes.
MR JACKSON: Your Honour, one has to bear in mind that the definition of “security interest” in the Act is designed ultimately to bring about some consequences. The definition is one which is looking at the position, in the example your Honour is putting to me, not of the person on whose floor the vehicles are being, not of the bailee, but of the person who is providing the vehicles and who would remain the owner of the vehicles.
That person is the one who, by virtue of the definition, has the security interest. The bailee of the vehicles, if the bailee did not otherwise have an interest, is given an interest by section 3(3).
GLEESON CJ: For what statutory purpose?
MR JACKSON: The statutory purpose, your Honour, is this, in our submission. It is to indicate the fact that there is no longer just one interest in the vehicle. What I mean by that is, if one comes to move – I am sorry, really for two purposes. The first purpose, your Honours, is in cases such as the present to modify the notion that the vendor of the vehicles has all the property interests in the vehicle. Now, the result of it is that the transaction which is the subject of the contract is one which gives an interest to the buyer, notwithstanding the general property being in the vendor.
Now, that being so, what is said by the definition of “security interest” is that the security interest of the vendor in the vehicles – I am sorry. The interest to the vendor in the vehicles is one which is to be treated as being a security interest. The effect of it is that it secures payment by bringing about the possibility that the interest conferred by section 3(3) can be brought to an end. So there is a statutory interest.
HAYNE J: You want to use 3(3) to cast light on the notion of secures payment of a debt, do you not?
MR JACKSON: Well, your Honour, I use it for that purpose, but for another purpose as well. The other purpose we say about it is that it is not absolutely necessary because the last part of the section, the definition of “security interest” which I have not quite finished coming to, your Honour, is one that itself makes the vendor within the present case someone who has a security interest. Your Honour, in a sense, the case is as simple as that.
GLEESON CJ: Does this provision, section 3(3) come from some earlier legislation?
MR JACKSON: The answer I think, your Honour, is no. What it comes from is that it was a provision which was recommended by, I think, the Viney Committee, which was one of the committees that I will come to when I come to the judge’s reasons below, and was a provision which was of their recommendation, I think, your Honour.
GLEESON CJ: Did they explain why they recommended it?
MR JACKSON: No, no.
GLEESON CJ: The Court of Appeal, as I recollect their reasons, had difficulty in identifying any purpose of the Act which was served by the deeming effected by section 3(3).
MR JACKSON: Well, they could not find any reason for it, yes. They could not understand what it did and what I am seeking to say, your Honours, is that it may have been expressed with considerably more elegance no doubt, but having said that, what it does do is to say, a simple enough proposition, a transaction like this is not one where the only interest in the goods is the interests of the vendor. There are two interests in the goods. The interest of the buyer of the goods is one which may be lost if the interest of the vendor is exercised and it illustrates the fact that the interest of the vendor of the goods is one that is held for the purpose of securing payment.
Now, your Honours, it may well have been unnecessary and, if one looks at the concluding words of the definition of “security interest”, and I will come to that in a moment ‑ ‑ ‑
HAYNE J: The difficulty I am having can be expressed in this way. I can understand an Act identifying that there is more than one interest, but at its root this Act is dealing not just with interests; it is dealing with security interests. I cannot see how the interest identified in 3(3) ultimately becomes a security interest with which the Act would deal. Yes, it is an interest in goods but how will it ever be engaged by the second half of the definition?
MR JACKSON: Your Honour, may I say we do not suggest that that interest is a security interest because a security interest that one is looking at is the interest of the vendor.
HAYNE J: Yes, just so.
MR JACKSON: The point, maybe the only point, that derives from section 3(3) is that because it says that the vendor no longer has the only interest in the vehicle, it provides greater support for the notion that the interest that the vendor has is one which is a security interest as distinct from the full right of ownership which previously existed. I think that is a summation of it.
May I come back to the concluding words of the definition of “security interest”. The term used in the concluding words of “security interest” is:
includes any interest in or power over goods of a lessor, owner or other supplier of goods -
Your Honours will see the term “other supplier” and “supply” in the next definition is defined to mean:
in relation to goods, means dispose of an interest in the goods by way of sale –
amongst other things. There seems, if I may say so with respect, no doubt that the transactions entered into between the respondent and Kingstrate were transactions which were transactions by way of sale.
If one goes to the document first of all at page 97 in the appeal book to the more legible parts of it, you will see about line 12 it says “Sold To”. You will see then about line 32 that it refers to “Total Price” and you will see also about line 22 in the right‑hand side of the page under the words “Fold Here” the words “Acquisition Details”. If one goes to the legible text at page 135, you will see the terms “vendor” and “purchaser” being used. You will see that in the fourth line of paragraph (1). You will see the word “purchaser” used in the second line of clause (2), “vendor” in clause (3) and then there are a number of other references to “vendor” and “purchaser” through it, including particularly in paragraph (4) where they have achieved the distinction of capitals.
Your Honours, could I mention also one other provision of the Act which appears to accept that a security interest may arise from a retention of title provision. That is found in the definition of “inventory security interest” in section 3(1). You will see the definition has two paragraphs. It means a security interest that, because a security interest was defined, in paragraph (a) it speaks of one:
given by a dealer in or over goods of a kind in which the dealer deals in the course of the dealer’s business -
but then it goes on to say in paragraph (b), a security interest:
reserved in or over goods in the possession or control of a dealer, being goods of a kind in which the dealer deals in the course of the dealer’s business -
Could I just pause to say about it, your Honour, the reference to a security interest reserved is a matter or a reference which appears not to have been seen or noticed by the Court of Appeal which appeared to draw a significant amount from the absence in the 1987 Act of the use of the term “reserved” which had been in previous Acts and which it was thought was potentially appropriate to cover cases ‑ ‑ ‑
GUMMOW J: Where does this definition of “inventory security interest” operate in a substantive provision?
MR JACKSON: It operates, your Honour, for example, if one goes to section 7(1)(b). Your Honours, could I say I will come back to the Court of Appeal’s reasoning on that and some other points in a moment but may I just mention that point.
Your Honours, could I come back to the definition of “security interest” in section 3(1). All that is required in the opening part of that definition is that there be “an interest in or power over goods . . . which secures payment of a debt or other pecuniary obligation”. The meanings to be attributed to the term “security”, or possibly be attributed, were discussed by the Court in Handevel Proprietary Limited v Comptroller of Stamps (Victoria) (1985) 157 CLR 177. The relevant issue there, your Honours, was the possible application of the definition of “debenture” which is referred to in the second paragraph of the headnote and your Honours will see that paragraph says that:
Section 137N . . . defined “debenture” to include “debenture stock, bonds, notes and any other securities of a corporation -
The observations about the meaning of the term “security” can be seen at page 196 in the joint reasons of Justices Mason, Wilson, Deane and Dawson and at the last paragraph on the page, after referring to that part of the definition they said, in the third line of that paragraph:
The word “security” is susceptible of more than one meaning. It may mean a debt or claim, the payment of which is in some way secured, either by a right to resort to some fund or property for payment or by a guarantee ‑
There is a reference to Singer v Williams and I will come to that your Honours.
or it may mean an instrument which creates or acknowledges an obligation to pay a sum of money, even though it is the original source of the obligation and the obligation is executory –
and it was said the first of those meanings is the “primary meaning”.
Your Honours, pausing there for a moment. The first of those meanings, which is the common meaning, is a reference to a right to resort to some fund or property for payment and that proposition is elaborated upon a little in Singer v Williams [1921] 1 AC 41. May I say that the relevant issue in that case was whether Mr Singer’s shares in the Singer Manufacturing Company of New Jersey were foreign securities for the purpose of a taxing statute in the United Kingdom. It was held that they were not, but there were observations on the ordinary meaning of the term “security”.
Your Honours, if I could go to page 49, Viscount Cave, and this is the passage that was picked up by the four members of the court, your Honours will see in the second paragraph on the page in the second line he said:
The word denotes a debt or claim the payment of which is in some way secured. The security would generally consist of a right to resort to some fund or property for payment; but I am not prepared to say that other forms of security (such as personal guarantee) are excluded.
Then, your Honours, if one goes to Lord Shaw at page 57 in the paragraph commencing about point 6 on the page. It was said:
The word “securities” has no legal signification which necessarily attaches to it on all occasions . . . and it is to be interpreted without the embarrassment of a legal definition and simply according to the best conclusion one can make as to the real meanings of the term as it is employed in, say, a testament, an agreement, or a taxing or other statute as the case may be.
Then at page 58 he said in the third line:
Securities in Case 4 of Sch. D appear to me to mean securities upon something as contrasted with the possession of something. The term involves the idea of the relation of creditor with debtor, the creditor having a security over property, concern, assets, goods or other things, which are, so to speak, put in pledge by the debtor and form the security for the fulfilment of his obligation to the creditor.
Finally, your Honours, Lord Wrenbury on page 59, second paragraph of his reasons, the first six or seven lines he says amongst other things:
There are two owners and the right of the one has precedence of the right of the other.
KIRBY J: This was for the purpose of interpreting a word in the Income Tax Acts.
MR JACKSON: The question there, your Honour, to put it shortly, was whether the shares that were held in the Singer Corporation by Mr Singer, who was I think a resident of the United Kingdom, were foreign securities. The question was whether the common parlance use of the term “shares and stock” and so on as being securities was the one that was to be used, and it was held that it was not. I am sorry, the question was whether as used in the statute “securities” had the common meaning or whether it had a somewhat narrower meaning involving some obligation of one person to another, to put it shortly.
GUMMOW J: Some commercial solicitors these days would tell you their client has security and when you ask them more closely, the answer is that they have taken a “negative covenant”.
MR JACKSON: Those were wonderful days, your Honour. So that the term has a number of meanings, I accept.
GUMMOW J: They genuinely used the word “security”, I think, to cover that but it is not a security as we understand it.
MR JACKSON: No, your Honour, and in the period 15 or 20 years ago it was a common thing for large borrowers to be ‑ ‑ ‑
GUMMOW J: I think it is pretty common now. There is a lot of money sloshing around to be lent.
MR JACKSON: Yes, on the negative pledges and ‑ ‑ ‑
GUMMOW J: Yes. That does not mean that this phrase here in the Chattel Securities Act is to be given any elastic meaning.
MR JACKSON: No, I do not suggest that at all, your Honour. I am not suggesting that it be given an elastic meaning but what I am suggesting ‑ ‑ ‑
GUMMOW J: Can I just - suppose there is a supervening liquidation of the other “purchaser” under this arrangement. In that liquidation the property in the cars is completely outside it, is it not?
MR JACKSON: It would be assuming that the ‑ ‑ ‑
GUMMOW J: There were some unsecured contractual obligations to pay a price and so on.
MR JACKSON: I am sorry, your Honour, I do have to say one thing about that. One does have to bear in mind that the question would be whether there was a security for the purposes of the winding‑up provisions so that the secured creditor had the ability to deal with it outside. That is one question and a question would be whether these rights did amount to security for that purpose. That is a question arising really under the Corporations Act as distinct from something arising under this legislation. The legislation here says that for purposes of the State enactment, what is being looked at is to see whether someone has what is a defined term and that is a security interest.
That has two aspects. One aspect is whether it is securing payment of a debt, et cetera. The other is the second aspect that it specifically said to include the interest of a supplier of goods in circumstances such as the present. Whether that would or would not be a security under the general law is one question but it is specifically included within the definition of “security interest”. But in any event, we would say the term which secures payment of a debt when one is speaking of the interest or power over goods is one which is sufficiently wide to include transactions of this kind in any event. We would say we fall within both parts of it but in any event the second part of the definition is directly apposite.
GUMMOW J: Is Clough Mill on anyone’s list, do you know?
MR JACKSON: Yes, it is, your Honour, yes.
GUMMOW J: There is some discussion that may be useful by Lord Justice Oliver in [1985] 1 WLR 111 at 122E. That is the sort of reasoning that gives one pause when one comes to construe this arrangement here in this statute here.
MR JACKSON: Yes. Your Honour, may I say two things. If one makes the assumption that what is said in that passage, and at passages in other cases too, is correct, namely, that in the ordinary course of events a retention of title clause, whilst being a security de facto, is not a security de jure, then so be it, your Honour. But accepting that proposition for the moment, it does not follow, in our submission, that the question which arises in the particular case is one where one would reach the same answer and the reason why that is so is that the term “security interest” is, of course, a defined term. Now, if one looks at the last part of it where it says ‑ ‑ ‑
GUMMOW J: I was going to ask you about that. There is authority, is there not, in this Court on this use of definitions which say “means” and then say “includes”? What is the significance of “mean” and what is the significance of “include”?
MR JACKSON: Well, your Honour, there are a number of cases. I do not know what they tend to recognise. There is one of Justice Kitto I think we have referred to at some point in our written submissions. What one sees in relation to it is that they say – and, your Honour, I do not mean this in any facetious way – it depends on the context. But what they tend to say in the term “means” is that it is intending, in the ordinary course of events, to be exhaustive. The term “includes” taken by itself can sometimes be an exhaustive description of things, sometimes it can be something which explains or makes clear what otherwise might perhaps not have been clear.
Now, in a case such as the present what one sees is that the term is expressed to mean, in the first place, “an interest in or power over goods” which has some characteristics. That takes one down to the words “or the performance of any other obligation”. Then one sees the words “and includes any interest in or power over goods of a lessor, owner or other supplier of goods”. The interests contemplated by those three phrases are not interests which, in the ordinary course of events, would be treated as being a security under general law. They are transactions, prima facie, of a different kind.
What that tends to indicate, in our submission, is that when it says “and includes” it is saying these classes give rise to security interest whether or not they would have under the earlier provision. Your Honour, I do not know that I can take it further than that. So that one sees, we would submit, that they are cases directly falling within the provision.
Your Honours, what I was going to say then is if I could go to the decision of the Court of Appeal, if one looks to see the reasons which led the Court of Appeal to arrive at the conclusion which it ultimately did, and I am referring to the ultimate result of its reasoning at page 166 of the appeal book in paragraphs 100 to 102. Your Honours will see that in paragraph 100 there is a reference to the “Molomby Committee” and your Honours will see it said that committee, and I will come back to that in a moment:
envisaged chattel securities legislation which would extend to conditional sales.
It refers to the fact that in substance that was seen to be no different from other forms of chattel securities and your Honours will see then it said:
Were the language of the relevant provisions of the 1987 Act open to alternative interpretations, we would – as Parliament has directed – adopt the interpretation which better advanced that purpose . . .
As we have suggested, it appears that this unfortunate result has occurred because the language in fact adopted for both the 1981 and the 1987 Acts made the applicability of the legislation depend on the legal form of the transaction, rather than on its substance or purpose . . . express deeming provisions –
were necessary and for that reason, at 102:
the appeal must succeed.
GUMMOW J: But retention of title clauses were perfectly well known by 1987.
MR JACKSON: Yes, your Honour, and 1981.
GUMMOW J: Yes.
MR JACKSON: And, indeed, earlier. Their “fashionability”, if I could use that word, increased with the Romalpa Case, of course. Perhaps they had been forgotten a little but they came to be used quite a bit after that.
GUMMOW J: But was there any consideration of retention of title clauses by the Molomby Committee?
MR JACKSON: Yes, your Honour, there was. I was just going to come back now to what was said about the Molomby Committee. I was taking your Honours to the ultimate reasoning of the Court of Appeal. The passage dealing with the Molomby Committee reasons commences at page 149, paragraph 45.
KIRBY J: It seems to have had a bit of a chequered career there with the Molomby Report in 1972, I think, and then it took a long while for something to be done and then what was done was criticised, and then there was the Viney Report Committee and all of this is laid out by the Court of Appeal.
MR JACKSON: Your Honour will see that the Committee was established in 1967 by the Law Council, that is paragraph 45, and the report in 1972. Your Honours, at paragraphs 46 to 50 there is a discussion of the recommendations of the Molomby Committee and could I refer particularly to what is said in paragraphs 46, 47 and 48. Your Honours will see in paragraph 46 that:
the Committee recommended legislative reforms designed to deal with the substance, rather than the form, of transactions involving chattel securities and to eliminate the “excessive technicality” . . .
47. The Molomby Report dealt specifically with conditional sale agreements . . .
“The means used to avoid registration do not change the fact that functionally the retention of title by the vendor or owner under a non-registrable agreement is a security.”
And then paragraph 48, there was a reference to a “need for reform” and then in the quotation again:
There ought to be no distinction between -
amongst other things -
hire-purchase and conditional sale agreements, and on the other of bills of sale and chattel mortgage securities”.
Then the Court of Appeal between lines 40 and 45, paraphrasing again what had been said by the other committee.
So the answer is yes, there was a specific reference to it. There is then in the Court of Appeal’s reasons, if I could move to paragraph 51, between paragraphs 51 and 63 there is a reference to the legislative steps which resulted in the 1981 Act. Could I draw attention particularly to paragraphs 56 to 59. What is said is that in accordance with the Molomby Committee’s recommendation that the 1981 Act introduce the concept of a goods mortgage which was defined to mean – and your Honours will see a definition of the term “security interest” referred to in paragraph 57:
“an interest or a power –
(a) reserved in or over an interest in goods –
et cetera. Could I go then to paragraph 60. Your Honours will see that it is said:
In striking contrast, the definition of “security interest” in the 1987 Act speaks only of such an interest being created. The word “reserved” is not used. We consider below the significance of this difference between the two Acts.
GLEESON CJ: Where is that word “created” in the definitions?
MR JACKSON: That is the first point I was going to make, your Honour. May I say two things about what is said in paragraph 60. The first is that the definition of “security interest” actually does not contain the word “created”. To the extent that the word “creation” is used in the Act – and I will come back to that in a moment, if I may. You will see, for example, a definition of “debt” but to the extent to which it is used in the Act, it is apparent enough, in our submission, that it is a rather ambulatory concept.
The second thing about it is that, dealing again with paragraph 60 and what was said by the Court of Appeal, the word “reserved” is of course used in the definition of “inventory security interest” which assumes that security interests can arise because they were reserved.
If I could come back to the Court of Appeal’s reasons and to the three paragraphs which are paragraphs 61 to 63, what the Court of Appeal appears to be saying there is that although the 1981 Act had intended to catch sales of this kind, it had not in fact done so. The basis of taking that view, your Honours, appears to have been the way in which they read the wording of the 1981 Act. They read it as referring to a security interest in or over - if I could put the expression in inverted commas, “an interest in goods”.
There must, in our submission, be significant doubt about the correctness of that view purely as a matter of interpretation of the provisions that your Honours will see on page 153. If I could go to paragraph 57 on page 153, the way in which the Court of Appeal interpreted, for example, the words “an interest or a power” and in paragraph (a) was to say it meant:
an interest or a power –
(a) reserved in or over an interest in goods –
Therefore, and it was said, the term “interest in goods” was not – there was no pre‑existing interest, in effect.
The proper way, in our submission, or the better interpretation of it is to say that it meant an interest or power reserved in or over an interest in goods. They should be treated as if there were commas after “reserved in” and “over an interest in”, so that both aspects were covered. But as the court said at paragraph 63, the point did not arise in argument and the view it expressed was one that was perhaps possible but, in our submission, not the better view of the interpretation of the 1981 Act. It was an issue, your Honours, that does not appear to have been decided in any case.
Now, your Honours, having said that, one then sees in paragraphs 64 to 67 a reference by the Court of Appeal to the report of the Viney Committee and your Honours will see then, if one goes to paragraph 68, the court moved to the interpretation of the 1987 Act. They set out their conclusion at paragraph 69. I do not mean to say that is not reasoning which follows, but their conclusion is at paragraph 69 and your Honours will see in the second sentence of paragraph 69 they said their conclusion was:
reinforced by important differences between the language of the 1987 Act and the language of its predecessor, the 1981 Act.
Your Honours, a number of bases were relied on. One basis was the concept of creation. Your Honours will see that referred to in paragraphs 70 in the Court of Appeal’s reasons, page 157, 70, 71, 72 and 73. They say, your Honours, if one looks at the definition of “debtor” – this is paragraph 70 – in the Act it says in relation to a security interest it means “the person who created the security interest” and includes the lessee in relation to a lease of goods and the hirer in relation to a hire purchase agreement.
Now, your Honours, the definition of “security interest” includes as well, amongst other things, the interest of a supplier of goods. The supplier of goods, the nature of that is taken up by the definition of “supply” which includes agreements for sale. The creation in that case and the one specifically mentioned of lease and hire purchase must be simply by entry into the agreement and when one speaks of creation, that is why I say the term “creation” must have an ambulatory meaning which covers all those possible ways of creation of such an interest. It does not involve, in our submission, some greater act of creation. Similar observations, your Honours, apply, in our submission, to what is said in paragraphs 71, 72 and 73.
GLEESON CJ: Could I just take you back to the definition of “security interest”. Before you come to the expression “other supplier of goods” there is the word “owner”:
“security interest” means an interest in . . . goods . . . which secures payment of a debt . . . and includes any interest in . . . goods of –
an owner.
MR JACKSON: But “owner”, your Honour, is defined to mean the owner under a hire purchase agreement. The definition of “owner” picks up the similar definition in the Hire‑Purchase Act and that means owner under an agreement which is not an agreement of this kind.
GLEESON CJ: Right, but in what sense does the interest of an owner under a hire purchase agreement secure payment of a debt?
MR JACKSON: Ordinarily speaking, it does not, your Honour. When I say “ordinarily speaking” I mean as a matter of the conventional general law it does not secure payment. That is the point I was seeking to make a little earlier really and the same applies to a lessor. Those persons have their rights under the agreements governed to a degree by other statutes that they have and that is why, when one looks at the concluding words of the definition of “security interest”, it makes it apparent, we would submit, that the term – it makes two things apparent.
One is that whether or not those interests would under the general law be ones that secured payment, they are to be treated as security interests. That is the first point. The second thing is that if they are to be treated as falling within the more general words of the opening part of the definition of “security interest”, then they lend support to the notion that the words “which secures payment”, et cetera, are words which have a larger application than a very narrow definition of the concept of “secures”.
GLEESON CJ: If you take a straight leasing agreement - leave aside hire purchase because the option to purchase might complicate the position – if you have a straight chattel leasing agreement of a motor vehicle from a finance company to a motorist, the interest of the owner, that is the finance company, is treated by this legislation as securing payment of the rental.
MR JACKSON: Yes, and the money payable at the end. That is why we would say that the last part of the definition of “security interest” has those two possible results. One is that it places the persons who are lessors, owners or other suppliers of goods as holders of security interests if they did not fall within the earlier part of the definition. That is one approach to it. The other approach is to say that what the legislature is doing is explaining that when it speaks of interest in or power over goods which secure payment of a debt or other obligation that the term “secures” is to be used in a non‑technical sense.
Either of those would achieve our aim, your Honour. Your Honours, may I go back to the Court of Appeal and could I just say one thing about paragraph 73 at page 158. It said, “The purchaser in a conditional sale creates no interest in the goods.” Well, in a literal sense perhaps that is true, but what does occur, of course, is that section 3(3) means that there are two interests in the goods. The sale does have an effect upon the interest held in the goods.
GUMMOW J: Is there any consideration, Mr Jackson, by the Court of Appeal of the construction you have just been discussing with the Chief Justice, namely, that security is used in some non‑technical sense?
MR JACKSON: Well, your Honour, the Court of Appeal rejected that contention.
GUMMOW J: Particularly by reference to, did they consider the significance of the definition of “owner” in the Hire‑Purchase Act?
MR JACKSON: Yes, your Honour, they did. They said that did not take matters any further. I am paraphrasing what they said, but may I come to that in just a moment, your Honour?
GUMMOW J: Yes.
MR JACKSON: Your Honour, I am endeavouring to go chronologically, in a sense, through what they had said on these issues following the reasons. But may I just say this, your Honours. If I could move over to paragraphs 87 to 99 of their reasons commencing at page 161, they refer to section 3(3) and they say in paragraph 86, “The purpose of this provision remains a mystery.”
Your Honours, it goes on through those paragraphs. I think if one goes to the end of those paragraphs it really does not take matters beyond what I have tried to submit about it earlier. It is curious, however, your Honours, that the Court of Appeal’s discussion attributes no operation at all to the provision and it is a little curious, with respect, when it does seem to tie up to a degree at least with the concluding words of the definition of “security interest” and when it is a provision which refers specifically to conditional sales.
But may I come back to paragraph 74 at page 158. Your Honours will see in the passage between paragraphs 74 to 84 the reasoning of the Court of Appeal appears to amount to this. It says, first of all:
that the definition of “security interest” in the 1981 Act included both:
. an interest or power reserved in or over an interest in goods –
and, your Honours, it said in paragraph 75 it:
recognised that there was a conceptual difference between the reservation of an interest in goods . . . and the creation of an interest in goods –
It said in paragraph 76 that:
Given that “reservation” and “creation” are distinct concepts, and given that reservation is the hallmark of a conditional sale, it would have been reasonable to expect that –
the term “reservation” would be used explicitly.
It is said in paragraph 77 that the concept had disappeared and the position, in our submission, is that that appears, as I said, to have overlooked the definition of “inventory security interest”. Whilst it is right to say, they say in paragraph 78, that the definition of “security interest” contains no reference in the specific terms at least to the reservation of an interest in goods, it is not correct to say, as they say in the next sentence, that:
The Act defines “security interest” by reference solely to the concept of “creation”.
GLEESON CJ: If you go back to 72, I think you have to link their reasoning up with the definition of “debtor” and that, in turn, is related to the question of these words in parentheses in the definition of “security interest” because if you look at the definition of “debtor” it means:
the person who created the security interest or against whom the penalty enforcement warrant . . . is issued -
That “penalty enforcement warrant” is the second of the two concepts in parentheses in the definition of “security interest” and the Court of Appeal, rightly or wrongly, appears to have treated the reference to creation of a security interest in the definition of “debtor” as corresponding to the reference to the interest “arising by or pursuant to an instrument or transaction” in the words in parentheses in the definition of “security interest”.
MR JACKSON: Your Honour, accepting that is the view they took, may I say two things about it. The first is that what it does seem to indicate, what would seem to follow from that view that what the Court of Appeal does not seem, with respect, to have appreciated would follow is that what would be involved by creation would be something that resulted from or was the consequence of the entry into the instrument or transaction. If that be the case, then creation refers to that concept as well, of course, as the penalty. Creation refers to that concept and in the case such as the present, you have the rights of the parties on both sides being regulated pursuant to or arising by the terms of the instrument or transaction in which they entered.
GLEESON CJ: I think it is also part of your argument, is it not, that the interest of an owner of goods is never created by the lease agreement or by the hire purchase agreement?
MR JACKSON: Yes, your Honour. I think what I said was that the interest of the owner or lessor under a hire purchase agreement would not ordinarily be regarded as a security interest and that that fact was germane to the interpretation of the definition of “security interest”.
GLEESON CJ: Yes, but you also say, do you not, that by definition the interest of a lessor or owner can be a security interest yet it cannot be an interest that is created by the lease or the hire purchase agreement?
MR JACKSON: Well, your Honour, I say that but I have to say I would say something else as well. What I would say is that if one is looking to the situation after entry into the transaction which is the lease, hire purchase agreement, et cetera, the rights of the parties thereafter depend on the terms of that agreement. Now, one can look at it in two ways. One can say that they arise pursuant to that interest or transaction in the sense that they are thereafter regulated by that. One can say that they existed beforehand and so the term “creation” must be given a broad meaning.
GLEESON CJ: But it is arising by or pursuant to.
MR JACKSON: Yes, yes.
HAYNE J: There is a slide in saying, is it not, that the rights existed before because the rights are of, in some respects, radically different kind following the lease?
MR JACKSON: Well, the rights have been affected.
HAYNE J: Just so, and the nature and extent of the rights, powers and duties of the person whom you identify as owner after the making of the lease are different from the nature of the rights, powers, duties, et cetera, that that owner had before.
MR JACKSON: Well, your Honour, the issue arises, in a sense, responsively, from our point of view, if I can put it that way. It arises because of the emphasis placed on a kind of concept of creation that appears to have been developed, in a sense, by the Court of Appeal without, in a sense, following through how it really applied in the possible ways. They spoke of creation as if it is, in effect, the execution of some document and it would be so in many cases. But what one has to bear in mind is that the term “creation” obviously, in our submission, can include the rights which arise upon entry into any of the three types of transaction referred to in the concluding words of the definition of “security interest”. So it has to accommodate those.
HAYNE J: It seems to me that at least some of this debate about creation and retention contains a temporal element that is no doubt observable. I just wonder about its utility. The definition focuses upon the position once the transaction has been made and true one may observe differences between the legal position then obtaining from that which obtained before the transaction was made, but is not the focus of the definition, temporal focus of the definition, a focus upon what we have now that the parties have made this agreement?
MR JACKSON: Yes, it does. It does, your Honour, yes. You see that in a sense in the definition of “secured party” immediately above “security interest” where it said it “means the holder of a security interest”.
HAYNE J: The other point I would put to you for your comment about this is that whether it is useful to focus upon interests separated from powers where at least in the commercial world in which these events are to occur often enough what you are fussed about is the exercise of a power. Now, the capacity to exercise the power may reflect upon the nature of the interest you have in the goods, may be capable of expression as an interest, but to chop up the definition may again run a risk of diverting attention from reading it as a whole, may it not?
MR JACKSON: I accept what your Honour is saying but with this qualification, if I may say so with respect, and that is that the definition in the last three lines, the “and includes” part, is itself some division of the definition that one has to ‑ ‑ ‑
HAYNE J: I understand that but that leads, at least at first blush, to an understanding of the definition that I think may assist you rather than hinder you in that it focuses upon the existence of a power, qualification to interest, et cetera, which exists because of this instrument. It is a power over goods and then you have to give a particular meaning to “secures payment of a debt” to take your case outside it, do you not?
MR JACKSON: Yes, that is so. It depends what one means by taking it outside it, what – take it within it, your Honour, I think.
HAYNE J: Yes, I understand. Glasses are always half empty in my house, Mr Jackson.
GLEESON CJ: This was an action for damages for conversion.
MR JACKSON: This was, yes.
GLEESON CJ: Title to sue for conversion depends upon?
MR JACKSON: Fundamentally, possession.
GLEESON CJ: Right to possession.
MR JACKSON: Yes.
GLEESON CJ: So the relevant interest with which this action is fundamentally concerned is right to possession, is it not?
MR JACKSON: Yes.
GLEESON CJ: Which may be different from ownership.
MR JACKSON: Yes, quite, your Honour.
GLEESON CJ: So that which was relevantly extinguished, according to your argument, by section 7(1)(a) was the right to possession of the plaintiff in conversion.
MR JACKSON: The whole of the security interest was extinguished, your Honour.
GLEESON CJ: Including title.
MR JACKSON: Yes, quite.
GLEESON CJ: On your argument, as I understand it, the respondent’s title to the goods was extinguished when Kingstrate purported to sell them to the finance company.
MR JACKSON: When we paid the first payment in fact, yes.
GLEESON CJ: Whether they are right or wrong, the key part of the reasoning of the Court of Appeal seems to be the last sentence in paragraph 72 and the first sentence in paragraph 73, does it not? They seem to be saying if your argument is right, you cannot make the definition of “debtor” work in relation to this transaction.
MR JACKSON: Yes. That is a matter which seems important to their views. I do not think, with respect, it is the only reason they adopt it but it does lie close to the heart of it. The difficulty with that view is that “debtor” is a definition which itself picks up the definition of “security interest”. If one looks at the definition of “debtor” it says:
in relation to a security interest means the person who created the security interest –
Now, when one goes to the thing to which it says it is acting in relation to, if I could use a number of prepositions, the term “security interest” means a number of things. It means, for example, the interest of a supplier of goods as defined. If one assumes that the words “whether arising by or pursuant to an instrument or transaction” are apposite, the definition of “security interest” contemplates that creation will be by will or may be by entry into the instrument or transaction. The point I would seek to make, your Honour, is that to take creation as a concept which is rather bereft of the content given by the definition of “security interest” is ‑ ‑ ‑
GLEESON CJ: Why would not the argument that is reflected in the concluding sentence of paragraph 72 and the first sentence of paragraph 73 apply equally to the position of a lease or a hire purchase agreement?
MR JACKSON: It would. I have to say though that the definition of “debtor” does specifically refer to those transactions, the concluding words of it. That point is picked up and perhaps there is something, but, in our submission, not enough in it. Your Honour, there is not enough in it because it would make the reference to includes any “power over goods” of another supplier of goods in the definition of “security interest” otiose.
GUMMOW J: Does not section 3(3) link up to that, too, because is not 3(3) saying that it may be that the hirer or the lessee of goods is itself raising finance by offering, as it were, its position as subsisting hirer or subsisting lessee and then does not that arrangement by it then fall within the definition of “security interest” because it, by reason of 3(3), the hirer, has an interest or power over goods, and away you go?
MR JACKSON: Yes, your Honour. The interest that ‑ ‑ ‑
GUMMOW J: The security interest can operate in several strata.
HAYNE J: Sub-floor plan, have successive floor plans.
MR JACKSON: Yes, that is possible, your Honour.
GUMMOW J: So you cannot say 3(3) is a nonsense, I do not think.
MR JACKSON: Your Honour, it is one thing perhaps to say, as the Court of Appeal said, that you cannot work out precisely what 3(3) is intended to do. It is another thing though to say as well that the definition of “debtor” is to be interpreted in such a way as to take away the effect of at least the concluding words, the definition of “security interest” of including the interest of another supplier of goods.
HAYNE J: I may be half remembering things which is even more dangerous than my remembering things, Mr Jackson, but at one stage where motor traders had wholesale companies who were lying behind the immediate retailer there were, I think, successive arrangements of an essentially financial kind that underpinned it all and 3(3) may have real work to do at least in the case where there are successive financial arrangements, or back‑to‑back arrangements.
MR JACKSON: Yes. Section 3(3), for example, would seem to render inoperative at least for any purpose of the Act a provision of a sale agreement which said that the buyer under the retention of title provision had no interest in the vehicles because the Act says it does. It says it does perhaps for a number of reasons but one of them at least, in our submission, is to indicate that the right of the vendor is a right which if exercised can operate in relation to some property of the buyer which is commonly thought to be an element of a security.
Your Honours, could I refer to paragraphs 82 to 84 of the Court of Appeal’s reasons at page 161. If one goes to paragraph 82 your Honours will see that they said:
To satisfy the definition of “security interest” . . . two characteristics –
are required. The first is that it:
(a) must arise by or pursuant to an instrument or transaction; and
(b) must secure payment –
They said that the first of those characteristics was missing and it said:
It is a defining characteristic of the conditional sale agreement that the owner’s interest in the goods does not arise “by or pursuant to” the contract or the transaction. Quite the opposite.
Your Honours will see that is elaborated on in the next two sentences but without going over the same ground we would say that the right of the vendor, or the interests, in one sense, predates the transaction. The way in which or the powers over goods of the vendor after the transaction depend on the terms of the transaction.
Your Honours will see if one goes to paragraph 84 and in particular about line 24 that they said it was unnecessary to resolve the point which is referred to in paragraph 82(b) – the security point – because of the decision they had reached on the 82(a) issue. What we would seek to say – and your Honours will see in the earlier part of paragraph 84 they say it is unclear what is meant by the term “secures”.
HAYNE J: Mr Jackson, just to go back to that point I was mentioning, what I had in mind, if you look at counsel who appeared, you will understand why it was a half memory. Federal Commissioner of Taxation v Sutton Motors (Chullora) 157 CLR 277 where there is a little description of the interposition of a wholesale company between the finance subsidiary of the manufacturer and the ultimate retail company. Now, the possibility therefore of two tiers of finance is the kind of thing that may explain 3(3).
MR JACKSON: Your Honours, those are really the things we would seek to say about the operation of section 7(1)(a). It is a case of a security interest and it is one that was extinguished by the operation of that provision. Your Honours, could I come to section 10 of the Act and your Honours will see that section 10(1) says that:
If there are two or more security interests in respect of the same goods and one or more of those security interests is registered under Part 3, those interests, subject to this section, rank in priority with respect to all debts or other pecuniary obligations . . . respectively secured under them whenever arising in the order in which they are so registered.
Now, your Honours will have seen that in mid‑January 2003, after we had registered a security interest, the respondent then registered its interest in the goods. That is referred to in the primary judge’s reasons, page 100, paragraph 6.
Now, the argument on this issue I have already dealt with. assuming that its interest was a security interest, then, in our submission, section 10(1) would be applicable if we too held a security interest. That was a matter which the respondent had put in issue below. Your Honours will see it referred to by the Court of Appeal at page 137, paragraph 9 and the second sentence of paragraph 9.
GLEESON CJ: How does this issue arise, if their interest was a security interest?
MR JACKSON: Yes, if one assumes ‑ ‑ ‑
GLEESON CJ: It is extinguished, is it not?
MR JACKSON: Well, your Honour, that involves ‑ ‑ ‑
GLEESON CJ: That is subject to this good faith argument?
MR JACKSON: Good faith, yes. So, your Honour, one assumes there they have a security interest if we have a security interest and that is the point I am coming to now, and ours was registered before theirs and the priority of 10(1) would apply. To put it shortly, we get the money, they would not.
The remaining question would be in the sense of ultimately costs probably. So the point was taken at paragraph 9, second sentence, page 137 that we did not have a security interest. The issue was not dealt with by the Court of Appeal because of the view that it took on other matters. The issue, in fact, is really a quite short one, in our submission.
Your Honours have seen that the definition of “security interest” in section 3(1) includes the “interest in or a power over goods” of a lessor and that term is defined by section 3(1) as is - it depends on the definition of “lease” in the same provision and, in the third line of that provision, you will see that the term “lease” means “a contract . . . for the hiring or bailment of goods for display purposes”. I have taken your Honours to the provisions of the agreement commencing at page 33 and I think the only provision I wanted to refer to that I had not referred to was perhaps clause 12(a) of that document which can be seen at page 39, 12(a)(i):
The Bailee’s right to possession . . . shall continue until . . .
(i) the expiration of the display period in respect of such goods -
The result of that, your Honours, in our submission, is that the case was one where we pretty plainly had a security interest and section 10(i) became directly applicable. If we were successful in our arguments it would give rise to the question of the appropriate order to be made by the Court.
KIRBY J: I was going to ask you about that because plainly the order you seek at 188 is not sufficient.
MR JACKSON: Your Honour, I have given some further consideration to that and may we give to your Honours and our learned friend copies of a draft. The draft would propose, in paragraph 1, that the appeal to this Court be allowed. May I seek to explain a little what is in paragraph 2. The actual order of the Court of Appeal can be seen at page 183. It provided in paragraph 1 of that order that the appeal to it be allowed and the judgment of the primary judge had been that we succeed for a sum of money. He had decided the section 7(1) issue in our favour and so it would be appropriate for order 1 made by that court to remain but order 2 would be inappropriate if we were otherwise successful.
The orders that we would submit would be the appropriate orders are those to be made by that court are set out in paragraph 2. Because money has been paid across there may need to be some refinement of paragraph 3 of that order to arrive at a correct sum of money in the end but ‑ ‑ ‑
KIRBY J: Would you not need an order from the Court of Appeal, substituted by us, remitting the matter to the County Court for the trial of outstanding matters?
MR JACKSON: Your Honour, the reason why we do not have that there is because if we succeed on the section 10 point ‑ ‑ ‑
GLEESON CJ: There is nothing to remit.
MR JACKSON: In our submission there would be simply a declaration that we have – declarations in the terms that are set out there and unless our learned friends were to suggest there was some practical reason for remitting the matter back then there would be no reason to do so.
GLEESON CJ: If you are right about both your arguments, the security interest argument and the section 10 argument, there is no need to litigate the question of whether or not the finance company knew or was on notice of the fact that there was a conditional purchase.
MR JACKSON: That is so, your Honour, yes.
KIRBY J: Is that all that was involved in the good faith issue?
MR JACKSON: It is good faith. Your Honour, the good faith and without notice issue only arises under section 7. It does not arise under section 10 at all. The matter would only go back on that issue if we did not succeed – I am sorry, I am putting that badly, your Honour. If we succeed on section 10 then unless our learned friends were able to persuade your Honours that there was some practical utility in remitting the matter back to the primary judge or to the Court of Appeal then the orders that we seek would be the – there is nothing further to decide really, your Honour.
KIRBY J: We will just have to hear what Mr Houghton says about this because on the special leave he said that on your argument there would have to be remitted three matters for trial in the County Court.
MR JACKSON: Yes. I think, your Honour, however, on the special leave application the argument was directed to section 7 and I had not got to section 10 when our learned friends were called on to argue in response.
GLEESON CJ: I am still a little concerned about what you say about order 3 in your draft orders. Are you saying that we cannot make order 3 if we are otherwise in your favour on both the security interest argument and the section 10 argument?
MR JACKSON: Order 3 of the draft I handed up, your Honour?
GLEESON CJ: Yes.
MR JACKSON: No, I am not saying that, your Honour. All I am saying is that the actual – I think it might be appropriate to insert some criterion for calculation of interest by reference to this particular provision and I have not been able to identify quite which provision would be the right one at this point. I was hoping I would be able to tell your Honours what I said about it.
GLEESON CJ: Perhaps you could let us have a note about that?
MR JACKSON: Yes, I will, your Honour.
GLEESON CJ: Thank you.
KIRBY J: Is that sum in order 3 the sum that the primary judge ordered in your favour?
MR JACKSON: No, your Honour. It is the addition of the two sums referred to in paragraph 2(1) of the Court of Appeal’s order and that is up to a certain date.
HAYNE J: There may therefore be some question, would there, about whether interest is to run on the whole of the 238,000 or part only?
MR JACKSON: Yes.
HAYNE J: Those are issues which you will deal with in the note, I assume?
MR JACKSON: Yes, your Honour, because we paid that sum plus the interest up to that point. In the ordinary course of events we would be entitled, having paid that, to get the money back with interest. It is a question of the rate. There probably will be no disagreement about it, but
that is all I am saying about it, your Honour. I am sorry I was not able to put it in more exact form.
KIRBY J: I am still just a little curious because paragraph 2(4) is that you pay the respondent’s costs of the appeal.
MR JACKSON: No, your Honour, with respect, that is in inverted commas. It is speaking as orders to be made by the Court of Appeal.
KIRBY J: I follow, yes, I see. Have you provided for costs in the Court of Appeal by your orders?
MR JACKSON: The last paragraph of the quotation in paragraph 2.
KIRBY J: But you have allowed for costs in this Court.
MR JACKSON: Yes, that is paragraph 1, your Honour.
KIRBY J: Where do you allow for the costs in the Court of Appeal in paragraph 2, your costs?
MR JACKSON: In paragraph 2(4) of the substituted order of the Court of Appeal. Could I just give your Honours a reference in relation to a matter your Honour Justice Gummow mentioned to me earlier and that is some discussion of the expression “includes”. That can be seen in the reasons for judgment of Justice Kitto in YZ Finance Company Pty Limited v Cummings (1964) 109 CLR 395 commencing at the last paragraph of page 400 and going on from there, your Honour. Thank you, your Honours.
GLEESON CJ: Thank you, Mr Jackson. Yes, Mr Houghton.
MR HOUGHTON: If the Court pleases, we want to raise four points on this appeal. The first question we wish to address submissions on is that the narrow question for this Court is not so much what is meant by the term “security at law or common law”, but what is meant by that term as defined in the Act and, in our submission, it is defined exhaustively. The second question we wish to agitate is how is the term “security interest” to be properly construed in the light of the other provisions, particularly in section 3.
Thirdly, a brief discussion of the policy considerations which we say favour the construction put upon the relevant provisions by the Court of Appeal and, fourthly, some very brief submissions as to why it would not be appropriate to determine, if you like, summarily, the section 10 argument in this Court, it not having been agitated or really tried in the primary court or in the Court of Appeal.
If I could start with the first point. That is the difference, if you like, between what the term “security” or “security interests” or “security rights” might mean from time to time in the common law and the difference between those meanings and the proper meaning to be construed from the term that is used in the Act. Whilst we accept that there are cases, one of which our learned friends took you to, that is Handevel, that give various meanings to the common law term and whilst it is true that this Court might have regard to those meanings in order to better inform itself as to how to construe the defined term the narrow question, in our submission, in this case, is what is the proper construction of that term “security interest” construed in the light of the other provisions of the Acts and what might be gleaned from the Act itself as to its policy and the mischief which the Act was intended to remedy.
GLEESON CJ: In what sense is a lease a security in a way that a conditional sale agreement is not?
MR HOUGHTON: A lease is not a security, in our submission. It confers no security interest upon the lessor and it was necessary for this Act to contain a statutory fiction in order to bestow a security interest upon a lessor and it does that in various ways that we are going to take your Honours to but the Act does not do the same in relation to a vendor under a conditional sale. That is the important point. Similarly, with an owner under a hire purchase contract it is the same argument.
GLEESON CJ: What would be the legislative purpose of distinguishing between a lease and a conditional sale?
MR HOUGHTON: The answer might perhaps be suggested in an article by Professor Duggan which is on our list, an article which was critical of the Court of Appeal decision, namely, at the time of the passing of the Act these issues were, in the Professor’s words, “a political hot potato”. In other words, some decision was made to include in this Act hire purchase transactions and leasing transactions but that decision, for whatever reason, did not extend to conditional sales.
Now, it may be that the legislature took the view that there was no real reason to extend the purview of the Act to conditional sales for the reasons I will set out later because this particular clause has the effect of passing title to consumers in the normal and ordinary course of the dealer’s business, even though the dealer itself never took title.
GLEESON CJ: I do not want to take you out of the order of your argument because obviously you are going to deal with these questions when you come to policy issues later.
MR HOUGHTON: I am going to deal with those questions, your Honour. Can I first take the Court on the first set of submissions to Handevel’s Case. That is Handevel Pty Ltd v Comptroller of Stamps (Victoria) (1985) 157 CLR 177 but to a different passage than my learned friend took the Court to.
Can I take your Honours to page 192 of the joint judgment of Justices Mason, Wilson, Deane and Dawson. That case in part required the Court to construe the meaning of the term “mortgage” as it appeared in the Stamps Act (Vic) and about halfway down page 192 in the joint judgment of their Honours they say this:
The classic definition of a mortgage is that given by Lindley M.R. in Santley v. Wilde . . . The conveyance may be either a conveyance in equity or at law. However, the important point is that, although a mortgage usually secures a money debt, it does not always do so. For example, in Santley v. Wilde the mortgage secured, as well as repayment of moneys lent, the payment of a share of the net profit rents derived by the mortgagor. The definition of “mortgage” in –
the relevant section that this Court was there construing –
does not take up the traditional and accepted meaning of the term. The definition is exclusive, not inclusive. It sets out the statutory meaning exhaustively, in a manner which is more limited than the traditional meaning.
Now, we would say similarly the task for this Court is not so much to look at what the traditional or conventional or accepted meanings of the term “security” is in the cases which our learned friends have taken your Honours to, but more, in our submission, to look at how the term “security interest” first of all is defined and how it is to be construed within the context of the Act itself and, in our submission, the legislature has defined the term exclusively or exhaustively rather than inclusively and it is defined, the term “security interest” is defined in a manner which is more limited than what perhaps the traditional meaning, or the looser meaning of that term might be.
Now, to give a simple example; if I sell my car to B and I am worried about being paid, I might accept a simple guarantee from C that might secure the debt. But that might be said to have conveyed or created a security interest in my favour. I now have a guarantee of a third party to secure a debt, but it could not be said that that created a security interest which I could register under this Act. But in a looser term it might be said that I have obtained a security. I have something other than a promise to pay by the primary debtor. So we say that the task for the Court is to construe the term “security interest” not so much by reference to the cases at common law or traditional meanings or meanings that might be gleaned from the textbook writers, but more to look at the term in its more limited meaning as construed in the light of the other provisions within the Act.
Now, whilst a retention of title clause might be described as a security in some sense, as was correctly observed by the Court of Appeal, in our submission, it is not caught by the provisions of the Act and the point is probably best made by the case that your Honour Justice Gummow referred to earlier and that is the case of Clough Mill v Martin [1985] 1 WLR 111. If I could take the Court briefly to that case.
Your Honour Justice Gummow has already referred to the judgment of Lord Justice Oliver, as his Lordship then was, at 122 and 123 where his Lordship, at the bottom of 122, questions the correctness of the assumption, about halfway down:
that the whole purpose of the clause is to give the plaintiff security for the payment of the purchase price . . .
Thus, as it seems to me, the purpose of the clause goes well beyond a mere security for payment of the price. But secondly, even assuming that the defendant’s basic proposition is correct, the corollary claimed simply does not follow as a necessary or logical consequence. Mr. Blackburne relies upon the proposition of law to be found in the judgment of Slade J. in In re Bond Worth Ltd . . .
“any contract which, by way of security for the payment of a debt, confers an interest in property defeasible or destructible upon payment of such debt, or appropriates such property for the discharge of the debt, must necessarily be regarded as creating a mortgage or charge, as the case may be.”
The operative word here, however, is “confers” and the whole of Slade J.’s judgment in that case was based upon the fact, as he found, that the legal title to the goods had passed to the buyer. That was in the context of a clause which, in terms, sought to reserve only to the seller the “beneficial” interest and to seek to apply it to the clause now under consideration is to assume the very thing that is sought to be proved.
Of course, where the legal title has passed, security can be provided by a charge created by the new legal owner. But it is not a necessary incident of the seller’s securing his position that he should pass the legal title. The whole question is, how has his position been secured? If in fact he has retained the legal title to the goods, then by definition the buyer cannot have charged them in his favour.
And a similar effect is the judgment of Sir John Donaldson, Master of the Rolls, at 125. About passage C, his Lordship says:
The argument that the object of the exercise was to give the plaintiff security for the price of the yarn does not of itself advance the matter. Just as it is possible to increase the amount of cash available to a business by borrowing, buying on hire-purchase or credit sale terms, factoring book debts or raising additional share capital, all with different legal incidents, so it is possible to achieve security for an unpaid purchase price in different ways, with different legal consequences. The parties have chosen not to use the charging method in relation to unused yarn.
Now, the House of Lords expressly approved Clough Mill in the next case on our list, Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339 and if I could take your Honours to the leading judgment of Lord Keith of Kinkel, particularly at page 353 ‑ ‑ ‑
HAYNE J: But what do we get out of these ultimately, Mr Houghton? They are cases concerning, are they not, the registrability of these arrangements under the companies provisions and whether they constitute a charge created by a company so far as any security on the company’s property is conferred thereby?
MR HOUGHTON: Yes, your Honour is correct.
HAYNE J: What do we get out of it?
MR HOUGHTON: What we get out of it is that it depends greatly upon how the parties have structured their transaction as to whether the transaction is caught by the provisions of the particular Act. We seek to meet an argument that somehow the purpose of the Chattel Securities Act was to catch conditional sales. The question is does it catch conditional sales? In our respectful submission aid can be called in support from cases such as Clough Mill and Armour at 353 because it is not really to the point that in effect the vendor is getting some security for the unpaid purchase price. That, of itself, is insufficient for ‑ ‑ ‑
HAYNE J: The relevant phrase “to construe”…..is which secures payment of? Are you not setting up a straw dummy and demolishing it? Are we not concerned to identify “which secures payment of a debt or other pecuniary obligation”?
MR HOUGHTON: Your Honour has concentrated on one term in a compendious definition.
HAYNE J: I understand that. What do you say the words “which secures payment of a debt” mean? Does it mean more than which obtains the result that the beneficiary of the arrangement has an advantage?
MR HOUGHTON: We say that is not the critical words in the definition. It might or might not secure payment of a debt but it has to be:
an interest in or a power over goods (whether arising by or pursuant to an instrument or transaction –
which then goes on, which might secure “payment of a debt” and so on. The critical words, in our submission, are the words at the beginning. It “means an interest in or a power over goods” and one has to give meaning and force to the words in parentheses rather than merely ignoring them, or, as our learned friends seek to do, saying they are merely illustrative or somehow they can be regarded optionally and if it does not work they can be discarded.
We say the words in parentheses are as important as the rest of the words in the definition. If they could be discarded as not being apt to a particular transaction then the legislature would have said “whether or not arising by” or “pursuant” and so forth. So we say the critical words are those which start “means an interest” and go on. The fact that they might have the effect of securing payment of a debt we say is neither here nor there.
The point was made in this Court’s decision in Associated Alloys in a slightly different context, but I can take your Honours to that case which is Associated Alloys Pty Limited v ACN 001 452 106 P/L (2000) 202 CLR 588. Now, in that case the job of this Court was to construe the construction, in effect, in another retention of title clause and the majority, that is, Justices Gaudron, McHugh, Gummow and Hayne at 595 at paragraph 5 had this to say about the task of the Court:
The Law –
that is the corporations law and we accept that it was dealing with a different law –
does not render a trust or agreement to constitute a trust void against the administrators or liquidator of the first respondent for want of registration. Nor does the legislation require the registration of trusts or agreements to create trusts. The distinction between the institutions of the trust and the charge is thus essential for this appeal. It is made essential by reason of the text of the Law and the particular criterion selected for its operation. The distinctions involved here have been seen by some as representing a sterile, overly conceptualist approach to the solution of legal controversies. However, these distinctions serve to identify the various building blocks of the law of property. Moreover, distinctions between the two institutions have been adopted by legislatures, as here with the Law, to mark the ambit of various regulatory regimes.
Now, moving on further to the judgment of the majority, at 603 the majority commented on the interplay between law and equity starting at paragraph 26 and in that paragraph noted the comment of Justice Staughton in an English case to the case law which was “a maze if not a minefield” and the majority then noted:
It is of some importance that parties to sophisticated commercial transactions have structured, and will continue to structure, their affairs on the basis that a certain and predictable course can be charted through this terrain.
Then further on at 606, paragraph 35 of the majority, it was said as follows:
In the present case there is nothing to suggest, at this subjective level, that the parties in their written instrument did not mean what they said, or did not say what they meant. There is no suggestion of a sham. It must follow that the terms of the invoices embodied the intentions of the parties. Moreover, there was no case made, nor is there any evidence apparent, on which it could be contended that the proceeds sub‑clause was a scheme to evade the operation of what was then Pt 3.5 of the [corporations] Law. The agreements which included the proceeds sub‑clause were not made in breach of a statutory prohibition upon their formation or upon the doing of a particular act essential to their performance or otherwise making unlawful the manner of their performance.
The points made in the last paragraph may be illustrated by reference to the speeches of Lord Herschell LC in two cases decided by the House of Lords in May 1895 and long regarded as basic authorities in commercial law. They are McEntire v Crossley Brothers Ltd and Helby v Matthews. The House of Lords held that certain hiring transactions with options to purchase did not fall within provisions of the bills of sale or factors legislation. To arguments that the transactions fells within “the mischief” of the legislation in question which therefore ought to be read as applicable, the Lord Chancellor responded that the statutory language should not be strained to achieve that result; rather, the legislation needed amendment. The sequel after long debate in the United Kingdom was the introduction of specific legislation regulating hire‑purchase agreements.
Then the majority cite a passage from McEntire which I will not read out but later on in the judgment over the page at the bottom of 607 the majority refer to a judgment of Justice Windeyer in Gurfinkel v Bentley and then the last sentence on that page starts:
In Lloyds & Scottish Finance Ltd v Cyril Lord Carpets Sales Ltd, the House of Lords decided that a particular form of trading agreement did not create any charge over book debts. Lord Wilberforce gave the leading judgment. His Lordship referred to the evidence and continued:
“To suppose, in the face of this, that the assignments were made not by way of sale but by way of security, would be to impose upon the parties a form of transaction totally different from that which they had selected, namely one of sale and which there is no evidence whatever that either of them desired.”
And then, his Lordship continued. I will not read the whole of that quotation but about halfway down his Lordship says:
But it is a fallacy (into which the appellants’ argument falls) to argue from this towards a conclusion that the transaction as a whole is one of security or charge. There are many contracts, of sale, or for building work, or otherwise, where some security is required by one party that the other will fulfil his promise. But this does not alter the nature of the contract itself or turn it into a contract by way of charge.”
Then, further on, at 611, the majority say at paragraph 49:
The circumstance that the then Pt 3.5 of the Law was not attracted to the proceeds sub-clause is of commercial significance. For third parties, such as financial institutions seeking to assess the credit-worthiness of the buyer, the non-registration of the proceeds sub-clause on a public register may create practical difficulties. These difficulties are capable of remedy by legislation.
However, as one may expect, there would be two sides to any argument to which such a proposal might give rise. The lack of any statutory obligation to register the proceeds sub-clause (eg, under s 263(1) of the Law) creates commercial incentives for entities, in the position of both the buyer and the seller, to incorporate clauses such as the proceeds sub-clause into their purchase agreements. These clauses reduce the risk of non-payment by the buyer. To the extent that this financial, or credit, risk is reduced, the commercial viability of the transaction for both parties may be increased. For example, the availability of this means of reducing credit risk for the seller may result in the seller accepting a lower cost price per unit of steel. Competitive pressures may thus operate upon the parties to incorporate clauses such as the proceeds sub-clause in their transactions.
In the Law, the legislature has chosen to select as the criterion of operation of the registration provisions that which it defines as a “charge”. The contractual and trust arrangement with which this appeal is concerned did not involve the creation of such a charge or an agreement to create one. To treat the proceeds sub-clause as an agreement which falls foul of the Law is to rewrite the statute. It is not for the courts to destroy or impair property rights, such as those arising under trusts, by supplementing the list of those rights which the legislature has selected for such treatment.
GUMMOW J: What we have in this present case is a statute framed, so it seems, with the United States Commercial Code in mind, the Uniform Commercial Code in mind and with an expressed preference for an approach…..substance.
KIRBY J: This is Professor Duggan’s point.
MR HOUGHTON: Yes, but as Professor Duggan also honestly concedes in his article, there were significant drafting defects and that was not the fault, the Professor says, of the law reformers, it was because it was a political hot potato, whatever that might mean. Whatever might have been the intention of, for instance, the Molomby Report, to try and include conditional sale transactions in legislation such as this, they did not find their way into the 1981 Act. There is no mention of conditional sale transactions in the 1981 Act anywhere. It deals with mortgages, it deals with hire purchase contracts and it deals with leases. In the 1987 Act, although in between there was the Viney Committee, the Viney Committee did not profess, as the Court of Appeal ‑ ‑ ‑
GUMMOW J: But if you have dealt with leases, as you were asked earlier, what would be the point of holding back from retention of title clause? If leases are in what would be the point of having a little island in favour of retention of title clauses?
MR HOUGHTON: Because, if you look at the facts of this case, they do not create the mischief which the Act was enacted to overcome. The mischief, in our submission, that this Act was designed to overcome was the knock on the door of the lady, three purchases down, by the repossession agent of the financier who is saying, “You didn’t take good title, nemo dat applies, I’m taking your car back”.
Without a system of registration or regulation, which is set up in this Act, what used to go on in the bad old days might have continued. Our case is quite different. My client, the respondent, operates in the wholesale motor industry. It buys and sells hundreds, if not more, cars per week and sells them to the retail motor trade. It sells them pursuant to retention of title clause under which it retains title until payment but, as your Honours have seen, it enables the retail dealer to pass good title to a purchaser in the ordinary course of business and for value.
One of the interesting features of the facts of this case is that of the 10 motor vehicles that were conditionally sold by Southbank Traders, the wholesaler, to the retail dealer, Kingstrate, only nine in the end were seized because the dealer sold the tenth vehicle to a young woman called Ms Lee and GMAC was the financier of that transaction. She entered into a loan agreement and granted a mortgage. That was the evidence before the Court of Appeal. It is not evidence before you now.
The reason that the dealer was able to pass good title and therefore overcome the problem that Ms Lee might have later or some purchaser from Ms Lee might have later, the knock on the door, was because the contractual provisions between wholesaler and retailer allowed a sale by the retailer in the ordinary course of business and for value and therefore it was able to pass title as agent for the owner being the wholesaler.
We say there was no real reason in policy to bring in these sorts of transactions known as conditional sales and keep in mind, as the Court of Appeal observed, there are eight wholesalers of motor vehicles in Victoria who formed an association. They are the Wholesale Motor Traders and Auctioneers Association, from memory, and it was that association which retained Mr Nettle, QC, as his Honour then was – this is a point made by the Court of Appeal – to draft an appropriate clause, which Mr Nettle did, and that is the clause used by all eight wholesale motor traders in Victoria from then up until now.
GLEESON CJ: Is that a convenient time, Mr Houghton?
MR HOUGHTON: That is a convenient time, certainly, your Honour.
GLEESON CJ: We will resume at 2.15 pm.
AT 12.49 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.17 PM:
GLEESON CJ: Yes, Mr Houghton.
MR HOUGHTON: If your Honour pleases. Can I move on to our second point and that is the proper way in which the term “security interest” ought to be construed in the light of the other relevant provisions of the Act. Can I take your Honours back to section 3 of the Act, and I will be as brief as I can because my learned friend has already taken you to these definitions. Could I start with the term “debtor” which is defined to be:
in relation to a security interest means the person who created the security interest or against whom the penalty enforcement warrant giving rise to the security interest is issued under the Magistrates’ Court Act –
and stop there and respectfully adopt the suggestion of the learned Chief Justice that those words do, if you like, mirror the words in parentheses which appear later in the definition of “security interest”. So where the legislature talks about a person creating a security interest the legislature is directing attention, in our submission, to those words in parentheses, the interest is created by “arising by or pursuant to an instrument or transaction”. So, in our respectful submission, there must be a relevant instrument or transaction that must exist before a debtor can create an interest in the secured party. Continuing on with the definition of “debtor”, the legislature deems that words to include:
the lessee in relation to a lease of goods and the hirer in relation to a hire‑purchase agreement;
Otherwise, in our submission, a lessee would not fall within the definition of “debtor” in relation to a security interest because the lessee and, similarly, a hirer creates no security interest pursuant to the transaction of hire purchase or lease. I think your Honour Justice Gummow asked me before lunch why was it that the Act would include, for instance, lease transactions and not conditional sales and I gave an answer which I will expand upon later, but here the legislature could have made it quite plain. It could have also said “includes the purchaser under a conditional sale agreement”, but does not do so.
The next definition I want to take your Honours to is the definition of “purchase” and that reads:
with respect to goods, means acquire an interest in the goods by way of purchase, exchange, lease or hire‑purchase;
We have seen that the purchaser under a conditional sale obtains no interest in goods unless and until the purchase price is paid. That is why it is a conditional sale. Exchange is not relevant. But, again, the legislature has included lease or hire purchase because ordinarily the lessee or hirer obtains no interest in the goods pursuant to ‑ ‑ ‑
GUMMOW J: Just going back to that definition of “debtor”, it is odd though, is it not? It includes the lessee and the hirer, but not the lessor or the owner.
MR HOUGHTON: No, because they are the creditors.
GLEESON CJ: Is a right to possession an interest in goods?
MR HOUGHTON: No, with respect, not within these terms, not for the purposes of this Act because what this Act seeks to do is regulate security interests, vis-à-vis, secured financiers, and I will come back to that, and set out a system of registration which will protect secured financiers and third party purchasers. It is not concerned with mere interests that might arise, if they be an interest, in a right to possession. If there was an interest in a right to possession, it would be unnecessary for the legislation to bring in inclusively leases or hire purchase agreements. It would not be necessary.
HAYNE J: Does that answer not treat interest as the whole universe when the Act is concerned with interest in or power over?
MR HOUGHTON: We would submit that the extension “power over” also does not pick up a possessory right, otherwise it would have said so. In our submission, “interest in” or “power over” is not wide enough to extend to a mere possessory right.
The next definition I would want to take your Honours to is “purchase price” which also contains the extension to “a lessee under a lease or a hirer under a hire-purchase agreement”. Ordinarily, of course, the hirer or the lessee would not be a purchaser, merely a hirer or lessee, but the Act contains that extension as we have seen in the earlier definitional sections.
Moving on now to “secured party”, “‘secured party’ means the holder of a security interest”, and here is the other side of the ledger, if you like, from lessee and hirer. Here is the lessor and owner because the lessor and owner are the creditors rather than the debtors and there is a specific statutory inclusion of lessors in relation to leases and owners in relation to hire purchase agreements. Otherwise, in our submission, they would not be caught by this Act. They do not get a security interest at common law by virtue of the transaction of lease or hire purchase but the Act deems them to be the holder of a security interest. Again, we make the point that the legislature could easily have extended that to vendors under conditional sales but did not do so.
Then one comes to “security interest”, “interest in or a power over goods”. It has to arise, in our submission, “pursuant to an instrument or transaction”. In our submission, the Court of Appeal was correct in its conclusion that there was no relevant instrument or transaction whereby any interest arose in the vendor of these motor vehicles. We have dealt with “secures payment of a debt”. We say, they are not the critical words. Our learned friends rely upon the last few words. You will see, first of all, there is a deemed inclusion in the last three lines: “includes any interest in or power over goods of a lessor, owner or other supplier of goods”.
In our submission, “other supplier of goods” is inapplicable. Southbank was not a supplier of goods as defined. “Supply” is defined “in relation to goods, means dispose of an interest in the goods by way of sale” and so on. Southbank never disposed of an interest in the goods by way of sale. That is the essence of a conditional sale. So we say Southbank was not caught by the words “other supplier of goods”.
HAYNE J: You have referred on several occasions to vendors under conditional sales agreements under conditional sales.
MR HOUGHTON: Yes.
HAYNE J: A vendor who sells a motor car on terms that title is not to pass until payment in full but who makes no other stipulation other than that may or may not lead to some security interest existing, but whereas here there is a stipulation as to the time of passing of title coupled with the grant of powers of the kind we find, particularly in (2)(d) at page 135, the vendor being entitled to recover possession, entitled to resell and entitled for those purposes to enter, is it that which, by thus creating powers over the goods or giving powers over the goods, takes this transaction within the class described?
MR HOUGHTON: We would submit no. The contractual right that the vendor has to recover his goods was always a right he had, if, for instance, the goods were not on the property of some third party. He might not, for instance, be allowed to trespass upon the property of a third party, but if, for instance, the motor vehicle was in a public place, the vendor, under the conditional sale, would not require any contractual right to enter upon the premises. He could simply go there and take the motor vehicle. So the vendor is really given no more than what it already has in terms of that bundle of rights associated with its ownership, its full ownership in the motor vehicle.
HAYNE J: But risk in the goods has passed.
MR HOUGHTON: Yes, risk has passed, risk in the sense that if the vehicle is destroyed it will be at the risk of the purchaser. Again, a contractual term agreed upon between conditional vendor and conditional purchaser. Section 3(4)(a) is also, in our submission, of assistance in this process of proper construction ‑ ‑ ‑
GLEESON CJ: Before you come to subsection (4)(a), can you come to subsection (3)?
MR HOUGHTON: Subsection (3), as the Court of Appeal observed, is a difficult – I think Professor Duggan said that it was a difficult provision. One must strain to give it some work to do and I think the discussion between Justices Hayne and Gummow this morning with my learned friend, Mr Jackson, might illustrate some of the purpose for which it was enacted. If, for instance, in the motor vehicle industry there are different layers or parties and different sorts of transactions between wholesalers, retailers, financiers, bailment plans, then it has some work to do.
A lessee of goods, as widely defined in the definition of “lease” includes bailment plans, so it may be that even though a dealer has no interest in or property to motor vehicles for the purpose of pledging them, charging them or mortgaging them to a financier then that motor car trader at the retail level is given a deemed fictional interest which is able to be pledged or mortgaged to the financier such that a financier in any future battle over priorities has something to register.
GLEESON CJ: This is puzzling me slightly. Can you give an example of a lease of goods in which the lessee does not have an interest in the goods?
MR HOUGHTON: Finance company purchased in the typical tripartite leasing transaction, the dealer sells the motor vehicle to the financier and the financier leases it to the lessee, the customer, upon terms that over the next three years you will pay monthly rent of whatever ‑ ‑ ‑
GLEESON CJ: The lease carries a right of exclusive possession?
MR HOUGHTON: Yes, which can be lost if you do not pay the payments.
GLEESON CJ: Yes, but if you have a right of exclusive possession of property, do you not have an interest in the property?
MR HOUGHTON: Not for the purpose of this Act.
GLEESON CJ: I did not ask whether you have a security interest in the property. I am just looking at the language of subsection (3). Why is it necessary to deem a lessee to have an interest in the goods notwithstanding the title remains in the owner?
MR HOUGHTON: Because the legislature has presumed or presupposed that when it uses the term “interest” it is not concerning itself with possessory rights or rights of exclusive possession.
GLEESON CJ: Interest is not a defined term, is it?
MR HOUGHTON: No, it is nowhere defined. This was a new section in the 1987 Act. There were three Acts: the 1978 Act, which I do not think was proclaimed, then there was the 1981 Act, then there was the Viney Committee which reported upon submissions that had been made in respect of the 1981 Act and then we had the 1987 Act. Section 3(3) came about because it was in one of the schedules to the Viney Committee report but nothing in the Viney Committee report sheds any light as to why it is there.
GLEESON CJ: At common law a lessee of property has an interest in the property, does he not?
MR HOUGHTON: Well, we would submit, no. It might have a right to have possession of it for some temporal period, but interest in the terms that securities or property lawyers use that it would not be an interest.
GUMMOW J: It would not be a proprietary interest, would it? That is another question.
MR HOUGHTON: Mere possessory interest. It would not be a proprietary interest, no. That might be the answer. The Act looks really at interest in terms of proprietary rights.
GUMMOW J: It does not say that though.
MR HOUGHTON: It does not say that, no.
GUMMOW J: But it is against that sort of argument that 3(3) when linked with the definition of “security interest”, which opens with the words “means an interest”, can be understood.
MR HOUGHTON: Perhaps, but we have to confess that we have a similar difficulty with the Court of Appeal in understanding some clear or articulate purpose that subsection (3) serves.
GLEESON CJ: What is the difference between a lease and a licence?
MR HOUGHTON: I think exclusivity. In property law a licence is non‑exclusive.
GLEESON CJ: Yes, I thought the difference was that one gave you an interest in the property and the other one did not.
GUMMOW J: You could not sue in trespass, could you, if you are a ‑ ‑ ‑
MR HOUGHTON: That may be in the context of real land or real estate interests, but in terms of chattels we would submit no. I was moving to subsection (4)(a), if that is convenient, which we also say sheds some light upon the proper construction of the term “security interest”. That provides that:
a security interest attaches at the time at which value is given by the secured party and the debtor has rights in the goods or at such later time as the secured party and the debtor intend –
We say that is inapposite to dealing with the sort of transactions in issue here, namely a conditional sale. First of all, the putative secured party being the conditional vendor does not give value and, secondly, the debtor does not acquire rights in the goods until payment. The Act looks at the time at which a security interest attaches and we say that is inapposite to any wider definition of “security interest” contended for by the appellants. It also has the extension in (b) to goods on lease or hire purchase but not any similar extension to conditional sales. So we say by looking at those definitions or provisions in the Act it casts light upon the proper construction of the term “security interest” and, in our submission, properly construed the term “security interest” does not catch these types of transactions, ie, conditional sales, reservation of title clauses.
I move on now to some policy considerations. I did advert briefly to those before lunch and I did make the submission that the primary concern of the Act and the mischief which it sought to remedy was the knock on the door in the middle of the night by the representative of the owner/financier to repossess a vehicle that had been sold on by lessees or hirers, maybe several times down the chain.
Professor Duggan also shed some light upon the policy of the Act in his article, “Southbank’s Muddy Waters”. Could I take your Honours to page 307 of the article. Under the heading, “The wider implications”, about two-thirds of the way down the page, Professor Duggan writes as follows:
The court -
that is the Court of Appeal below -
makes no reference to the policy consequences of its decision. The decision substantially undermines the scheme of the Chattel Securities Act. The clear purpose of the legislation is to enact a common set of rules to govern disputes between secured financiers and third-party purchasers and, so far as motor vehicles are concerned, to avoid disputes by establishing a registration system for publication of security interests.
Can we make a couple of points about that paragraph. Firstly, we do not take issue with the assertion that the purpose is “to govern disputes between secured financiers and third party purchasers”. We do make the point, however, that my client is not a secured financier. It is not a financier, let alone a secured financier. It is a wholesale trader in motor vehicles.
The second point we want to make is that in the industry, if looked at as a whole, we operate in the wholesale area, in other words, we wholesale motor vehicles to retail traders of motor vehicles. In our submission, that was not an area of commerce which, first of all, had any mischief or, secondly, the legislature intended to regulate. I used the example of Ms Lee before lunch because out of these 10 vehicles the subject of the conversion action in the court below one of them had been sold by the dealer to Ms Lee and the dealer was able to pass good title to Ms Lee pursuant to the retention of title clause because it was a sale in the ordinary course of business for value and GMAC happened to be the financier and took a mortgage from the purchaser, Ms Lee, so we say ‑ ‑ ‑
HAYNE J: That was the happenstance that followed from the adoption of the particular form of Romalpa clause.
MR HOUGHTON: Yes, a form of Romalpa clause that is used throughout the wholesale motor industry in Victoria.
HAYNE J: No doubt all involved are all good chaps.
MR HOUGHTON: Very good chaps, especially the person who drafted it.
HAYNE J: We understand that but it does not seem a particularly sound basis on which to analyse the statute, Mr Houghton.
MR HOUGHTON: The second point about the policy considerations is that even if there had been or will be or might be in the future some different form of retention of title clause that might, for instance, not contain a contractual stipulation that enabled a dealer to pass good title, the legislature dealt with that in the Motor Car Traders Act. I simply make a reference to section 76(1)(b) of the Motor Car Traders Act 1986 and that provides in brief that if you purchase a vehicle from a motor car trader and you incur loss by reason of a failure of that motor car trader to transfer a good title, then you can make a claim against the Motor Car Traders Guarantee Fund established under that Act.
So let us suppose that there is a rogue trader who does not use the association’s form of clause, there is still the ability of the consumer, the third party purchaser, to obtain compensation in these sort of circumstances. So we say there are no good policy reasons which militate or point to the construction contended for by the appellants in this case.
GLEESON CJ: The object of these security arrangements is in this respect I guess like the object of a floating charge. The whole idea is that the retailer will be able to carry on business and sell goods which are the subject of security interests without risk to the purchaser who is buying the goods in good faith.
MR HOUGHTON: Yes, and that can occur even in circumstances where this Court might find that my client has no security interest.
GLEESON CJ: But it is a form of security that is designed to permit the property the subject of the security to be sold to somebody else.
MR HOUGHTON: Yes, but in our case that can happen in any event. The vice which, in our submission, the Chattel Securities Act was designed to remedy was the position where financiers had title but were out of possession and those in possession were wrongly purporting to sell those vehicles to third party purchasers who took for good faith, et cetera, and, secondly, to have a system of regulating priorities amongst secured financiers. So there are two purposes.
Our submission is that it was not designed to catch these sorts of transactions at a wholesale level. There is a certain irony in a financier seeking to avail itself of, if you like, an Act designed to benefit consumers against what used to be known as the more rapacious practices of financiers in being able, maybe years after the event, once it had located the motor vehicle, to go and repossess it even though it had gone through many hands. So we say that the Act serves those purposes that your Honour the Chief Justice has set out but it is not necessary to extend the Act further to catch these sorts of transactions in order to serve those purposes.
If you look at the other side of the coin, what would be the situation if motor car wholesalers did have a security interest every time they sold a motor vehicle pursuant to the conditional sale contracts? If they wanted to protect themselves, they would have to register a security interest under section 16 on every motor vehicle, and that is, one can infer, thousands of transactions each week, and lodge a discharge form once the dealer had paid for the motor vehicle. So there would be many, many thousands ‑ ‑ ‑
GUMMOW J: Where is the discharge obligation?
MR HOUGHTON: Yes, I will take your Honour to the Act. It is in, I think, section 19:
If a registered security interest is discharged or extinguished, the person who was the holder . . . not later than fourteen days . . . must make application . . . for the cancellation -
So these eight or 10 motor car wholesalers in Victoria would have to lodge under section 16 their application for registration in respect of many, many thousands of motor vehicles and then within days or weeks lodge cancellation applications under section 19. We say that is not really what the Act was intended to have a consequence of and we point again to this Court’s decision in Associated Alloys at page 611, paragraph 50 where the majority talked about the pricing of these transactions. If that was to be the result of the case, clearly that would affect the prices of wholesale motor vehicles in the State of Victoria, and we say that is a consequence which, in our submission, ought to be avoided.
GLEESON CJ: What do you say would discharge the security interest?
MR HOUGHTON: Payment. On the appellants’ case we had a security interest which arose when we sold conditionally the motor vehicle.
GLEESON CJ: That ended when?
MR HOUGHTON: When we were paid by the dealer.
GLEESON CJ: No. According to this, property will pass to the purchaser only when the purchase price of this vehicle and all other vehicles sold by the vendor to the purchaser has been paid.
MR HOUGHTON: Yes. There would be a running balance, so I suppose that makes our argument even stronger because you might have many, many dozens, if not hundreds of motor vehicles upon which there was an extant security interest even though the wholesaler had now been paid for them but there are new transactions which have not yet been paid for so the wholesaler can hang onto its security interest even over vehicles that have now been paid for and sold to third parties and that would seem an absurd consequence.
GLEESON CJ: But a sale of the vehicle in the ordinary course of its business to a bona fide purchaser for value as agent for your client means that property passes to the purchaser?
MR HOUGHTON: Yes.
GLEESON CJ: That would put an end to the security interest, would it not?
MR HOUGHTON: Yes, that was my first argument, yes. That is how we first put it, and that is when the obligation to lodge an application for cancellation arises “not later than fourteen days after” that, and indeed, there has been a recent amendment to section 19, and it is now an offence to not lodge a cancellation application within the period of time – five penalty points.
GUMMOW J: What is the temporal operation of clause 1 of the Romalpa clause? All other vehicles supplied by the vendor to the purchaser. That could never end. Supplied when?
MR HOUGHTON: In our submission, that would be read down. If vehicle A had been paid for then property would pass, vehicle B paid for property would pass and so on.
HAYNE J: Does the clause look backwards only, that is, are all other vehicles supplied by the vendor to the purchaser to be understood as all other vehicles which until the time of this agreement have been in the past supplied?
MR HOUGHTON: Yes, I think that must be the only sensible interpretation, your Honour.
GUMMOW J: Yes.
MR HOUGHTON: So we say, your Honour, there are good policy reasons for upholding the Court of Appeal’s judgment and there are policy reasons which militate against a contention for which the appellants seek.
KIRBY J: Professor Duggan seems to have thought the policy reasons came down in favour of the appellant. I notice that he reveals in a footnote that he was a member of the Viney Committee.
MR HOUGHTON: Yes.
KIRBY J: Of course that might just indicate he feels he had an emotional stake in the law reform. That has been known to happen.
MR HOUGHTON: If one looks, for instance, at page 306 Professor Duggan does say under the heading “ANALYSIS”:
The Chattel Securities Act is a difficult statute and there are indisputably some defects in its drafting. Part of the problem is that it borrows concepts and expressions from Art 9 of the United States’ Uniform Commercial Code without adopting the whole Art 9 package. This was not the law reformers’ fault. Full‑scale personal property security law reform has been a political hot potato in Australia for many years – it still is – and a comprehensive Art 9‑type statute was not feasible at the time the Chattel Securities Act was enacted.
KIRBY J: I think we were told at the special leave that this provision is only in effect in Victoria and Western Australia.
MR HOUGHTON: That is so, and, as Professor Duggan makes the point at ‑ ‑ ‑
GUMMOW J: Victoria and Western Australia, is it not?
KIRBY J: Yes, Victoria and Western Australia.
MR HOUGHTON: Yes, they have common provisions. Other States have different provisions. If you look at 309, for instance, of Professor Duggan’s article, he sets out the definition in New South Wales.
GUMMOW J: Which he says would catch this situation but that does not seem to have caused a collapse in your client’s industry in New South Wales.
MR HOUGHTON: No.
GUMMOW J: The difficulties in complying with it do not seem to have broken the back.
MR HOUGHTON: Finally, your Honours, could I address the point put by our learned friends that if the Court is against us on our construction ‑ ‑ ‑
KIRBY J: I interrupted your saying the policy arguments. Was there anything that you wished to add to what you said?
MR HOUGHTON: No, there was nothing I wished to add, thank you, your Honour. Finally, can I make a response to the arguments put by our learned friend that this Court now, if it is against us on our primary arguments, can finally determine the dispute because they come within section 10. There are a couple of things to be said about that. First of all, it overlooks a third unresolved question between the parties concerning section 7(7) and the Court of Appeal deals with that at paragraph 139, page 45 of the appeal book, paragraphs 139 to 150.
My client applied late at the trial to raise a fresh claim under section 7(7) and I am happy to take your Honours to the nature of that claim but it is set out in the Court of Appeal at 142. The Court of Appeal say at 179:
The question remains: Did Southbank have an argument based upon s.7(7) which in justice ought to have been entertained? Section 7(7) says this:
“If a security interest is extinguished under sub‑section (1), (1A) or (2), the secured party shall be subrogated to the rights (if any) of the supplier and any predecessor in title . . . including the right to receive any part of the purchase price for the goods which has not been paid.”
Now, the argument, in short ‑ ‑ ‑
GUMMOW J: How would that work? Can you just explain how 7(7) would work between these parties?
MR HOUGHTON: Yes. If, contrary to our submissions, we have a security interest and it was extinguished under section 7 because there has been a purchase and we did not register it, then we are subrogated to the rights of the supplier. In other words, we can go to GMAC and say, “All right, you are the purchaser, but you did not pay the full part of the purchase price. What you did in your bailment plan was not pay the full purchase price but to pay a percentage.”
There was a lot of evidence at trial about this. All the invoices and documentation under the bailment plan were produced. But, in essence, the financier pays 80 per cent or 75 per cent of the price of the car and it keeps the rest until the vehicle is sold and I am not sure what happens to the 25 per cent, but the dealer did not get it and our argument was that we should have been allowed to raise a claim, albeit late, that we were subrogated to that balance of the purchase moneys that had not been paid by GMAC and their Honours in the Court of Appeal set that argument out and, in their view, we should have been allowed leave to amend below – this is 150:
Had it been necessary to do so, we would have granted such leave. We are further of the opinion that the proper course –
if it had been necessary to go back down, would have also sent this back down. So section 10 on its own ‑ ‑ ‑
GUMMOW J: Wait a minute. So what would you be subrogated to?
MR HOUGHTON: A right against GMAC to be paid the difference between what it paid and the value of the goods. In other words, that percentage margin somewhere between 75 per cent and 80 per cent and, of course, the value of the goods, because GMAC never gave full value – that was our argument – never gave full value for those goods under the bailment plan. Because our security interest goes, because our right to get back our vehicles goes, we are entitled to get back the unpaid purchase price.
Now, that is an issue that is still alive if this Court is against us on our primary submissions. The second point about section 10 is that GMAC, it is true, registered a security interest, but it registered the wrong security interest. In the appeal books before the Court of Appeal, but not in the appeal books before this Court, I have to confess, the various security interests that were actually registered were produced and of the 10 motor vehicles, the description ranged between interest as a mortgage, not a mortgagee, but as a mortgage or interest under a ‑ ‑ ‑
GUMMOW J: Were these instruments in the Court of Appeal’s materials?
MR HOUGHTON: Yes, yes.
GUMMOW J: Why do we not have them?
MR HOUGHTON: Appeal book volume – I am sorry, your Honour?
GUMMOW J: Why cannot a copy be taken?
MR HOUGHTON: A copy can be taken and I am happy to get that done. Your Honours will see under section 16 that there is a procedure obviously for registering security instruments and under section (2A):
The Corporation must reject an application unless –
(a) it is made in a manner approved by the Corporation –
this is the Roads Corporation –
(b)it is in a form approved by the Corporation and contains the information required by the Corporation; and
(c) the prescribed fee has been paid –
There is a prescribed form – again it is not in evidence – and you can tick the right box. The boxes are as follows: “security interest as a mortgage”, not as a mortgagee but as a mortgage; next box is “an interest as the lessor”; next box, “an interest as the owner under a hire purchase agreement”; next box, “other, eg, court order”. GMAC ticked the box “security interest as a mortgage”. They never had a security interest pursuant to a mortgage. They had a security interest if they had one because they had purchased the vehicles under the bailment plan and then bailed them back to the dealer and therefore were a lessor within the extended meaning of “lease” in the Chattel Securities Act. In other words, they ticked the wrong box.
The consequence of that we say is a triable issue because there is a case in South Australia and it is called Registrar of Security Interests v Psarros (1989) 51 SASR 318, a decision of a single judge, Justice White. He held that where a financier had registered a security interest but got some of the details wrong, it was an invalid registration. The details that the financier got wrong in that case from memory were the engine number and the registration number, but we say we have a serious argument that we should have the ability to have a trial on in the County Court as to whether, by reason of the wrong registration of its interest, that was an invalid registration under section 10. We would therefore ‑ ‑ ‑
KIRBY J: Should you not have a notice of contention on?
MR HOUGHTON: No, we do not, your Honour, because ‑ ‑ ‑
KIRBY J: I say should you not have one?
MR HOUGHTON: Should we not have one?
KIRBY J: Did you not in the special leave foreshadow a contention? I thought there was a foreshadowed contention.
MR HOUGHTON: Your Honour has a better memory than me, I think. I am not sure that we did.
KIRBY J: But leave that aside, should you not now be protecting this point by a notice of contention?
MR HOUGHTON: It is a new point. The answer is probably yes, your Honour.
KIRBY J: I am just thinking of our record, from the point of view of this Court.
MR HOUGHTON: It is something that arose very late.
HAYNE J: You are not seeking to uphold the orders made by the Court of Appeal; you are seeking to ‑ ‑ ‑
MR HOUGHTON: - - - preserve a point which has not yet been determined for trial in the court below.
KIRBY J: It might be a cross-appeal point. The Court of Appeal decided this against you.
MR HOUGHTON: No.
KIRBY J: Well, it is a contention point, is it not?
MR HOUGHTON: It was not even raised.
HAYNE J: It never got there.
KIRBY J: But they do deal with it.
MR HOUGHTON: They did not determine the point because we won on the primary arguments.
GUMMOW J: Your point is it would have to go back to the Court of Appeal to see what it wanted to do with it.
MR HOUGHTON: No, it needs to be remitted for trial at first instance, the two points, the point under section 7(7) and the point under section 10.
GUMMOW J: Yes, but remitted by whom for trial?
MR HOUGHTON: Back to the Court of Appeal and the Court of Appeal would remit it. So for those reasons we would urge the Court not to finally dispose of it even if this Court is against us on our primary submissions.
GLEESON CJ: Just before you finish, I am not suggesting this is at the centre of the argument, but what was the gap or the defect in the legislation that was seen to necessitate 7(1)(a)?
MR HOUGHTON: I think that is a provision. Now, why it came in later I do not know, but the provision looks at where there is a mistake made at the corporation. Someone makes an inquiry, there is a registered security interest, but under (d) the certificate that is issued by the corporation does “not contain the particulars of an entry”, then, in any event, the security interest of the financier is extinguished but he has a right against the fund. I think it covers that situation, but why it is (1A), I do not know, your Honour.
If you go to section 25 it is the compensation section – in other words, it covers the situation perhaps not initially contemplated by the legislature that there may be mistakes made. In Vic Roads Corporation when someone makes an inquiry, they want to purchase this motor car, they make an inquiry to the corporation to see whether there is a registered security interest, they get a certificate which says there is not a registered security interest, but there is a mistake, there is in fact a registered security interest. In that case the registered security interest is extinguished but under section 25 that person who held the now extinguished security interest can apply and get compensation.
GUMMOW J: You have to read 25 with 24.
MR HOUGHTON: Section 24 is a certificate, 25 is the compensation application.
GUMMOW J: Yes, but 24 is how the certificate system works.
MR HOUGHTON: Yes, yes, that is so.
GUMMOW J: And all of this follows from a postulated miscarriage in the certificate system.
MR HOUGHTON: Yes.
GUMMOW J: And the member of the public, or whoever it is, who inquires and gets the certificate should be able to rely on it.
MR HOUGHTON: Yes, that is so, even if there be a mistake.
GUMMOW J: Yes.
MR HOUGHTON: Yes.
KIRBY J: There was a notice of contention below but it was in the Court of Appeal and it was filed, of course, by the appellant in that court.
MR HOUGHTON: Yes.
KIRBY J: It was not certain where the record in this Court now stands, but anyway, you have raised your point. We just have to think about it.
MR HOUGHTON: Thank you, your Honour. If your Honours please, they are our submissions.
GLEESON CJ: Thank you, Mr Houghton. Yes, Mr Jackson.
MR JACKSON: Your Honours, may I deal with a number of matters and could I come to the argument about section 10 and what was or was not raised last, if I may. Your Honours, if I could turn first to some observations in Clough Mill [1985] 1 WLR upon which our learned friend relied and may I turn first to page 123 of that decision. Your Honours will see that at page 123B what was being discussed there was a transaction under the general law, in effect, which turned on the expression “confers”. What the argument based on that tends to leave out of account is that what one is looking at in the present case is really the effect of the instrument or transaction that is referred to in the opening words of the definition of “security interest”.
Your Honours will see also at page 125 of that decision, in the paragraph commencing between letters C and D, in common usage your Honours will see the words:
so it is possible to achieve security for an unpaid purchase price in different ways, with different legal consequences.
The term “security” can be used in a number of ways and there is nothing unusual to see the term “security” used to cover a number of different ways of dealing with things, albeit perhaps, with different legal consequences.
One sees that referred to also, your Honours, in Sykes and Walker, The Law of Securities, 5th edition (1993) and I will give your Honours a reference to two passages in that extract. The first is at page 12 under the heading, “DEFINITION OF SECURITY” and your Honours will see the first paragraph of that quotation – I shall not read it all out. What your Honours see then in the second paragraph, under that heading is:
However, such a definition will not cover all cases . . . Moreover, in the cases of conditional sale and hire purchase the debtor will not initially have full proprietary rights but will have the right of possession with the potentiality of acquiring full ownership.
What appears to be the concept that the authors had in mind was that those cases were ones that might, in some cases at least, give rise to something that could properly be described as security. That is made more specific in the second reference at page 538 under the heading – I am not sure if your Honours have an extract which I suspect you do, it follows immediately the page numbered 13.
GLEESON CJ: Yes.
MR JACKSON: Page 538 has the heading, “Conditional Sale”, where it is said:
If a vendor gives credit to a purchaser of goods, but the title to the goods passes to the purchaser immediately, a security interest is not necessarily involved . . . If, however, the transaction is one of conditional sale – it is agreed that the title remains with the vendor until payment in full – a security interest is involved. In the latter case there is a “reservation of title”. Although the purchaser takes possession, the purchaser does not take legal title.
Your Honours will see also the next sentence. The point I am seeking to make, your Honours, is simply that it does not appear to be an entirely heterodox use of the concept of security to cover situations of the kind presently in question. Could we say, your Honours, if I may go back for a moment to Clough Mill [1985] 1 WLR at page 114, the last paragraph on the page, and commencing just under letter F what is said is, in effect, there have been a lot of decisions:
But it is of great importance to bear in mind that these cases have been concerned with different clauses, very often in materially different terms . . . the decision in any particular case may have depended on how the matter was presented to the court –
and it is said this is a case -
in which we have to be particularly careful in reading each decision in the light of the facts and issues before the court in question.
That necessarily involves considering what is the relevant statutory provision.
GLEESON CJ: Mr Jackson, how do financiers account for transactions like this? Forget whether this was a purchase or purported purchase by your client. If it had been a purchase, would GMAC in its accounts show the motor vehicles as its property or would it account for the transactions as a loan transaction?
MR JACKSON: Your Honour, I cannot give your Honour an answer to that because I just do not know what the right answer would be in perhaps two senses of the term, but may I say that one would think that the ordinary way one would have to account for them, leaving aside accounting conventions which can result in results which perhaps one might not otherwise expect, but you would expect they would reflect the transaction as being ones in which they could either say we have the property in these goods but there are some contingencies, or they could say we have an entitlement to receive moneys in respect of these goods and there would be contingencies the other way. Your Honour, I do not know, that absent any particular accounting standards at particular times, one could say that one was the right and the other the wrong way to do it.
Your Honours, could I next go to the Associated Alloys Case in this Court in 202 CLR 588. Our learned friend referred to page 603, paragraph 26. Particular reference was made to the concluding words of paragraph 26 that it was desirable that there be “a certain and predictable course” to be “chartered through this terrain”.
Now, your Honours, the statute in this case refers specifically to the interests of a vendor like the respondent and it refers specifically to such an interest as giving rise, in our submission, to a security interest. Why not, your Honours, adopt – if I could adopt the expression – the “certain and predictable course” for giving the words of the statute their apparent effect.
Your Honours, that is so even if that might, in effect, set at nought the best efforts of the fine hand of eminent counsel in endeavouring to bring the transactions not within this or perhaps some other enactment. Indeed, that is the reason why one finds statutes of this kind sometimes expressed in rather general terms so that the dark hand of counsel, myself and others, can not be effective to get people out of them.
Could I say, also, that the intended ambit of the decision in the Associated Alloys Case can be seen in the Court’s observation at page 597, the last paragraph of paragraph 9, which had commenced on the previous page where it was said that:
It is the operation of the fifth paragraph of the clause –
that is the one italicised immediately above -
which is of prime importance for this appeal. It is unnecessary to determine the construction and effect of the other paragraphs of the clause -
So that, your Honours, the Court was careful to say “We are dealing only with the particular trust creating clause of that provision”.
Your Honours, could I come next to the observations made by our learned friend concerning the operation of the 1981 Act, and it is not correct, in our submission, to say that the 1981 Act made no provision dealing with retention of title clauses. Your Honours, I will not go into it in any detail, but may I refer your Honours specifically to these features of it. In section 2(1) you will see a definition of “security interest” in that provision and it is expressed to mean:
an interest or a power –
(a) reserved in or over an interest in goods; or
(b)created or otherwise arising in or over an interest in goods under –
various provisions there, and your Honours will see the remaining the words of that provision. Now, one goes then to the definition of “Goods mortgage” in the same provision and it says it:
means an instrument or transaction by or under which a security interest in or over an interest in goods is reserved or created or otherwise arises.
Your Honours, in both the provisions to which I have so far referred you will see the expression “reserved”. Now, one goes from there to the definition of “To mortgage”. The two words are defined but in the same definition provision and it:
means to reserve or create or otherwise give rise to a security interest.
Finally, your Honours, the definitions of “Mortgagor” and “Mortgagee” again in section 2(1) depend upon the other definitions to which I have referred. The interpretation given to those provisions or given at least provisionally to those provisions by the Court of Appeal was, in our respect, incorrect. They read them incorrectly in terms of saying that what there had to be was an interest or power in or over an interest in goods the provision more likely, in our submission, parses differently.
HAYNE J: See, for example, section 4. Section 4 perhaps in line 2 is a pointer.
MR JACKSON: Yes, your Honour. In our submission, that supports the contention for which we are advancing. The result otherwise would be rather silly, with respect.
GUMMOW J: Were you going to take us to section 3(4)?
MR JACKSON: Yes, I am, your Honour. I will be there in a moment or two if I may. I just want to deal with a couple of other things before getting there. Could I turn to the words “interest in or power over” in the definition of “security interest”. Our learned friend said that the power over would not include an interest in possession. That seems a little odd. What about a possessory lien? Why would not that give rise to some interest in possession?
Your Honours, the next matter I would wish to deal with is this, that our learned friend referred to the definition in particular to “purchase price” and said you do not see any reference there in the definition of “purchase price” in section 3(1) of the 1987 Act to these types of contracts, whereas you do see a reference to leases and hire purchase agreements. It is hardly surprising because it is speaking of “goods purchased by a purchaser”, the…..purchaser, and then adding to that leases and hire purchase agreements. So it is hardly surprising one does not see that.
Your Honours, our learned friends referred also to the definition of “supply” in section 3(1) and it said no interest is disposed of, but one thing that section 3(3) says is that such an interest is disposed of. That is relevant also to the provision your Honour Justice Gummow was referring to a moment ago, section 3(4). Section 3(4) says that:
a security interest attaches at the time at which value is given by the secured party –
In our submission, the secured party, the vendor, gives value by giving the vehicles to the purchaser, and it said the other feature of 3(4)(a) is that it says:
and the debtor has rights in the goods –
and section 3(3) says that the debtor has a right in the goods. That is an operation of section 3(3). Your Honour was asking I think about section 3(4).
If I might say something about the article by Professor Duggan to which my learned friend referred, without going to the text of it, he referred to page 307. Might we now add to the passage he cited the words, “Now, read on”. I do not think I need say more about that than that.
GUMMOW J: You have to allow for the full and frank disclosure in footnote 3 as well.
MR JACKSON: Yes. Your Honour, sometimes a number of emotions and motivations can result in a number of different things.
KIRBY J: Do not go too deeply into this.
MR JACKSON: No, your Honour, I will walk towards the edge but I hope not fall or be pushed off. What I was going to say about it was simply this that sometimes knowledge of drafting of these things can produce a view that a court might not accord with that which a court otherwise takes. But sometimes information can produce insight as well and that is perhaps the better view of things.
KIRBY J: These suggest that something happened between the Viney Report and the statute and that could well have happened in the Victorian Parliamentary Counsel’s Office. At the time the First Parliamentary Counsel of Victoria was a very opinionated person and very able. I am thinking of Mr Finemore, if Mr Finemore was the First Parliamentary Counsel.
MR JACKSON: One has seen in major cases construing statutes that there can be variations brought about say in an Upper House. Look at the leading case that has never been followed in this Court, the name of which eludes me for the moment, about imprisoning people – the New South Wales case, your Honour, I am sorry the name just eludes me – where the statute allowed people to be kept in confinement after the expiration of a sentence.
GUMMOW J: Kable.
MR JACKSON: Yes, your Honour, thank you. That was one of general application ‑ ‑ ‑
KIRBY J: It is easy to forget that case, Mr Jackson.
MR JACKSON: Your Honour, I am constantly reminded of it but it is easy to forget too. When that went to the Upper House, Legislative Council amendments had the result that it became directed to one person so that can happen and have a different result. Your Honour, I am sorry, I have gone into a slight dissertation.
What I wanted to say, your Honours, was this. Our learned friends’ submissions did involve a number of statements about the intended effect of the Act, not designed, it was said, to catch transactions at wholesale levels, and then it was said the matters for which we contend will extend the operation of the Act. Your Honours, where, we would ask, with respect, where did these assumed results come from? It is difficult to find anywhere one can point to those things as being the legislature’s intention. Surely, the better thing is to look to the terms of the Act which is to cover a multitude of possible situations.
Your Honours, if one comes down to the ghastly consequences that are said might potentially follow from this, it seems to amount to the potential inconvenience and perhaps some costs that might be involved in having to lodge various sets of forms rather than conduct business in an entirely unregulated way. Your Honours, our submission would be that the Court would give little heed to the submissions made by our learned friends in that regard.
May I come then, your Honours, to section 10. There really seem to be a couple of issues raised in relation to that, your Honours. May I say that you will find, apart from one reference, not a word’s reference in the record that your Honours have to the point that is sought to be raised. One can shake the record book. There is no hint of a notice of contention raising any of these points. One can do the same to our learned friend’s submissions and the cupboard is spectacularly bare.
If it had been, and one might have thought that if one looked at the written submissions where our statement of the facts was accepted without any demur that no such issue as that sought to be raised by our learned friend about the operation of section 11 was raised, your Honours.
If it is a matter that is sought to be pursued by our learned friend, then, in our submission, the matter should be properly raised before the Court. We would be perfectly content for that to be done in writing, of course, and for the additional parts of the evidence to be brought before the Court in that way, but the matter should not be just dealt with as a matter of assertion at this point. We would wish to see what the contention was and what the argument to be raised in relation to it is.
HAYNE J: Do you say notice of contention is required ‑ ‑ ‑
MR JACKSON: Yes, your Honour.
HAYNE J: ‑ ‑ ‑ to raise the section 10 point?
MR JACKSON: No, I am sorry, your Honour. May I start this way. The section 10 point is a point that we raise in the appeal. Now, it is a point, your Honour, that our learned friends are now saying, assume all else, it must fail because we did not have a registered security interest. You will find no hint of that in the appeal record so far as this Court is concerned or in the contentions before this Court or in the submissions before this Court. The only place you will find it is in one paragraph of the Court of Appeal’s reasons at page 137, the second sentence of paragraph 9. Now, that is the only place you will find it.
Now, your Honours, the point I am seeking to make about it is, if our learned friends wish to raise that in some way, we would like to have the opportunity to (a) know what they are saying, know what the evidence is, and to see whether the point is to open and to make some response to it. Your Honours, that is the first point.
The second point, your Honours, about it is this, that our learned friends say there has to be an issue arising under section 7(7) in any event which goes back. Now, if I could invite your Honours to make the assumption that we were otherwise successful on the section 11 point, that really does not arise. It does not arise because – and may I take your Honours to the terms of the statute. You will see that section 7(7) arises only if a security interest is extinguished under subsection (1), (1A) or (2).
Now, for there to be an extinguishment under subsection (1) what has to be demonstrated is that we had purchased an interest in goods free from a security interest. The burden of establishing that lay on us. You will see that from section 7(3). The position at present is that if we were successful we will have demonstrated that the respondent held a security interest but the view of the primary judge was that we had succeeded on the good faith and without notice point. The Court of Appeal’s judgment would set that aside.
If we otherwise succeeded on the section 11 point, there would be no point in us seeking to pursue the section 7 point, and it is a matter on which the burden would lie on us, and if we do not pursue the section 7(1) point, no section 7(7) question could arise. I am sorry to make that complicated, your Honours, but that is the summary of it. Your Honours, could I say, our learned friends said, I think, at an earlier point of their oral submissions that our ‑ ‑ ‑
GUMMOW J: Can I just get this straight, Mr Jackson. You are saying that because of your priority section 7(7) would not come into play?
MR JACKSON: Yes, it would not come into play. There would be no point in us seeking to pursue further the section 7(1) issue. Unless there is an extinguishment, then section 7(7) does not come into play. Now, your Honours, our learned friends said earlier in their oral submissions that the section 10 issue had not really been agitated. I may be a little understating or not quite accurately stating what they said, but it is plain that, in our submission, the matter has been raised and raised clearly. Could I just simply give your Honours copies of the parts of the record, just a reference to each of the places in the record where one can see the issue being raised.
GLEESON CJ: Thank you.
MR JACKSON: Your Honours, the last two things I would wish to say are these. The first is that there does, of course, if I may say so with respect, need to be some resolution of the future course to be taken by the Court in relation to the section 10 issue that our learned friends have adverted to. The second thing concerns the draft orders I gave your Honour.
So far as paragraph 3 of that is concerned – and I can be corrected if I am wrong – I would understand there is no difficulty about fixing the times for interest and the rate. Order 3 would say, “An order that the respondent repay to the appellants the sum”, which is there referred to, “together with interest calculated from 19 June 2006 at 12 per cent per annum”. So far as the remainder of the order is concerned, I think I should leave to my learned friends anything they might want to say about it.
GLEESON CJ: These are the orders that would follow if we accepted your argument on section 10?
MR JACKSON: Yes, your Honour. It may be necessary for us to put a submission before the Court in writing if the Court were to adopt another view about it. I am happy to deal with it in any way the Court wishes to but I was not aware at the time when that order was drafted of the issue that is sought to be raised about section 10.
GLEESON CJ: We will reserve our decision in this matter and we will adjourn – is there anything further you wanted to say, Mr Houghton?
MR HOUGHTON: Just this on the section 10 point, your Honours. On the special leave application our learned friend did from memory make a submission that if he was successful on the primary issue, that is, the security interest, then it would be necessary to remit several matters back to the court below. Then we were met with the new argument on section 10 that nothing would need to be remitted back, which we got in the outline of submissions, and we had made our response to that. We say there is a triable issue on section 10 and we have enumerated that triable issue by reference to one of the authorities. There is nothing more we want to put on that. We will consider whether we need to put in a notice of contention but we do not think we do.
GLEESON CJ: But is it your submission that if Mr Jackson succeeds on what I might call the section 7(1) point or the “security interest” argument, the matter should be remitted to the Court of Appeal and the Court of Appeal might exercise its own further powers of remitter, but in your submission, if Mr Jackson succeeds on his first point, the rest of the case should go back to the Court of Appeal?
MR HOUGHTON: Yes, if your Honours please.
GLEESON CJ: We will reserve our decision in this matter and we will adjourn until 10.00 am tomorrow.
AT 3.33 PM THE MATTER WAS ADJOURNED
Key Legal Topics
Areas of Law
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Civil Procedure
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Commercial Law
Legal Concepts
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Appeal
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Jurisdiction
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Res Judicata
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Abuse of Process
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Estoppel
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