Palgo Holding Pty Ltd v Gowans

[2004] HCATrans 280

[2004] HCATrans 280

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S472 of 2003

B e t w e e n -

PALGO HOLDING PTY LIMITED T/AS CASH COUNTERS BYRON

Applicant

and

KELVIN GOWANS A PUBLIC OFFICER ON BEHALF OF DIRECTOR‑GENERAL OF DEPARTMENT OF FAIR TRADING

Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 6 AUGUST 2004, AT 11.54 AM

Copyright in the High Court of Australia

__________________

MR L.J.W. AITKEN:   May it please your Honour, I appear for the applicant.  (instructed by Hewlett & Company Lawyers)

MR M.G. SEXTON, SC, Solicitor‑General for the State of New South Wales:   If the Court pleases, I appear with my learned friend, MR R. GREENAWAY, for the respondent.  (instructed by D.I. Catt, Solicitor)

GUMMOW J:   Yes, Mr Aitken.

MR AITKEN:   Thank you, your Honours.  Your Honours will have a flavour of the case in terms of the issue which we seek to ventilate before the High Court, which concerns whether or not the Court of Appeal was correct in deciding that a transaction could be both a contract of bailment by way of a pawn of certain goods, and simultaneously a chattel mortgage.  We simply say that the conflating of those ‑ ‑ ‑

GUMMOW J:   There seem to be some decisions.  They were not referred to, unfortunately.

MR AITKEN:   Below?  That is correct, your Honours.

GUMMOW J:   Yes.  One is the decision of Justice Ormiston in ANZ Banking Group [1992] 2 VR 647. Another is a decision of Justice Kearney in Vital Learning [1979] 2 NSWLR 442.

MR AITKEN:   Yes, your Honour.

GUMMOW J:   They may favour you on one view.

MR AITKEN:   I think those cases do favour me.  I think Justice Ormiston’s decision in the Court of Appeal was looking at the situation, as I remember it, in relation to brokers and whether or not it was possible to have a rolling bailment, as it were, over certain securities.  I am not sure that is quite our case.  Your Honours will appreciate from the facts here that we are dealing with a simple transfer of possession of chattels which we say, and the learned magistrate found, and Justice Sperling found, had occurred pursuant to a chattel mortgage which was entered between the parties, and importantly, of course, there was no element of sham involved in that transaction. 

Therefore, we simply say as soon as we find that there is no question of the proper legal efficacy of the transaction by way of a chattel mortgage, that is the end of the matter because the two categories are mutually exclusive.  In other words, you cannot have - if it is a chattel mortgage in which title actually passes to the mortgagee ‑ ‑ ‑

GUMMOW J:   A lot of these older cases turn on the Bills of Sale legislation.  Sometimes it is picked up by the companies legislation.

MR AITKEN:   Yes, and none the worse for that though, your Honour, the older cases.  We found, as we did below, on Lord Justice Cotton’s decision - Hubbard’s Case and also, of course, the more recent reaffirmation of that by Lord Millett, as he was, in Cosslett’s Case, both of which your Honours would be familiar with.  So the Court of Appeal, as it were, if one goes to the reason, with all due respect to Justice Hodgson, tries to elide the matters – if one looks at pages 42 and 43 in the appeal papers.

GUMMOW J:   What do you say about paragraph 37?

MR AITKEN:   Of his judgment?

GUMMOW J:   Which is – yes, on page 43.  It is a backup position.

MR AITKEN:   Well, that, as it were, is reasoning backwards.  One needs to start with the simple legal elements of the particular transaction.  If we have a mortgage, of course, as a matter…..law, we have a transfer of the title to the mortgagee with either an express or implied redemption.  Of course, with respect to old system title, as your Honour would well recall, but for the clause of defeasance in the old system mortgage the mortgagee was entitled, in New South Wales as in England, to enter into possession of the land immediately.  The same thing must apply in relation to chattels.

So what has happened here, with respect, is that Justice Hodgson has reasoned backwards at paragraph 37, noting that because we have possession, therefore, in some way which is a little bit difficult to describe with all due respect to his Honour, it bears an amphibolous characterisation.  It is both a contract of bailment by way of pawn and a chattel mortgage ‑ ‑ ‑

GUMMOW J:   One thing you may have somewhat in your favour is this legislation imposes criminal liabilities, does it not?

MR AITKEN:   Indeed it does, and we were subject to quite an important sanction in terms of being fined, I think something in the amount of $11,000.  So it needs to be strictly construed.  Part of the problem arises, I think, as your Honours would have no doubt detected, is that there is no express definition in the pawnbrokers legislation of a contract of pawn or security of pawned goods.

GUMMOW J:   I was going to ask you about that.  Does that carry over a definition from the 1902 Pawnbrokers Act?

MR AITKEN:   I cannot tell your Honour immediately, but I think it does.  Yes, I do not think there has been any definition at all.  I did look back ‑ ‑ ‑

GUMMOW J:   It looks very old-fashioned legislation.

MR AITKEN:   It is, yes, and it is designed, of course, to regulate money lending on security of chattels.  But we say that once the court found, as Justice Sperling did, squarely in our favour there was no sham involved, that we structured the transaction as we were entitled to in a particular way and that is the end of the matter.  We must be successful.

GUMMOW J:   What has happened in New South Wales to the Bills of Sale legislation?

MR AITKEN:   That is still on foot, and with respect to Traders Bills under the 1937 amendment there is now a complicated regime under section 5C, which provides all sorts of extra protections if you are a trader.  But that is not something really which arises on this case, as we would understand it.

GUMMOW J:   No, I understand that.

MR AITKEN:   Your Honours will recall of course the Bills of Sale legislation ‑ ‑ ‑

GUMMOW J:   Would a pawning activity be caught by the Bills of Sale legislation?

MR AITKEN:   Not if it is structured as a chattel mortgage, no.  We simply say it is a question of visitorial jurisdiction of the court in a sense.  Justice Handley – well, Justices Handley and Hodgson have erred, and one could perhaps understand why they wished to do so, but they have reasoned backward from the fact that possession was handed over.  We say that is neither here nor there.  What should have happened in the sense of my friend is that – well, I will not say what should have happened.  There are other ways the matter could have been resolved but it simply was not as a matter of fact.

So if your Honours were with us on that we would respectfully submit we should get leave and the matter would take, we would submit,

perhaps an hour to argue because one would look at the cases and the Court would – and also, of course, there is a danger in terms of allowing this decision to remain on the books.  It will find its way, of course, into the security reports and all sorts of other reports in the sense that the range of remedies available to a bailee and a mortgagee are not co‑extensive.

It may well be that although in this case there may be some mischief perceived in relation to, as it were, striking down a perceived contract of pawn, if, in fact, transactions are struck the other way – for example, suppose you enter a bailment rather than a chattel mortgage over an expensive motor car, it may be you do not have to account for nearly so much in terms of the sale of the motor car as the bailee rather than the mortgagee in terms of any trust which may arise impliedly when you sell.  Equally in terms of getting a fair price for the matter, to think back to Donald v Suckling and those classical cases is a difficulty.

So although no doubt in this case one thinks, “Oh well, this is a matter which a mischief’s designed to attract in terms of being pawned”, if one structures the transaction the other way there is no doubt, as astute minds quickly will, you might go along and lease a very expensive chattel; a Mercedes or a Porsche or some motor car, which happens every day, of course, and then you would structure it as a bailment, in terms of Justice Ormiston a rolling bailment, and then, of course, you might find you might have borrowed 10 or $15,000 in terms of that and then find that the car is sold from under you with the happy, or unhappy, consequence the bailee does not need to account for the balance.  Now, that would be an unattractive proposition.

So if the case is allowed to remain there is a danger that greater minds than mine will focus on the legal technicalities of it and then be able to say, “Well, we’ll run it this way and we’ll reap a large benefit from it”.  I do not think I can help your Honours any further.  The point is a very straightforward one, very simple one.  We are exposed to criminal sanction and we say this is an appropriate vehicle.  The facts are almost as if it were in a test tube.  If it please, your Honour.

GUMMOW J:   Yes, Mr Solicitor.

MR SEXTON:   If the Court pleases.  Your Honours, we say that the Court of Appeal and Justice Sperling were right in their findings that these categories were not mutually exclusive.  It is to be noted in this case ‑ ‑ ‑

GUMMOW J:   It is a conceptual conundrum, I think, maybe, when they say they are not mutually exclusive.

MR SEXTON:   In the sense, your Honour, that in this case here, this transaction, we would say, contained the essential elements of a pawn on a pledge.  It may fit into other categories as well but it only has to fit into that category for the purposes of the licensing requirement in the legislation.  Although Justice Sperling did not find that the transaction overall was a sham, he found that the reason for the transfer of possession, as it was set out in the agreement, was a sham, in other words.

GUMMOW J:   Where did he say that?

MR SEXTON:   It is at page 23 of the application book, your Honour, and it is paragraph 42 of Justice Sperling’s judgment.  There was a standard formula in the agreement that the goods were stored by the applicant at the request of the person making the pawn or the pledge. 

GUMMOW J:   I thought there was some other finding that there was no sham.

MR SEXTON:   In terms of the transaction as a whole, that is right. 

GUMMOW J:   I am not sure what sense his Honour is using the word “sham”.  A sham is something where a transaction has a particular legal form in which it has been passed but the parties do not intend that.  That is how Lord Diplock expressed it ‑ ‑ ‑

MR SEXTON:   What his Honour was saying was that the reason that was put forward in the standard agreement for the possession being transferred to the applicant was not real reason, that, in fact, he took possession because it was essentially a pawn or a pledge but this reason was put in the document to try and avoid that conclusion.  That was his Honour’s finding.  So that in those circumstances, your Honours, it is our submission that once this transaction meets the elements, contains the elements of a pawn or a pledge, and ‑ ‑ ‑

GUMMOW J:   That is a question, I suppose.  Did they not say in the Court of Appeal that it was a novel question?

HEYDON J:   Page 43, paragraph 39.  The question is:  is it a novel question?  The first line of paragraph 39 says it is “a question not directly the subject of authority”.

MR SEXTON:   It is not squarely addressed by any authority, your Honour.  Your Honours, the question that ‑ ‑ ‑

GUMMOW J:   Do we know whether the legislation in any other States replicates the New South Wales statute?

MR SEXTON:   I do not know the answer.  I think all States have licensing requirements and I am assuming that they use the same terminology, the pawnbroking legislation, which your Honour pointed out, has not changed much over the years.

GUMMOW J:   Yes.

MR SEXTON:   The legislation, of course, is in a sense the licensing requirement designed to deal with the problem that this has been an area where, very often, stolen goods have been put into this system, which is really why Bills of Sale legislation is in a different category, in our submission.  Your Honour, I am not sure that I can take the matter any further than that.  Those are our submissions. 

GUMMOW J:   Yes, thank you Mr Sexton.  Yes, Mr Aitken.  What do you say about this finding of Justice Sperling as to using the word “sham” as his Honour did?

MR AITKEN:   That particular finding, your Honour, was rather hard to reconcile, with all due respect, to his Honour with his overall finding and, in fact, it was a valid chattel mortgage.

GUMMOW J:   Where does the overall finding appear?

MR AITKEN:   The overall finding, your Honour, appears starting at page 21 and then over to paragraph 37 at page 22:

the present case, however, is not whether these transactions were mortgages.  Plainly, they were.  The question is whether they were pawnbroking transactions.  It does not seem to me that there is any legal reason why they cannot have been both.

That is, with respect, incorrect.

GUMMOW J:   It is a question, really.

MR AITKEN:   It is.  They cannot be both because the whole concept of a mortgage involves the conveyance away, without getting too much into the old terminology, of the legal title which his Honour found occurred here.  There is no question of any sham here.  The question of a bailment, which is the essential element of the pawn, involves a special property, whatever that rather Delphic concept means, being given to the bailee.  So if you have given away the entire title there is no room for any special property to be given away.  That is the end of the matter, and as your Honour said, the subject of quite serious criminal sanction and no doubt will have a big impact on a business.

Now, I really do not need to say any more than that.  That is the problem.  I do not whether there is any other area which I can usefully address your Honour on and although it is a matter free from authority in one sense, the present decision of the Court of Appeal goes totally against all the classical decisions of Lord Justice Bowen, Lord Justice Cotton who one assumes would have known a huge amount about the matter in 1886 and 1885.  That is the real point in rolling forward and we drew the attention of the Court of Appeal to those matters. 

The real problem is the Court of Appeal’s argument involves a conflation of two entirely distinct categories of security.  Lord Millett points out that in Cosslett’s Case the ‑ ‑ ‑

GUMMOW J:   What is the context in which Lord Millett was doing that?

MR AITKEN:   He was doing it in relation to a ‑ ‑ ‑

GUMMOW J:   In the Cosslett Case.

MR AITKEN:   It was something to do with a charge over a piece of earthmoving equipment, your Honour.

GUMMOW J:   What was the legislative context?

MR AITKEN:   To do with the companies charge legislation, I believe.

GUMMOW J:   Yes.

MR AITKEN:   But, of course, if the Court of Appeal is correct then Halsbury and all the other authorities will need to be amended.  We will need to add a fifth category to Cosslett if one looks at what Lord Millett said, which will be rather hard to define, which will be, if one looks at page 40 in the appeal papers, your Honour sees just a little gobbet which I extracted.  There are only four kinds of security.  Lord Justice Cotton tells us they are all exclusive.  Well, we will have to add a fifth one.  The fifth one will be – I do not know how it will be described.  It will be something which is both simultaneously a ‑ ‑ ‑

GUMMOW J:   Do not say it cannot be defined.

MR AITKEN:   Simultaneously a mortgage and a pledge. 

HEYDON J:   Justice Handley seems to say what are pawned goods, those goods in the statute which have X characteristics of pawned goods, these goods have all those characteristics but they have something else as well.  That something else does not stop them from having the characteristics of pawned goods.  He is not really saying that it is both a pawn and a mortgage.

MR AITKEN:   He must be saying that, with respect, your Honour.  He is saying it was a pawn.  It has all the muniments of a pawn over here and, by the way, Justice Sperling has found it is a valid chattel.  The two things just cannot meet.  If one looks at it basically, as I have already said but, with respect, I will repeat it, the contract of bailment involves giving possession of the glasses to the Solicitor-General and he gets a special property in them.  If I give him a mortgage he gets the entire legal title to them immediately. 

GUMMOW J:   I am not sure his Honour was correct in saying what he did. 

MR AITKEN:   With respect to which aspect, your Honour?  No, he is not correct, that is the entire point of our appeal.  Of course, we are labouring under a fairly severe criminal sanction and other sanctions, no doubt, in due course. 

GUMMOW J:   Very well.  Mr Solicitor, do you agree that it would be a half‑day case, if we granted leave?

MR SEXTON:   It would be short, I think, your Honour, yes.

GUMMOW J:   Do you agree with that, Mr Aitken. 

MR AITKEN:   I do, your Honour.

GUMMOW J:   I know you think it is as plain as a pikestaff.  Other minds might find more subtlety. 

Yes, there will be a grant of special leave in this matter.

AT 12.12 PM THE MATTER WAS CONCLUDED