Kino v Prestige Philately
[2014] VSC 469
•24 SEPTEMBER 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. S CI 2014 02003
| MARILYN LEONIE KINO | Plaintiff |
| v | |
| PRESTIGE PHILATELY PTY LTD (ACN 106 078 148) | First Defendant |
| and | |
| BRIAN DAVID KINO | Second Defendant |
| and | |
| SIR RONALD ALFRED BRIERLEY | Third Defendant |
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JUDGE: | VICKERY J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 23, 24, 25 JUNE and 4 AUGUST 2014 | |
DATE OF JUDGMENT: | 24 SEPTEMBER 2014 | |
CASE MAY BE CITED AS: | KINO v PRESTIGE PHILATELY & ORS | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 469 | |
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CONVERSION - Defence of estoppel by omission – Alleged negligence by owner - Whether sufficient to found estoppel - Ambit and application of s 27 Goods Act 1958. – Estoppel not established – No actual knowledge of relevant circumstances – Other grounds not made out.
SALE OF GOODS - Defence of estoppel by omission – Alleged negligence by owner - Whether sufficient to found estoppel - Ambit and application of s 27 Goods Act 1958 – Estoppel not established - No actual knowledge of relevant circumstances and other grounds not made out – Claim by innocent purchaser against wrongdoer established.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Senathirajah | Lawson Hughes Peter Walsh |
| For First & Third Defendants | Mr T McEvoy | Corrs Chambers Westgarth |
HIS HONOUR:
Background and Issues
This matter arose initially from an application for an injunction sought by the Plaintiff before this Court sitting in the Practice Court on 1 May 2014. The application sought to restrain an auction of sale of a valuable collection of rare Australian postage stamps and accompanying certificates. The stamps and certificates were purportedly owned by the Third Defendant Sir Ronald Brierley (‘Sir Ronald’). They were to be offered for sale through the First Defendant, which is a stamp auctioneer known as Prestige Philately (‘Prestige’) at an auction to be conducted on 2 May 2014 (the ‘Auction’).
The ownership of the stamps and accompanying certificates is in dispute in this proceeding.
On 1 May 2014, the day before the Auction, the Court ordered that Prestige and Sir Ronald be restrained from selling, disposing, encumbering or otherwise dealing with any of the stamps and certificates, which were the subject of the application, until the trial and determination of the substantive issue in the proceeding, namely the question of ownership of the property.
On 2 May 2014 the Auction continued, but was confined to the sale of stamps and certificates which were not the subject of the injunction.
The Plaintiff, Marilyn Kino (‘Mrs Kino’), is a Trustee and Executor of the Estate of her father, the late Julian Sterling (‘Mr Sterling’), who died on 6 June 2012. Mrs Kino is the sole residual beneficiary and one of two executors of Mr Sterling’s Estate. Mr Sterling’s Will dated 16 April 2010 provided for his collection of valuable stamps and philatelic items (‘the Sterling Collection’) to form part of his residual estate. On 6 August 2013, the Sterling Collection was distributed to Mrs Kino as part of Mr Sterling’s residual estate.
Mr Brian Kino, is the Second Defendant (‘Mr Kino’), and is the Plaintiff’s brother-in-law. Mr Kino is an art dealer.
Mrs Kino’s case is that Mr Kino misappropriated stamps and certificates from the Sterling Collection without the permission (or knowledge) of Mr Sterling or herself.
Mrs Kino claims ownership of the disputed stamps and certificates.
The Stamps in Question
On 1 August 2013, Mr Kino sold stamps (or blocks of stamps) and certificates through his selling agent Mr Mowbray, to Sir Ronald for the sum of AUD$200,000. Sir Ronald admits that he obtained the stamps (or blocks of stamps) and the relevant certificates from Mr Kino. The sale took place in the circumstances outlined below.
Mr Mowbray is a stamp dealer from New Zealand with over 50 years’ experience. Sir Ronald is a distinguished collector of stamps and a long-standing client of Mr Mowbray. Sir Ronald is known in philately circles as ‘Lionheart’.
Mr Kino met up with Mr Mowbray following an art auction conducted by Sotheby’s Australia on 14 May 2013. Mr Kino indicated to Mr Mowbray that he had some stamps to sell as a package to a private buyer. Mr Mowbray considered that the stamps offered by Mr Kino may have been of interest to Sir Ronald.
Mr Kino followed up his approach with an email to Mr Mowbray which he sent on 23 May 2013. In the email Mr Kino confirmed that he wanted a sale by private treaty and indicated that he wanted the availability of the stamps to be confidential. The email also contained a description of the stamps which Mr Kino wanted to sell. Mr Mowbray valued the stamps on offer by Mr Kino at $200,000.
On 19 June 2013 Mr Mowbray contacted Sir Ronald by email about the stamps on offer by Mr Kino. Following further communications involving inspection of the stamps on offer, Mr Mowbray inspected the stamps at Mr Kino’s residence on 1 August 2013. Later that day, after taking possession of the stamps and showing them to Sir Ronald, Sir Ronald agreed to purchase the stamps for AUD$200,000 and the sale took place.
Mrs Kino seeks delivery up of the stamps and certificates which are the subject of the injunction ordered on 1 May 2014 (the ‘Stamps’).
Subsequently, on 5 June 2014, Mrs Kino also claimed ownership of a number of further stamps (not being stamps the subject of the injunction) (the ‘Additional Stamps’).
Some of these Additional Stamps, which were not the subject of the injunction, were sold at the Auction conducted by Prestige on 2 May 2014 and are no longer in the possession of Prestige or Sir Ronald.
Mrs Kino seeks delivery up of each of the Stamps and Additional Stamps comprising each stamp, block of stamps and accompanying certificates derived from the Sterling Collection that is held by any of the defendants (or their agents). She also seeks damages in respect of each item of property derived from the Sterling Collection that has been sold by (or on behalf of) any of the defendants to a third party purchaser.
The items of property alleged to have been misappropriated by Mr Kino from the Sterling Collection are identified in the pleadings. Colour images of the stamps in question were tendered in evidence, and some examples are provided below as they were depicted in the Prestige Catalogue which had been prepared for the Auction. The examples below include a ‘King George V’ one penny stamp; a 10/- stamp from the ‘Kangaroo’ series; and a block of 5/- stamps from the ‘Sydney Harbour Bridge’ series. Each of these items was listed in an invoice from Mr Mowbray dated 2 August 2013 in respect of the sale to Sir Ronald.
Lot 34. Cooke Printings 1d deep red BW #73C, lightly mounted, Cat $10,000 (2007). Sydney Philatelic Research Service (Michael Drury) Certificate (2004). Described as ‘A very rare stamp that was absent from Stuart Hardy’s and Hugh Morgan’s collections.’
Lot 4. 10/- grey & bright pink with complete ‘JBC’ Monogram BW #47za, described as having ‘attractive centring and exceptional freshness, very lightly mounted, Cat $75,000. Superb!’
Lot 36. 1932 Sydney Harbour Bridge. 5/- green John Ash Imprint block of 6 BW #148zd, characteristic variable centring, unmounted, Cat $7500 (2007). Described as ‘Superb & as fresh as a daisy! Advertised retail $9000 + as unmounted singles.’
An example of a certificate, being a Sydney Philatelic Research Service (Michael Drury) Certificate, is also set out below:
By paragraph 6 of his Amended Defence dated 18 June 2014, the Mr Kino admits that he obtained possession of 45 (of the 55 claimed by Mrs Kino) of the stamps missing from the Sterling Collection.
Sir Ronald admits that he obtained the stamps (or blocks of stamps) and the relevant certificates from Mr Kino, following a sale to him of those stamps by Mr Kino on 1 August 2013.
Sir Ronald in turn provided all of the stamps and certificates he obtained from the Mr Kino to Prestige to sell on his behalf at the Auction.
Prestige admits that it received the relevant stamps (or blocks of stamps) and certificates from Sir Ronald for sale at its Auction.
The Auction proposed to be conducted by Prestige was devoted to sales from the collection of a single-owner, who was Sir Ronald. The catalogue produced for the Auction was entitled: ‘Australian Rarities from the “Lionheart” Collection’.
The catalogue described Sir Ronald as follows:
Our vendor is a collector of rare distinction, a man of discerning taste who has the resources to enjoy his hobby to the full. He has a particular liking for multiples and, indeed, several of the great blocks from the Kangaroo and Georgian Heads series are included here. He also has a far greater interest in the front of a stamp than its behind, so while you will note many never hinged items with fresh-as-a-daisy gum, you will also see that a blemish on the reverse has not deterred him from acquiring pieces that facially are beautiful and charming.
The catalogue also paid tribute to the quality and rarity of the items offered for sale. One passage in the catalogue lauded the offerings in the following terms:
Many of the Lionheart items are simply breathtaking. The extremely rare First Watermark £2 block is the first we have ever offered. The 10/- ‘JCB’ Monogram single from the same issue is quite majestic. The second Watermark 2/- used monogram pair is magnificent. The Postage Due 20/- with Stroke and the Ross Smith vignette are among the very finest examples known. The Sydney views are of unsurpassed quality.
Second Defendant’s Defence
In his pleadings and answers to interrogatories, Mr Kino asserted that he was gifted stamps by the late Mr Sterling between about early 2008 and June 2010.
I reject this assertion.
There is no evidence from the Mr Kino to support the defences alleged in his defence. Mr Kino did not appear nor did he give evidence at trial.
Given the very serious allegations made against him, I find it to be a matter of significance that he chose not to appear to defend those allegations and give or call any evidence in an attempt to refute them.
Further, Mr Kino’s assertion that he was gifted stamps by Mr Sterling is contradicted by a body of admissible evidence received at trial. I will refer to some notable examples.
Mrs Kino called Mr Bernard Manning. Mr Manning is a philatelist with over 30 years’ experience collecting Australian stamps, with a special interest in the postal history of Queensland. He has published books on the subject. Mr Manning was very familiar with the Sterling Collection and had worked on it for Mr Sterling during his lifetime in conjunction with Mr Kino between March 2009 and June 2010. In June 2010 there had been a falling out between Mr Sterling and Mr Kino.
In October 2011 Mr Sterling again engaged the services of Mr Manning to work on the Sterling Collection. Mr Manning produced an audit report reconciling items in the collection. A number of missing items, including missing certificates, were observed and recorded.
Mr Manning then made inquiries about the items missing from the Sterling Collection.
He reported as follows on a conversation he had with Mr Kino on 14 January 2012:
On 14 January 2012 I met with Brian at his apartment and discussed with him the matters of the missing items and missing Certificates. Brian told me that he had photocopies of a lot of the Certificates and that he would make copies for me. He did not show me the photocopies he had at that time and asked me to come back for them when he had copied them. When I asked Brian about the missing items which I had identified in the Audit Report he told me that he could offer no explanation other than they might have been upgraded, traded back to Juzwin or sold by Julian or that Julian might have lost or destroyed them. He did not tell me that Julian might have given them away. Brian told me that, in the last few months of their relationship in 2010, Julian had become quite forgetful and Brian also told me that it was possible that Julian could have thrown some of the items into the bin. At no time did Brian tell me that Julian had made a gift to him of any of the items or of anything else.
This is a clear example of the evidence which directly contradicted the pleaded defence of Mr Kino. When asked by Mr Manning whether he knew the whereabouts of the missing stamps and certificates, Mr Kino did not say that he had been gifted them by Mr Sterling. He claimed to have no knowledge of the missing stamps, and in fact suggested that they may have been upgraded, traded, sold or lost or destroyed by Mr Sterling.
I am satisfied that Mr Kino had the opportunity to take the Stamps because, from about 2008 until about May 2010, he had been assisting Mr Sterling in creating, cataloguing and generally maintaining the Sterling Collection. Even though the Collection was stored in a safe located in the secure apartment in which Mr Sterling was living, Mr Kino was trusted by Mr Sterling and was given unfettered access to the collection. There was evidence that he regularly took stamps and albums from the collection back to his own residence from time to time for the purpose of tending to and maintaining the collection.
Further, I am satisfied that Mr Sterling himself did not at any time tell Mr Manning or Mrs Kino that he had gifted the stamps to Mr Kino. There was no such evidence. Upon Mr Manning reporting to Mr Sterling that stamps were missing from the collection, Mr Sterling told him that he was concerned about their whereabouts and directed Mr Manning to make inquiries.
To this may be added the inference from the evidence, which I accept, that it was, in the circumstances, very unlikely for Mr Sterling to have gifted major, valuable or significant items from his collection, thereby reducing the value of the balance of the Collection, given the following factors: he had worked very hard and expended significant monies to build up the Sterling Collection; it was his express desire and wish to put together a collection of vintage Australian stamps that would be regarded as one of the best collections of its type and which was of world class standard for a cost of around $2 million to $5 million; and the fact that the Stirling Collection had been assembled together for the purpose of possible future exhibition.
A finding that Mr Kino misappropriated the Stamps from the Sterling Collection and then purported to on-sell them to Sir Ronald is inescapable. In arriving at this conclusion, I adopt and apply the approach of Dixon J in Briginshaw v Briginshaw[1] and the majority in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd.[2] The allegation of misappropriation levelled at Mr Kino has been proved to my reasonable satisfaction bearing in mind that it is a serious matter with potentially significant consequences for him.
[1][1938] HCA 34; (1938) 60 CLR 336, 362.
[2][1992] HCA 66; (1992) 110 ALR 449, 450.
The Position of the Third Defendant
The Third Defendant was an entirely innocent purchaser from Mr Kino, and there was no evidence to suggest otherwise.
First and Third Defendants’ Defence: section 27 Goods Act1958 ‘Estoppel’
By paragraphs 16(b)(i) and (iv) of the Amended Defence of the First and Third Defendants dated 10 June 2014, Sir Ronald pleads that because Mrs Kino did not report to the Australian Philatelic Traders Association (‘APTA’) that the Stamps (ie those the subject of the claim against Sir Ronald) were missing, Mrs Kino is estopped from denying Mr Kino’s authority to sell those Stamps by operation of s 27 of the Goods Act1958 (the ‘Victorian Act’) and/or s 26 of the Sale of Goods Act1923 (NSW).
Principle of Nemo Dat at Common Law
At common law, when an owner is seeking the return of her or his stolen property which is no longer in the thief’s possession, the owner usually relies on the well-established principle of nemo dat quod non habet - one cannot give another a better interest than one has oneself (the ‘nemo dat rule’).
The nemo dat rule means that a true owner does not lose his or her title to goods simply because of some wrongful act on the part of a thief who transfers possession of those goods to an innocent third party who acted in good faith in paying money to the thief for the goods. The rule was stated by Lord Cairns LC in the House of Lords decision of Cundy v Lindsay in the following terms:[3]
[W]ith regard to the title to personal property, the settled and well known rules of law may, I take it, be thus expressed … the purchaser of a chattel takes the chattel as a general rule subject to what may turn out to be certain infirmities in the title … If it turns out that the chattel has been stolen by the person who has professed to sell it, the purchaser will not obtain a title.
[3] (1873) 2 App Cas 459 (House of Lords) at 463-4.
By way of summary: a thief, as a non-owner, cannot convey ownership in a chattel to another. In this situation the true owner retains his or her title to recover it by a claim in conversion. This claim can be maintained against the thief or another defendant, (or defendants for that matter), as long as the owner can identify her or his property in the hands of the relevant defendant.
Nemo Dat as Modified by Legislation and Case Law
The common law rules relating to the sale and ownership of goods, stemming from the nemo dat rule, were first codified in the English Sale of Goods Act of 1893,[4] which in turn informed the enactment of Australian sale of goods legislation still in force today,[5] of which Victoria’s Goods Act 1958 forms part.
[4] 56 & 57 Vict. c.71.
[5] Sale of Goods Act 1895 (SA); Sale of Goods Act 1895 (WA); Sale of Goods Act1923 (NSW).
Section 27 of the Goods Act1958 provides:
Subject to the provisions of this Part and of any express enactment where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell. (Emphasis added)
This provision is in substance identical to s 26 of the Sale of Goods Act1923 (NSW).
Thus, the nemo dat rule is not unqualified in its statutory form. In its codification of the common law relating to passing property, the statutory sale of goods scheme in Victoria and in New South Wales contemplates situations where it is possible for a buyer to take a better interest, including ownership, than the seller had to give.
Section 27 is subject to ss 30 and 31 of the Victorian Act, and was also subject to s 7 of the Chattel Securities Act 1987 (Vic), which has been repealed. A substantially similar provision now exists in s 43 of the Personal Property Securities Act 2009 (Cth). Further, the Court has jurisdiction to defer the rights of mortgagees to the rights of mortgagors and purchasers from mortgagors, which it may exercise as part of its equitable jurisdiction.[6] However, these exceptions have no application to the operation of s 27 in this case.
[6] Saltoon v Lake [1978] 1 NSWLR 52.
Estoppel by Conduct
Section 27 of the Victorian Act enshrines the nemo dat rule, which continues to apply ‘unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell’.
This section and its counterpart in other States is recognised as doing no more than preserving common law principles of estoppel. Section 4(2) of the Victorian Act provides that the rules of the common law shall continue to apply unless they are inconsistent with an express provision of the Act.
The common law has long given recognition to the tension between a true owner’s right and the rights of a buyer who acts in good faith without notice of the prior interest. In BishopsGate Motor Finance Corporation Ltd v Transport Brakes Ltd[7] the English Court of Appeal (Bucknill, Singleton and Denning LJJ) observed:
In the development of our law, two principles have striven for mastery. The first is for the protection of property: no one can give a better title than he himself possesses. The second is for the protection of commercial transactions: the person who takes in good faith and for value without notice should get a good title. The first principle has held sway for a long time, but it has been modified by the common law itself and by statute so as to meet the needs of our own times. The modification here in question is one conferred by the common law itself.
[7] [1949] 1 KB 322, 336.
In Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd[8] (Thomas Australia), Kirby P described the origins of the protections of the nemo dat rule in the equivalent, identical, NSW statute[9] as follows:
[The] provision does no more than to preserve the common law principles of estoppel, providing a basis for an exception to the general rule encapsulated in the Latin maxim nemo dat quod non habet (No one can give [title] that he does not have).
In cases where a third party, usually fraudulently, disposes of the goods of another, the law seeks to provide a resolution as between the owner and the innocent purchaser for value and without notice, which does least offence to common notions of justice. The common law provided, amongst other means to resolve this competition between the claims of innocent parties, the exception to the general rule, explained by reference to the principles of estoppel: see ‘The Nemo Dat Rule and Estoppel by Representation and Estoppel by Negligence’ (1979) 8 Sydney Law Review 698.
Thus, a person would sometimes be precluded by his conduct from denying the truth of a particular state of affairs.[10]
[8] (1985) 3 NSWLR 452.
[9] Sale of Goods Act1923 s 26(1).
[10] (1985) 3 NSWLR 452, 453.
In the same case however, Glass and McHugh JJA (as he was then) added a further element to the principle, as defined in statute, as follows:[11]
It is well established by authority that estoppel by conduct in this context is not limited to positive conduct which has encouraged a buyer to believe that the sale to him is made with the owner's authority. The estoppel by conduct can also arise from inaction or omission. But in the latter event it is requisite that the owner's failure to disclose its interest should be in breach of a duty [to speak out] owed by it to the purchaser who has bought from a seller without title.
[11] (1985) 3 NSWLR 452, 467, 469.
However, differing approaches to the operation of the estoppel in this context are to be found in Thomas Australia. There is the dissenting judgment of Kirby P (as he then was) where his Honour observed that there was nothing contained within the section that demanded that a duty relationship be established, holding that the imposition of a duty of care constituted an unwarranted diminution in the beneficial protection provided by the section. Then we have Glass and McHugh JJA (as he then was) reinforcing the requirement that the owner must owe a duty to the buyer or the class of persons to which the buyer belonged - a requirement long recognised in common law countries. The dissenting judgment of Kirby P nevertheless has been viewed as persuasive.[12]
[12]Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171 [41].
Johnson Matthey v Dascorp Pty Ltd
The leading Victorian authority on s 27 estoppel is the decision of Redlich J of this Court, in Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd[13] (‘Johnson Matthey’).
[13](2003) 9 VR 171.
Johnson Matthey involved an employee of the plaintiff, a gold refining company, who had been stealing gold from his employer for a number of years. The employee, through an accomplice, sold the stolen gold to the first defendant, a gold dealer. The plaintiff sued the first defendant for conversion of the gold stolen by the rogue employee. The first defendant sought to rely on the s 27 Goods Act estoppel to escape liability. One of the important factual bases for the first defendant’s contended estoppel was the failure of the plaintiff to report the fact of the missing gold to gold dealers such as the first defendant.[14]
[14] Johnson Matthey (Aust) Ltd at [11(iii)]; [32]-[33].
In the present case, both the Plaintiff and the Third Defendant have sought to rely on the reasoning in Johnson Matthey in support of their respective contentions in relation to liability.
In the present case, as in Johnson Matthey, there was a failure on the part of the plaintiff to report the fact of missing items of valuable property to the police or to the relevant industry body. Such a failure is invoked by the Sir Ronald, who ultimately purchased the stamps, with a view to founding an estoppel by conduct.
The analysis, in Johnson Matthey of the principles relating to the application of the estoppel, thus calls for close scrutiny.[15]
[15] (2003) 9 VR 171, 183-192 [33]-[64].
Redlich J held that this type of estoppel could only apply in the limited circumstances where three requirements have been satisfied:
(a) the true owner be shown to owe a duty of care to the buyer;
(b)the true owner’s conduct was negligent such that he or she breached that duty of care; and
(c)the breach of duty was the proximate or real cause of the buyer being induced to purchase the goods.
In this respect, his Honour said in Johnson Matthey:[16]
In both Australia and England, negligence on the part of the true owner can only be raised as an estoppel in limited circumstances. It is generally recognised, that a true owner will not be precluded from denying the seller's authority to sell by virtue of his or her omissions to act unless it is established that the owner has a duty of care to the purchaser, and in breach of that duty was negligent. Such negligence must be the proximate or real cause of the buyer being induced to purchase the goods.
[16] Johnson Matthey(Aust) Ltd (2003) 9 VR 171 [40].
In so doing, Redlich J adopted and followed the approach of the majority of the NSW Court of Appeal in Thomas Australia, observing that:[17]
For almost one and a half centuries the common law has recognised a duty of care as an essential requirement of estoppel by omission. It has been acted upon by courts of the highest authority. It need not be a pre-existing legal duty. As Glass JA observed in Thomas Australia the owner's failure -
‘... must be in breach of the duty to speak out. Unless the conduct of the taciturn owner is subjected to the litmus test of duty, I know of no way to discriminate between conduct which precludes and that which does not’. [Citations omitted]
[17] Johnson Matthey(Aust) Ltd (2003) 9 VR 171 [42].
Here there is no positive conduct or statement on the part of the Plaintiff, such as by furnishing the thief with documentation which enables the thief to give the appearance of being the owner or a person who is duly authorised to dispose of the property, which is alleged to found the estoppel. Rather, it is inaction or silence, which is relied upon. Lord Wilberforce in Moorgate Mercantile CoLtd v Twitchings[18] considered such conduct sufficient to found an estoppel in the following passage:[19]
It cannot influence a person to act to his detriment unless it acquires a positive content such that that person is entitled to rely on it. In order that silence or inaction may acquire a positive content it is usually said that there must be a duty to speak or to act in a particular way, owed to the person prejudiced or to the public or to a class of the public of which he in the event turns out to be one.
[18][1977] AC 890.
[19][1977] AC 890, 903.
Redlich J in Johnson Matthey accepted the decision in Moorgate Mercantile as being: ‘generally regarded as correctly enunciating the requirements of a duty and breach’ noting further that: ‘The defendants also asserted an estoppel by failure to register’ [a hire purchase transaction with a hire purchase organisation of which most finance companies and many motor dealers were members]; and that ‘The majority of the House of Lords held that there was no such duty as membership of the body did not require members to register agreements’.[20]
[20] Johnson Matthey(Aust) Ltd (2003) 9 VR 171 [48].
Redlich J in Johnson Matthey concluded his analysis with the following observations:[21]
Where the principal is aware of their agent's misconduct, action is called for as part of their duty to speak out. A failure to act when possessed of knowledge of the agent's wrongdoing deprives the innocent party of the opportunity of avoiding the detriment. An estoppel founded on silence or acquiescence will be sufficiently based, if the person against whom the estoppel is raised, if acting reasonably, honestly and responsibly would bring the true facts to the attention of the person known by them to be operating under the mistaken view of the facts or of their respective rights.
Carelessness without more has not been regarded as a sufficient basis to found a duty by the owner to the buyer although, where a duty otherwise exists, it may provide the basis for establishing a breach of that duty. Even where the true owner could reasonably foresee that their carelessness could lead the buyer to believe that the seller was the owner of the goods, in the absence of knowledge of the actual circumstances which affect their property, a duty will not arise. A knowledge of facts which would lead a reasonable owner to conclude that a reasonable buyer may be misled accords with the principle as expressed by Lord Wilberforce in Moorgate Mercantile Co Such knowledge would generally be necessary. [Emphasis added]
The owner of goods is under no duty to ensure the safety of their own belongings. Hence possession of goods is not regarded as a basis of ostensible authority. The judgments of their Lordships in Moorgate Mercantile Co are to the effect that an owner does not owe a duty to the world to keep his goods safe. In the words of Lord Fraser:
‘The owner of property is entitled to be careless with it if he likes, and even extreme carelessness with his own property will not preclude him from recovering it from a person who has bought it from someone who dishonestly purported to sell it.’ [Citations omitted]
[21]Johnson Matthey(Aust) Ltd (2003) 9 VR 171 [53]-[55].
The principle (to which Redlich J referred) which may found a duty for the purposes of s 27 arising from conduct manifested by inaction or silence was expressed by Lord Wilberforce in Moorgate Mercantile Co Ltd v Twitchings[22] in the following passages:[23]
It cannot influence a person to act to his detriment unless it acquires a positive content such that that person is entitled to rely on it. In order that silence or inaction may acquire a positive content it is usually said that there must be a duty to speak or to act in a particular way, owed to the person prejudiced or to the public or to a class of the public of which he in the event turns out to be one …
… I think that the test of duty is one which can safely be applied so long as it is understood what we mean. I have no wish to denigrate a word which, to modern lawyers, has become so talismanic, so much a universal solvent of all problems, as the word ‘duty’ but I think that there is a danger in some context of which this may be one, of bringing in with it some of the accretions which it has gained – proximity, propinquity, foreseeability – which may be useful, or at least unavoidable in other contexts. What I think we are looking for here is an answer to the question whether, having regard to the situation in which the relevant transaction occurred, as known to both parties, a reasonable man in the position of the acquirer of the property would expect the owner acting honestly and responsibly, if he claimed any title in the property, to take steps to make that claim known to, and discoverable by the acquirer and whether in the face of an omission to do so, the acquirer could reasonably assume that no such title was claimed. [As emphasised by Redlich J in Johnson Matthey]
[22][1977] AC 890.
[23][1977] AC 890, 903.
His Honour Redlich J noted further the observation of Lord Wilberforce in Moorgate Mercantile Co that:[24]
… the duty of care should not be stretched so widely as to make it a universal duty on the part of property owners to safeguard others against loss.
[24][1977] AC 890, 904.
Lord Wilberforce’s statements in Moorgate Mercantile Co have been the subject of discussion in the authorities,[25] and the correct reading and application of Redlich J’s observations in Johnson Matthey upon his Lordship’s statements were the subject of divergent submissions in this proceeding.
[25]See for example the discussion by Johnston J in Leonard v Jelasi 46 SASR 485, 508-517.
Starting with the text of s 27, it provides for the estoppel in the following exception to the nemo dat principle: ‘unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell’(emphasis added).
The exception provided for in s 27 of the Victorian Act is broadly expressed and is clearly intended to operate in diverse factual circumstances. Nevertheless, a construction of a rule of general application which limits the operation of the nemo dat principle of the common law beyond that which is expressly provided for in the legislative text is not warranted in my opinion. A true owner’s title to goods should not be exposed to the prospect of extinguishment unless clear words in the statute demand such a construction.
To my mind, the proper construction of the section requires an owner to be an intentional participant, the necessary intent being based upon actual knowledge of the essential facts which should inform the owner’s conduct before a duty will arise. It is a duty, which, if breached and is the proximate or real cause of a third party being induced to purchase the goods, will establish the exception to the nemo dat principle, with the further consequence that the owner may lose title.
In the circumstances of the present case, it is actual knowledge on the part of the property owner, Mrs Kino, of the fact that Mr Kino had come into possession of the stamps and had done so dishonestly which needs to be established before a s 27 duty will arise to refrain from remaining silent. The duty, if it arose, was to speak out on the basis of the dishonesty of Mr Kino, the person who came into possession of the stamps and who may have sought to transact with others in relation to them. If this was unknown to Mrs Kino, how could she discharge her duty? What was she to say and to whom? In the absence of some other positive failure on the part of Mrs Kino, in my opinion, a mere failure to act when she had no knowledge of any relevant wrongdoing, does not operate to preclude the operation of the nemo dat rule.
Accordingly, in order for Prestige and Sir Ronald to establish the s 27 duty claimed, they need to establish that the Mrs Kino knew (at or before the time at which the Sir Ronald ‘bought’ the stamps from Mr Kino) that Mr Kino had stolen the stamps. In the absence of proof that Mrs Kino was aware of this dishonesty on the part of Mr Kino, there was no duty to speak out, and no s 27 estoppel arises.
There is no warrant to contend, as Prestige and Sir Ronald submitted, that the duty will arise if Mrs Kino has knowledge of facts which would lead a reasonable owner to conclude that a reasonable buyer may be misled if the owner remains silent. This extends the duty too far. It trespasses on the principle that mere carelessness without more should not be regarded as a sufficient basis to found a duty by the owner to a buyer for the purposes of s 27.
In this case, Prestige and Sir Ronald relied upon the following key facts, which were established in the evidence, to advance the s 27 duty they alleged:
a.First, the late Mr Sterling apparently gave Mr Kino virtually unimpeded access to the entire Sterling Collection, even to the extent of permitting him to remove it, or parts of it, from Mr Sterling’s home. Mrs Kino was aware that this was the case, including after it became apparent that numerous valuable stamps were missing.
b.Second, from about August 2012 if not earlier (that is, well prior to the sale by Mr Kino to Sir Ronald on 1 August 2013), Mrs Kino was aware that there were substantial and valuable items missing from the Sterling Collection in circumstances where there were compelling reasons to suspect that these items had been taken by Mr Kino.
However, these matters do not establish that Mrs Kino had actual knowledge (at or before the time at which the Sir Ronald ‘bought’ the stamps from Mr Kino) of the fact that Mr Kino had stolen the stamps.
The Plaintiff’s Conduct
Although she was rigorously cross-examined on the issue, I believe the evidence given at trial by Mrs Kino that, at the relevant time at or before the time the Third Defendant bought the stamps from Mr Kino which was on 1 August 2013, she did not know or suspect that the stamps had been stolen.
Although there was some confusion in the Plaintiff’s evidence as to when in 2014 (ie February or April) the Plaintiff first began to believe that Mr Kino had stolen the Stamps, I accept the Plaintiff’s evidence that:
a.she did not have any suspicion that the stamps had been removed from the Collection or stolen by a third party until sometime in 2014:
b.until 2014, she thought they were missing or mislaid somewhere in her father’s house;
c.until 2014, she did not suspect that Mr Kino would have stolen the stamps (or anything else). At the time she was told that the stamps were missing, she was not aware of any reason for Mr Kino to have stolen the Stamps – her father had offered to pay Mr Kino for his services and the offer of payment had been refused; and Mr Kino appeared to be financially well off at the time; and
d.Mr Manning had told her some time in 2012 that Mr Kino had told him that he did know what had become of the missing Stamps.
Further, Mr Manning, a very experienced philatelist, who was retained to audit the Sterling Collection, gave evidence that:
a.even after his extensive investigation, before 2014, the thought never crossed his mind that the stamps were stolen at all, or had been stolen by Mr Kino;
b.he believed at all relevant times that the stamps had been misplaced, destroyed or thrown out.
Although he was challenged in cross-examination on the issue, I accept the account Mr Manning gave in his evidence-in-chief.
Breach of Duty ?
The First and Third Defendants contended that Mrs Kino breached her duty because Mrs Kino and those advising her took no action to report the items missing, including by making a report to the Police or to the Australasian Philatelic Traders Association (‘APTA’), the effect of which, it was contended, would have been to cause APTA to notify its members (who were stamp traders) that the relevant stamps were the subject of a dispute as to ownership.
However, the evidence at trial did not establish any general practice within the industry of reporting missing stamps to APTA. The only practice was for members of APTA to report stamps which they believed had been stolen.
Further, it is not in dispute that none of Mr Sterling, Mrs Kino or Sir Ronald was a member of the relevant trade organization, APTA.
The relationship between Mrs Kino and dealers was not one which gave rise to a duty or created an obligation requiring Mrs Kino to notify dealers in the circumstances which were known to her before 2014. To the extent that Mr John Mowbray, an expert called by the First and Third Defendants, differed on this issue, I do not accept his evidence.
Further, the substantial body of expert evidence at trial, which I accept, established that even if there was such a general practice within the industry, a person such as Mrs Kino, who was not a member of APTA and who did not have an extensive knowledge of philately, did not act unreasonably in not reporting missing stamps to APTA unless she was advised to do so by an APTA member. She was not so advised at any point.
Indeed, the First and Third Defendants’ witness Mr Mowbray, a stamp dealer for nearly 50 years, and a long standing member of APTA, ultimately conceded in cross-examination that it would not have been unreasonable for the Plaintiff not to have reported the missing stamps to APTA unless a member of APTA had advised her to do so.
Finally, I do not accept the evidence called on behalf of Prestige and Sir Ronald to the effect that Mrs Kino should have reported the missing stamps to the police on or before 1 August 2013. Mrs Kino gave evidence to the effect that she never thought to report the missing stamps to the police because she did not think that the stamps were stolen, and she did not have information to indicate that they were stolen as opposed merely being missing. In the circumstances, I consider it would have been unrealistic to have expected Mrs Kino to have reported stamps that were merely missing to the police.
Causation
The third requirement must be established to found the estoppel is that the Plaintiff’s failure to report was the real cause of the Third Defendant proceeding with the purchase of the Stamps.
Prestige and Sir Ronald contended that had Mrs Kino reported the stamps missing to the Police, or to APTA, an established APTA procedure would have taken effect, the seller’s agent retained by Mr Kino to sell the stamps to Sir Ronald (Mr Mowbray) would not have dealt in the stamps, and Sir Ronald would never have bought the stamps.
However, it was not established that Mrs Kino’s failure to report the missing stamps to the police or to APTA was the proximate or real cause of Sir Ronald being induced to purchase the stamps.
There is no evidence that, had the Stamps been reported to APTA or to the police in August 2013 as merely missing, which was the extent of the Plaintiff’s knowledge at that time, that APTA or the police would have sent an alert to dealers such as the agent for Mr Kino, if stamps were only believed to be missing. Indeed, the evidence on the point was to the contrary.
Valuation of the Stamps
The valuation evidence will be relevant only if Mrs Kino does not obtain the return of the stamps or all of them, in which event, Mrs Kino’s remedy will be confined to damages for the stamps which are not returned.
Mrs Kino relies on the valuation of the stamps provided by Charles Leski in his Report dated 13 June 2014 which I accept. Mr Leski is appropriately qualified by training and experience to carry out the valuations.
Charles Leski voluntarily disclosed his existing professional and personal relationship with Mrs Kino.
However, he is in my opinion, sufficiently independent and professional to give a reliable opinion as to the value of the stamps in question. Mr Leski’s evidence goes only to quantum, not to any question as to liability. I am informed by counsel that Mr Leski will not be auctioning any of the Stamps in issue. Accordingly, the amount of any commission he will receive on any sales of the stamps will not be affected by his valuation.
Claim by the Third Defendant against the Second Defendant
Prestige and Sir Ronald press for judgment on a cross claim against Mr Kino. It is noted that by Mr Kino’s decision not to participate in the trial, this cross claim has effectively proceeded undefended.
In this case, a cause of action for damages for breach of warranty pursuant to s 59 of the Goods Act1958 (Vic) is founded on Mr Kino’s breach of the implied condition in s 17 of the Act that the seller has a right to sell the goods. The breach is founded on the findings that on 1 August 2013 the stamps were not the subject of a gift to him by Mr Sterling and that Mr Kino converted the stamps to his own use.
In these circumstances, and pursuant to s 59(2) of the Goods Act 1958, Sir Ronald, as the purchaser, is able to recover damages for the losses that flow as a result of the breach of the implied condition.
Further, or alternatively, Prestige and Sir Ronald press their related claim for damages for misleading and deceptive conduct based on the representation by Mr Kino to his selling agent Mr Mowbray that he had good title. Mr Mowbray said that, had that representation not been made to him, he would not have agreed to act for Mr Kino on the sale of the relevant stamps to Sir Ronald. I accept this to be the case.
The First and Third Defendants also found their cross-claim under the Australian Consumer Law, which is Schedule 2 to the Competition and Consumer Act 2010 (Cth) (the ‘ACL’).
I find that the First and Third Defendants have suffered loss and damage arising from a contravention of s 18 of the ACL, which the Court may remedy under s 236 of the ACL, following an election to be exercised by the First and Third Defendants as to the appropriate way to proceed before the entry of judgment.
Sir Ronald’s losses claimed consist of –
a.the sum he paid for the purchase of the Stamps if an order for delivery up to Mrs Kino is made;
b. any additional damages he is ordered to pay to Mrs Kino; and
c.the legal costs incurred by both himself and Prestige in defending the proceedings which he claims on an indemnity basis.
Prestige’s losses claimed consist of –
a. any damages it is ordered to pay to Mrs Kino; and
b.the legal costs it has incurred in defending the proceedings which it claims on an indemnity basis.
Orders
In the light of the findings made in these reasons, I will hear the parties further on the question as to the appropriate orders to be made, including orders as to:
a.the delivery up of stamps and certificates, once they have been appropriately identified and described in a schedule, which will be annexed to the Order;
b.the quantum damages which should be paid to the Plaintiff, and by which party or parties;
c.the quantum damages which should be paid to the First and Third Defendants on their cross-claim against Mr Kino, including their claims for indemnity costs; and
d. orders as to costs of the proceeding generally.
I will direct the Plaintiff to serve a copy of these reasons on Mr Kino not less than 10 days prior to the resumption of the hearing.
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