Lelato Pty Ltd v Halse Holdings Pty Ltd
[2004] WASC 267
LELATO PTY LTD -v- HALSE HOLDINGS PTY LTD [2004] WASC 267
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASC 267 | |
| Case No: | CIV:1594/2004 | 2 DECEMBER 2004 | |
| Coram: | MASTER NEWNES | 16/12/04 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Application for summary judgment dismissed | ||
| B | |||
| PDF Version |
| Parties: | LELATO PTY LTD (ACN 001 785 271) HALSE HOLDINGS PTY LTD (ACN 009 392 607) |
Catchwords: | Practice and procedure Application for summary judgment by defendant Goods subject to hirepurchase agreement between plaintiff as owner and former owner as hirer Sale by hirer to defendant Whether defendant has good title Whether s 25 of Sale of Goods Act applies Turns on own facts |
Legislation: | Rules of the Supreme Court 1971 (WA), O 16 Sale of Goods Act 1895 (WA), s 25 |
Case References: | Associated Midland Corp v Sanderson Motors Pty Ltd [1983] 3 NSWLR 395 Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 Janesich v Attenborough & Son (1910) 102 LT 605 Jones v Gordon (1877) 2 App Cas 616 Oppenheimer v Frazer and Wyatt [1907] 2 KB 50 Pacific Motor Auctions v Motor Credits (Hire Finance) Ltd (1965) 112 CLR 192 Re Gomersall [1875] 1 Ch D 137 Bishops Gate Motor Finance Corporation v Transport Brakes Ltd [1949] 1 KB 322 Gamer's Motor Centre Pty Ltd v Natwest (1987) 163 CLR 236 Mercantile Credits Ltd v FC Upton & Sons (1974) 48 ALJR 301 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
HALSE HOLDINGS PTY LTD (ACN 009 392 607)
Defendant
Catchwords:
Practice and procedure - Application for summary judgment by defendant - Goods subject to hirepurchase agreement between plaintiff as owner and former owner as hirer - Sale by hirer to defendant - Whether defendant has good title - Whether s 25 of Sale of Goods Act applies - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA), O 16
Sale of Goods Act 1895 (WA), s 25
Result:
Application for summary judgment dismissed
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Category: B
Representation:
Counsel:
Plaintiff : Mr G R Donaldson SC
Defendant : Mr S J Penrose
Solicitors:
Plaintiff : Talbot & Olivier
Defendant : Tottle Partners
Case(s) referred to in judgment(s):
Associated Midland Corp v Sanderson Motors Pty Ltd [1983] 3 NSWLR 395
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Janesich v Attenborough & Son (1910) 102 LT 605
Jones v Gordon (1877) 2 App Cas 616
Oppenheimer v Frazer and Wyatt [1907] 2 KB 50
Pacific Motor Auctions v Motor Credits (Hire Finance) Ltd (1965) 112 CLR 192
Re Gomersall [1875] 1 Ch D 137
Case(s) also cited:
Bishops Gate Motor Finance Corporation v Transport Brakes Ltd [1949] 1 KB 322
Gamer's Motor Centre Pty Ltd v Natwest (1987) 163 CLR 236
Mercantile Credits Ltd v FC Upton & Sons (1974) 48 ALJR 301
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1 MASTER NEWNES: This is an application by the defendant for summary judgment under O 16 of the Rules of the Supreme Court1971 (WA), or alternatively, to strike out parts of the statement of claim on the basis that they are embarrassing or do not disclose any reasonable cause of action.
2 In the action, the plaintiff claims that it is the owner of two paintings that were the subject of hire-purchase agreements between the plaintiff, as owner, and Shadforth House Pty Ltd, a company controlled by Mr Rohan Skea, as hirer. The paintings are now in the possession of the defendant which has refused to give them up. The plaintiff claims that the defendant has therefore converted them to its own use. The defendant says it acquired the paintings from Mr Skea as a bona fide purchaser for value without notice and therefore has good title to them.
3 The essential facts giving rise to the dispute are not in issue.
4 The painting "Mining Scene" by Arthur Boyd was purchased by Mr Skea from Primeway Investments Pty Ltd, trading as Greggs & Flannagan Fine Art Auctioneers ("Flannagans") in September 1996. It was delivered by Flannagans to Mr Skea's office at 28 The Esplanade, Perth. Mr Skea purchased the painting "The Open Cut Mine" by Sali Herman from Flannagans in about November 2001 and it was delivered to Mr Skea's house in Peppermint Grove.
5 In about the middle of 2002, Mr Skea told Mr Flannagan that he wished to "finance", among others, the two paintings and requested Mr Flannagan to prepare invoices for them addressed to the plaintiff. Mr Flannagan satisfied himself that the prices suggested by Mr Skea were consistent with market values and then prepared an invoice on Flannagan's letterhead for each painting. The invoices were addressed to the plaintiff and in each case bore a notation that the paintings were for delivery to Shadforth House Pty Ltd, as trustee for the Skea Family No 2 Trust, at a Peppermint Grove address. Mr Flannagan gave the invoices to Mr Skea. The intention apparently was that, as on previous occasions, once the funds were paid to Flannagans they would be paid by Flannagans to Mr Skea.
6 Mr Skea subsequently told Mr Flannagan that he had decided against financing the paintings and had discarded the invoices. In fact, that was untrue. The invoice in respect of "The Open Cut Mine" was submitted by Mr Skea, through a finance broker, to the plaintiff on 1 July 2002 and on 9 July 2002 the plaintiff entered into a hire-purchase agreement with
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- Shadforth House Pty Ltd in respect of the painting. On 26 August 2002, the invoice in respect of "Mining Scene" was submitted by Mr Skea, through the same finance broker, to the plaintiff which, on 29 August 2002, entered into a hire-purchase agreement with Shadforth House Pty Ltd in respect of that painting. The plaintiff says that cheques payable to Flannagans for the purchase price of each painting were collected by the finance broker. The evidence does not disclose what ultimately happened to the funds. The paintings remained throughout in the possession of Mr Skea.
7 In early March 2004, Mr Skea told Mr Flannagan that he wanted to raise $1,000,000 on a short-term basis to finance a property deal in Adelaide. He asked Mr Flannagan to find someone prepared to lend the money for 60 days with security over a parcel of Mr Skea's paintings. The parcel of paintings included "The Open Cut mine" and "Mining Scene". Mr Skea told Mr Flannagan that the project in Adelaide would be refinanced in 60 days and the money would then be repaid.
8 Following discussions between Mr Flannagan and Mr Halse, on behalf of the defendant, Mr Halse said he would not be involved as a lender, but he would be prepared to buy the artwork with an option for Mr Skea to repurchase the paintings within 60 days for the original purchase price, plus a margin and GST. Mr Skea requested that he retain possession of the paintings during the option period, but Mr Halse was emphatic that the defendant, through Mr Flannagan, have possession of the paintings and that it obtain possession before any money was paid to Mr Skea. Mr Halse also required a warranty from Mr Skea to the effect that Mr Skea had unencumbered title to the paintings.
9 The terms of a call option agreement were then negotiated. By the close of business on 9 March 2004 the terms of the agreement were settled. The call option provided that for an option fee of $1.00 the defendant granted Mr Skea an option to repurchase the paintings for the sum of $1,100,000 (plus GST, if applicable) within a period of 60 days from the execution of the call option.
10 The paintings were brought to Mr Flannagan's premises on either 9 or 10 March 2004. Mr Flannagan and Mr Skea collected "Mining Scene" from Mr Skea's office at 28 The Esplanade, Perth and Mr Flannagan's staff collected "The Open Cut Mine" from Mr Skea's home in Peppermint Grove. It appears the paintings had been at those locations continuously since 1996 and late 2001 respectively, when they were first purchased by Mr Skea.
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11 It had been agreed between Mr Halse and Mr Flannagan that once the paintings had been paid for Mr Flannagan would hold them on behalf of the defendant. Mr Skea provided invoices dated 9 March 2004 for the sale to the defendant of the paintings for the total sum of $1,000,000 and signed a warranty indorsed on each of the invoices to the effect that he had unencumbered title to the paintings.
12 Settlement of the sale took place on 10 March 2004, after Mr Halse had inspected the paintings at Mr Flannagan's premises and confirmed that Mr Flannagan would hold them on the defendant's behalf. It seems that on that day Mr Skea was interstate. The purchase price of $1,000,000 was paid by the defendant on the afternoon of 10 March 2004, the sum of $900,000 being paid to another company associated with Mr Skea, Showtrax International Pty Ltd, the sum of $50,000 to Flannagans and, notionally, the sum of $50,000 to the defendant as its fee.
13 Mr Halse says that, while he did not know Mr Skea personally, he knew of Mr Skea both in the business community and as a lawyer, and he had no reason to doubt his bona fides and the warranties he gave to the defendant in respect of the paintings.
14 On this application, the defendant contends that the plaintiff has no arguable claim to the paintings. The principles to be applied on an application of this sort are well known and it is necessary to say no more than that the defendant must establish that it has a good defence to the plaintiff's claim and that the plaintiff's claim cannot succeed. The power to order summary judgment, however, must be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99.
15 It was not in issue that, at the time of the sale of the paintings to the defendant, Skea was not the legal owner of them. The paintings had been acquired by the plaintiff from Mr Skea in 2002 in the circumstances I have described.
16 It was submitted on behalf of the defendant that it acquired its title to the paintings by virtue of the effect of s 25 of the Sale of Goods Act 1895 (WA). That provision relevantly provides:
"25. Seller or buyer in possession after sale
(1) Where a person having sold goods continues or is in possession of the goods … the delivery or
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- transfer by that person, or by a mercantile agent acting for him, of the goods … under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of the previous sale, shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.
- (2) …
(3) In this section the term 'mercantile agent' shall mean a mercantile agent having in the customary course of his business as such agent authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods."
17 In Pacific Motor Auctions v Motor Credits (Hire Finance) Ltd (1965) 112 CLR 192 at 202 - 205, the Privy Council noted that the object of s 25 is to protect an innocent purchaser who is deceived by the vendor's physical possession of goods and who is unaware of legal rights which fetter the vendor's apparent power to dispose of them. It applies where a vendor retains uninterrupted possession of goods and during the period of possession arrangements have been made by which the vendor's ownership is replaced by a bailment.
18 For the purposes of s 25, a person "continues in possession" of goods where they remain in that person's physical possession, regardless of any private transactions on the part of that person which might alter the legal title under which possession was held. Accordingly, where a person sells goods to a financier in order to take them back on hire-purchase, the financier must take physical possession of the goods if it is to avoid the risk of an innocent purchaser acquiring title to them.
19 The defendant says that from the time of their original purchase by Mr Skea to the time of their sale to the defendant the paintings had remained in Mr Skea's possession - indeed they had remained throughout in precisely the same locations. Flannagans was a mercantile agent and the delivery of the paintings by it to the defendant under the sale agreement with Mr Skea fell within s 25(1) of the Act. The defendant says that it acquired the paintings in good faith without notice of the plaintiff's title and therefore has good title to the paintings.
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20 The plaintiff relied essentially on two matters which it says give rise to arguable issues. First, it says that the issue of whether the defendant purchased the paintings in good faith is not a matter that can be resolved in summary proceedings. Secondly, it says that Mr Skea was not in possession of the paintings at the time the defendant took delivery of them. The goods were in the possession of Flannagans at that time. Accordingly, s 25 does not apply.
21 The onus of proving good faith lies upon the party putting forward the defence under s 25: Oppenheimer v Frazer and Wyatt [1907] 2 KB 50 at 62; Heap v Motorists Advisory Agency Ltd [1923] 1 KB 577. It would appear to be accepted that "good faith" means "honestly" and that a want of care or negligence would not of itself establish a lack of good faith: Re Gomersall [1875] 1 Ch D 137 at 146. However, while negligence would not of itself establish a lack of good faith, a lack of reasonable care when coupled with other facts might lead to an inference that the purchaser was suspicious and refrained from enquiring for fear of learning of an irregularity: Jones v Gordon (1877) 2 App Cas 616; Associated Midland Corp v Sanderson Motors Pty Ltd [1983] 3 NSWLR 395 at 401-2. Thus, for example, it has been held that proof that goods were purchased at much less than their ordinary price is evidence of a lack of good faith: Heap v Motorists Advisory Agency Ltd (supra). Similarly, it has been suggested that an unusually high rate of interest charged on a pledge may be evidence of a lack of good faith on the part of the pledgee: Janesich v Attenborough & Son (1910) 102 LT 605.
22 It was submitted on behalf of the plaintiff that this was on its face an unusual transaction. The defendant was approached to lend the $1,000,000 on the basis of a short term financing transaction of two months duration. The defendant declined that proposal but for some reason was nevertheless prepared to purchase the paintings for that amount, with a call option being granted to Mr Skea to reacquire them within 60 days for the sum of $1,100,000. Mr Skea expressly agreed that payment of the purchase price of $1,000,000 by the defendant would be satisfied by payment of the sum of $900,000 to Showtrax, $50,000 to Flannagans and $50,000 to the defendant. As the option period was two months and the amount of the transaction was $1,000,000, in practical terms that was equivalent to an interest rate payable to the defendant of 30 per cent per annum. There was, in addition, a $50,000 fee paid to Flannagans.
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23 The plaintiff argued that in the circumstances it should not be deprived of the opportunity to test the claim of good faith on the part of the defendant at trial.
24 It was submitted on behalf of the defendant that whether or not it was an unusual transaction was beside the point. There was no evidence that suggested other than that the defendant had acted in good faith. It was not a financing transaction so it was artificial to treat it as such and to regard the option fee as interest in order to found a contention that it amounted to an unusually high interest rate. The fee has to be viewed against the fact that the defendant did not have a put option so that if Mr Skea did not reacquire the paintings the defendant would be left with them.
25 In my view, the plaintiff ought not to be denied the opportunity of putting the defendant to proof of its claim of good faith and testing that claim at trial. The relevant facts necessary to establish this element of the defendant's defence are matters solely within the knowledge of the defendant. Moreover, the transaction does have some apparently unusual features about it. The affidavit evidence of the defendant does not explain why it refused to advance the money on the security of the paintings but was prepared to purchase them for the same amount and offer a call option to Mr Skea. It appears the intended practical effect remained that of a financing transaction. The defendant required, and was paid, a substantial fee. Flannagans were paid a similar fee.
26 It is evident that there may be a number of possible explanations, consistent with good faith on its part, for the defendant requiring that the transaction be structured in that way. But, on balance, I consider that in the circumstances the plaintiff should have the opportunity to explore at a trial of the action whether in fact the structure of the transaction reflected concerns about title.
27 It was also submitted on behalf of the plaintiff, first, that the evidence fell short of establishing that Flannagans was a "mercantile agent" within the meaning of the Act, and secondly, that at the time of the actual delivery or transfer of the paintings to the defendant, upon the expiration of the option period, they were held by Flannagans, not as agent for Mr Skea, but as agent for the defendant. Senior Counsel for the plaintiff referred to the statement in Mr Flannagan's affidavit that Mr Flannagan had agreed with Mr Halse that once the paintings were paid for by the defendant Flannagans would hold them on behalf of Mr Halse. Senior Counsel for the plaintiff said, and I did not understand it to be contested, that the paintings were not delivered into the actual possession
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- of the defendant until after the option period had expired; that is some two months after the sale agreement. It was argued that, accordingly, for the purposes of s 25 of the Act, at the time of their delivery or transfer to the defendant the paintings were not in the possession of Mr Skea, but in the possession of Flannagans as the agent of the defendant.
28 I should say that there seems to me sufficient in the evidence to establish that Flannagans was at the material time a mercantile agent. I should also say that I am not persuaded that the defence under s 25 fails because from the time of the sale to the defendant until the expiration of the option period the paintings were in the physical custody of Flannagans as agent for the defendant. However, in view of the conclusion I have reached on the first ground relied on by the plaintiff in opposition to this application, it is unnecessary for me to reach a final view on these matters.
29 I would dismiss the application for judgment. The alternative application to strike out the amended statement of claim, or parts of it, was not argued at the hearing and I understood that the plaintiff intended to make further amendments to the amended statement of claim. I will leave it to the defendant to relist the strike out application if it seeks to pursue it.
2