Palgo Holdings Pty Ltd v Gowans

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HIGH COURT OF AUSTRALIA

McHUGH, GUMMOW, KIRBY, HAYNE AND HEYDON JJ

PALGO HOLDINGS PTY LTD  APPELLANT

AND

KELVIN GOWANS, A PUBLIC OFFICER ON
BEHALF OF THE DIRECTOR GENERAL OF
DEPARTMENT OF FAIR TRADING  RESPONDENT

Palgo Holdings Pty Ltd v Gowans [2005] HCA 28

25 May 2005
S317/2004

ORDER

1.        Appeal allowed with costs.

2.Set aside paragraphs 3 and 4 of the orders of the Court of Appeal of the Supreme Court of New South Wales made on 25 July 2003, and in their place order:

(a)the appeal to the Court of Appeal is allowed with costs;

(b)the order of Sperling J made on 30 September 2002 is set aside and, in its place, order:

(i)       the appeal against conviction and sentence is allowed with costs; and

(ii)      the appellant's conviction and sentence by the Local Court of New South Wales at Lismore on 18 December 2001 is quashed.

On appeal from the Supreme Court of New South Wales

Representation:

L J W Aitken for the appellant (instructed by Hewlett & Company Lawyers)

M G Sexton SC, Solicitor-General for the State of New South Wales with R A Greenaway for the respondent (instructed by D I Catt, Solicitor on behalf of the Office of Fair Trading)

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

  1. McHUGH, GUMMOW, HAYNE AND HEYDON JJ.   Palgo Holdings Pty Ltd (which we refer to as "the lender") carried on business in Byron Bay, New South Wales, under the name "Cash Counters Byron".  It was charged in the Local Court of New South Wales at Lismore with carrying on, between 16 October 2000 and 1 March 2001, the business of lending money on the security of pawned goods within the meaning of the Pawnbrokers and Second-hand Dealers Act 1996 (NSW) ("the 1996 Pawnbrokers Act") whilst not being the holder of a licence under that Act.

  2. The lender was convicted in the Local Court, and fined.  Its appeal to the Supreme Court of New South Wales[1] against conviction and sentence was dismissed[2].  Its appeal to the Court of Appeal against those orders (by leave, because the appeal was instituted out of time) was dismissed[3].  By special leave the lender now appeals to this Court.

  3. The central issue debated in the courts below, and the only issue in the appeal to this Court, is whether the lender's business was the business of lending money on the security of pawned goods.  In particular, were the loans which it made to its customers loans on the security of "pawned goods"?

    The facts

  4. There was little controversy about the facts.  The lender made short‑term loans of small amounts.  Typically, the loans were for a term of seven days.  The loans were secured.  Each borrower signed a document, the…

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Details
Case
[2005] HCA 28
Decision Date

CaseChat Overview and Summary

Palgo Holdings Pty Ltd (the lender) appealed to the High Court of Australia against a decision of the Court of Appeal of New South Wales. The dispute concerned whether the lender was carrying on the business of lending money on the security of pawned goods without holding the required licence under the *Pawnbrokers and Second-hand Dealers Act 1996* (NSW). The lender made short-term, secured loans, with loan documents stipulating that title in the goods passed to the lender as security. In most cases, the goods were retained by the lender until the loan was repaid or, in the event of default, sold.

The central legal issue before the High Court was whether the transactions conducted by the lender constituted lending money on the security of "pawned goods" as defined by the *Pawnbrokers and Second-hand Dealers Act 1996* (NSW). This required the Court to consider the meaning of "pawned goods" in the context of the Act, the historical understanding of "pawn" or "pledge" in law, and whether the lender's business, which involved chattel mortgages where title passed to the lender and possession was often retained by the lender, fell within the statutory definition. The Court also considered the principles of statutory construction, including purposive and contextual approaches, and the relevance of consumer credit legislation and the possibility of sham arrangements.

The High Court allowed the appeal, quashing the lender's conviction and sentence. The Court reasoned that the *Pawnbrokers and Second-hand Dealers Act 1996* (NSW) did not define "pawned goods" in a way that encompassed the chattel mortgage arrangements employed by the lender. Historically, a pawn or pledge involves a bailment of goods as security, where possession is transferred to the lender, but title generally remains with the borrower. In contrast, the lender's transactions involved the transfer of title to the goods to the lender as security, which is characteristic of a mortgage. While the lender often retained possession, this did not alter the fundamental nature of the transaction as a mortgage rather than a pawn or pledge in the strict legal sense. The Court found that the Act's definition of a pawnbroker, which focused on advancing money "on the security of pawned goods," did not extend to these mortgage-based arrangements. The Court concluded that the transactions were not "pawned goods" within the meaning of the Act, and therefore the lender was not carrying on the business of a pawnbroker.

Orders

Orders of the court

1. Appeal allowed with costs.

2. Set aside paragraphs 3 and 4 of the orders of the Court of Appeal of the Supreme Court of New South Wales made on 25 July 2003, and in their place order:

(a) the appeal to the Court of Appeal is allowed with costs;

(b) the order of Sperling J made on 30 September 2002 is set aside and, in its place, order:

(i) the appeal against conviction and sentence is allowed with costs; and

(ii) the appellant's conviction and sentence by the Local Court of New South Wales at Lismore on 18 December 2001 is quashed.

Background

Background to the litigation

The central issue debated in the courts below, and the only issue in the appeal to this Court, is whether the lender's business was the business of lending money on the security of pawned goods. In particular, were the loans which it made to its customers loans on the security of "pawned goods"?The facts There was little controversy about the facts. The lender made short‑term loans of small amounts. Typically, the loans were for a term of seven days. The loans were secured. Each borrower signed a document, the first part of which bore the heading "Secured Loan Agreement", and the second part the heading "Bill of Sale/Goods Mortgage". The first part of the document ("the Secured Loan Agreement") recorded the amount of the loan and the date on which the principal and an agreed amount for interest were due for repayment. (In the example contained in the Appeal Book, and drawn from the evidence given at the hearing in the Local Court, the amount lent was $70 and the amount due, one week later, was $77.) The second part of the document ("the Bill of Sale/Goods Mortgage") was made as a deed between the borrower as mortgagor and the lender as mortgagee and recorded that the parties agreed "that the terms of the bill of sale are set out in the schedule of terms attached". The document identified certain goods as the "Mortgaged Property" and recorded the "Location of Goods" as being "In storage at mortgagors request". The Schedule of Terms referred to in the Bill of Sale/Goods Mortgage provided that, if the mortgaged property was situated in New South Wales (as was the case in all of the transactions the subject of evidence in the Local Court proceedings), the borrower "transfer[red] title in the Mortgaged Property to [the lender] as security for the repayment" of the balance of the loan. The Schedule of Terms contained a number of "Undertakings Regarding the Mortgaged Property", including terms requiring the borrower to "keep the Mortgaged Property in good condition and repair", "keep the Mortgaged Property in [the borrower's] possession and custody" and take out and maintain comprehensive insurance "against loss, theft, damage, accident, fire, storm, tempest and any other risk that a prudent owner would [insure] against". Despite the provision about keeping the Mortgaged Property in the borrower's possession and custody, the evidence in the Local Court suggested that in all of the cases about which evidence was given the Bill of Sale/Goods Mortgage recorded the location of the goods as being "[i]n storage at mortgagors request" and that in all except one of those cases (where a motor car was provided as security), the goods were kept by the lender. Sometimes borrowers were told that this was necessary; sometimes they assumed that it was necessary. The lender sought to explain what was done as being a means of its satisfying the borrower's obligation to insure the goods. It was said that, by the lender keeping the goods on its premises, the goods would be covered by its insurance policy. Nothing turns on whether that explanation was to be accepted. For present purposes, all that matters is that, in all but exceptional cases, goods offered as security were kept by the lender at its premises until the loan was repaid or, if the borrower defaulted and did not make good the default, the goods were sold.The issue

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

HUGH, GUMMOW, HAYNE AND HEYDON JJ KIRBY J
The Second Reading Speech for the Bill that became the 1996 Pawnbrokers Act described[32] the purpose of the Bill as being "to establish a new regulatory scheme for pawnbrokers and second‑hand dealers". Apart from referring to what was said to be "streamlined licensing of pawnbrokers and second‑hand dealers who deal in high‑risk‑of‑theft goods" the speech was silent about why a new regulatory scheme was thought necessary and about why any particular changes were thought necessary. One difference between the 1996 Pawnbrokers Act and the 1902 Pawnbrokers Act was that in the 1996 Pawnbrokers Act there was no reference in the definition of "pawnbroker" to advancing money "upon security, whether collateral or otherwise, of any article taken ... by way of pawn, pledge, or security"[33]. Instead, the definition of pawnbroker in the 1996 Pawnbrokers Act spoke only of advancing money "on the security of pawned goods"[34].[32]New South Wales, Legislative Assembly, Parliamentary Debates (Hansard), 24 April 1996 at 438.[33]Pawnbrokers Act 1902 (NSW), s 3 (emphasis added).[34]s 3 (emphasis added).The decisions below Neither Sperling J, who decided the appeal from the Local Court to the Supreme Court, nor the Court of Appeal expressly attached significance to this or any other difference between the 1902 Pawnbrokers Act and the 1996 Pawnbrokers Act. Rather, Sperling J, having first recognised that pawn or pledge and mortgage are distinct[35], concluded[36] that there was no legal reason why a transaction could not be both a mortgage and a pawnbroking transaction. Otherwise, he concluded[37], "ordinary pawnbroking transactions could be removed from the purview of the Act at the stroke of the pen, which cannot have been intended".[35][2002] NSWSC 894 at [33]‑[36].[36][2002] NSWSC 894 at [37].[37][2002] NSWSC 894 at [38]. In the Court of Appeal, Hodgson JA, who gave the principal reasons of the Court, said[38] that "the mere circumstance that the [appellant] had a document which gave it rights as a mortgagee [was] not sufficient to prevent these transactions being fairly described as pledges or pawns". It appears that his Honour was intending to use the words "pledges or pawns" in their accepted legal meaning. So much follows from what Hodgson JA described[39] as "another approach that can be taken" to the matter. He said[40]:"The statute refers to 'the business of lending money on the security of pawned goods'. Where the [appellant] carried on business in the fashion of a pawnbroker, receiving possession of goods in circumstances where the intention of both parties was plainly that possession be retained until the loan was repaid and that the [appellant] could sell in the event of default, the goods in question are fairly described as 'pawned goods' even if, on a technical legal analysis, they were subject to a mortgage contract and the transactions were not pledges or pawns strictly so called. If I were wrong to say that the transactions were pledges or pawns strictly so called, I would have accepted that alternative argument." (emphasis added)Handley JA, who agreed with Hodgson JA, gave some additional reasons and the third member of the Court, Beazley JA, agreed with both Handley JA and Hodgson JA. Handley JA said[41] that if a mortgage of personal chattels which are in the mortgagee's possession "has all the rights of a pledgee plus the additional rights conferred by his mortgage, including the general property in the goods, then the transaction can fairly and properly be characterised as a combined pledge and mortgage".[38][2003] NSWCA 204 at [34].[39][2003] NSWCA 204 at [37].[40][2003] NSWCA 204 at [37].[41][2003] NSWCA 204 at [7].A "combined pledge and mortgage" or "pledges or pawns" that include "mortgages"?

Ratio Decidendi

Legal Principle Established

Established by: HUGH, GUMMOW, HAYNE AND HEYDON JJ, KIRBY J

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