Paul Cook as Trustee of the Bankruptcy Estate of Imre Nagy v Capital Finance Australia Limited
[2004] FCA 784
•22 JUNE 2004
FEDERAL COURT OF AUSTRALIA
Paul Cook as Trustee of the Bankruptcy Estate of Imre Nagy v Capital Finance Australia Limited [2004] FCA 784
BILLS OF SALE – bill of sale over motor vehicle – bill of sale not registered under Bills of Sale Act 1900 (Tas) – whether bill of sale void for non-registration – bill of sale a “credit contract” under Credit Code (Tasmania) – inconsistency between Code and Act – debtor required to give 30 days notice before possession under Code – whether s 5(1) of the Act should be read so to render bill of sale void for non-registration
Bills of Sale Act 1900 (Tas) ss 4A, 5(1)
Bankruptcy Act 1966 (Cth) s 58(1)(a)
Consumer Credit (Tasmania) Code 1996 s 80(2)Helicopter Sales Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1 at 11-12 cited
R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598 at 616 appliedPAUL JOHN COOK as Trustee of the BANKRUPT ESTATE OF IMRE NAGY v CAPITAL FINANCE AUSTRALIA
NO. T15 OF 2004HEEREY J
22 JUNE 2004
MELBOURNE (HEARD IN HOBART)
IN THE FEDERAL COURT OF AUSTRALIA
TASMANIAN DISTRICT REGISTRY
T15 OF 2004
BETWEEN:
PAUL JOHN COOK as Trustee of the BANKRUPT ESTATE OF IMRE NAGY
APPLICANTAND:
CAPITAL FINANCE AUSTRALIA
RESPONDENTJUDGE:
HEEREY J
DATE OF ORDER:
22 JUNE 2004
WHERE MADE:
MELBOURNE (HEARD IN HOBART)
THE COURT ORDERS THAT:
1.(a) The Mitsubishi Pajero vehicle registration number EE1514 is not the subject of a valid bill of sale held by the respondent by reason of non-compliance with the registration requirements of s 5(1) of the Bills of Sale Act 1900 (Tas).
(b) Pursuant to section 58(1) of the Bankruptcy Act 1966 (Cth) the vehicle vest in the bankrupt estates of Imre and Nyette Nagy.
2.The respondent pay the applicant’s costs of this application.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
TASMANIAN DISTRICT REGISTRY
T15 OF 2004
BETWEEN:
PAUL JOHN COOK as Trustee of the BANKRUPT ESTATE OF IMRE NAGY
APPLICANTAND:
CAPITAL FINANCE AUSTRALIA
RESPONDENT
JUDGE:
HEEREY J
DATE:
22 JUNE 2004
PLACE:
MELBOURNE (HEARD IN HOBART)
REASONS FOR JUDGMENT
The applicant is the trustee of the estates of Imre Nagy and Nyette Nagy who became bankrupt upon the presentation of their debtors’ petition on 6 May 2002.
At the date of commencement of the bankruptcy the bankrupts were in possession of a Mitsubishi motor vehicle (the vehicle) with an estimated value of $26,000.
The bankrupts’ statement of affairs disclosed a debt of $33,354 owing to Capital Finance Australia Limited (Capital) secured by a bill of sale dated 22 February 2001 (the Bill of Sale) over the vehicle.
The Bill of Sale has not been registered under the Bills of Sale Act 1900 (Tas) (the Act).
By his application as amended, which has been transferred from the Federal Magistrates Court, the trustee seeks orders that the Bill of Sale is null and void pursuant to s 5(1) of the Act and that the vehicle has vested in the estates pursuant to s 58(1)(a) of the Bankruptcy Act 1966 (Cth).
Section 5(1) of the Act relevantly provides:
“5. (1)…, every bill of sale of personal chattels made after the commencement of this Act, whether absolute or conditional, and whether subject or not to any trusts, and whereby the grantee or holder thereof shall have power at any time after the expiration of 14 days following the service by him of a notice on the grantor informing him that the grantee intends to do so, to seize or take possession of the personal chattels comprised in or made subject to such bill of sale, shall be registered under this Act with the Commissioner [for Corporate Affairs] within 21 days after the making or giving of such bill of sale, or within such further time as shall be allowed as hereinafter mentioned; otherwise such bill of sale shall be null and void to all intents and purposes whatsoever, so far as respects the personal chattels comprised in such bill of sale.” (Emphasis added)
The words emphasised were inserted by the Bills of Sale Amendment Act 1987 (Tas) (the 1987 amendment) in place of the words “either with or without notice, and either immediately after the making of such bill of sale or at any future time.”
Section 41 of the Act provides for a number of covenants which may be implied in any bill of sale. The opening words of the section read as follows:
41. In addition to the covenants implied under section 40, there shall be implied in every bill of sale by way of security the following covenants, provisos, agreements, and powers, or such of them as are applicable thereto, and such implied covenants, provisos, agreements, and powers, subject to any modification thereof, shall have the same effect as if the same had respectively been set forth in such bill of sale at length, except so far as therein modified:”
Relevant for present purposes is a very long, indeed almost unreadable, clause in par (i) as follows:
“(i) That it shall be lawful for, and the grantor doth hereby expressly authorize and license the grantee, either personally or by or with his agents or servants, at any time after the expiration of a period of 14 days following the service by the grantee of a notice of default on the grantor, without any further consent by the grantor, and notwithstanding any acceptance of any payment of any money due on this security, and either before or after the principal, interest, or other moneys intended to be hereby secured or any part thereof respectively, shall have become payable, or before or after default shall have been made in the observance or performance of any of the covenants, conditions, or agreements herein expressed or implied, and on the grantor’s part to be observed and performed, to take possession of all and singular or any part of the said chattels, and either to remove, take, and carry away the same, or any of them, or to remain in possession thereof without removing the same, and also to relinquish possession thereof, and again, after the expiration of a period of 14 days following the service of a further notice of default by the grantee on the grantor, to retake and retain possession thereof, and make any fresh demand or demands without in any way invalidating or prejudicing this security; and for the purposes aforesaid or any of them, or for any purposes connected therewith, to have full liberty on ingress, egress, and regress to and from any land, house, or other buildings or premises in or upon which any of the said chattels shall then be or be supposed to be; and for all or any of the purposes foresaid to break open any outer or inner doors, windows, gates, fences, or other obstructions without any legal process whatsoever; and that the grantee or any agent or servant as aforesaid shall not be deemed or considered a trespasser or trespassers in consequence of exercising all or any of the powers hereinbefore granted or contained, and this deed may be pleased in bar, and shall be deemed and taken to be a good defence to any action or other proceeding that may be had or taken against the grantee or any agent or servant as aforesaid for any act done in relation to or by virtue of these presents; and that if default shall be made in payment of any of the moneys hereby secured, or any part thereof, on the day on which or at the time at which the same ought to have been paid according to the terms hereof or for the space of 24 hours after payment thereof shall have been demanded by and on behalf of the grantee (in case the said moneys shall be made payable on demand), or in the observance or performance of any of the covenants, conditions, or agreements herein expressed or implied, and on the grantor’s part to be observed and performed, then and in such case it shall be lawful for the grantee, without any further consent on the part of the grantor, to sell the said chattels or any of them, together or in lots, and either by public auction or private contract, at such price or prices and upon and subject to such terms and conditions as he may think fit, with liberty for the grantee to buy in the said chattels or any part thereof at any sale by auction, and to rescind or vary the terms of any contract for sale, and to resell the chattels so bought in or the contract for the sale whereof has been rescinded as aforesaid, without being answerable for any loss or expense or diminution in price, and with liberty also upon any such sale to give time for the payment of the purchase-money or any part thereof, either with or without security, and also to execute any bills of sale or other assurances, and to give effectual receipt for any purchase-money so that the receipt of the grantee or his agent shall be a sufficient discharge to any person at such sale for any of the purchase-money, and to execute all such assurances, and to do all such other acts, matters, and things for effectuating and completing any such sale as may be necessary and proper, or as the grantee may think fit. And upon any sale purporting to be made in exercise of the powers herein expressed or implied, no purchaser shall be bound or concerned to see or inquire whether any such default has been made as aforesaid or otherwise as to the propriety or regularity of any such sale, or be affected by notice, express or constructive, that no such default has been made as aforesaid, or that any such sale is otherwise improper, irregular, or unnecessary. And the grantee shall stand possessed of the proceeds of any such sale upon trust after paying thereout the costs, charges, and expenses of and incidental to such taking possession and sale and otherwise incurred in relation to this security, to apply the same in reduction of the moneys then owing on the security of this instrument, including all moneys herein covenanted to be paid, notwithstanding that the same may not then have become due, and any promissory notes or bills of exchange that may then be current for the same, and to pay the balance (if any) to the grantor.” (Emphasis added)
Mention should be made of ss 45A and 45B of the Act, which were introduced by the 1987 amendment. They provide:
“45A. (1) Where a grantor makes default in the payment of any of the principal, interest, or other money secured by a bill of sale given by him or in the observance or performance of any covenant, condition, or agreement expressed or implied in that bill of sale that is required to be observed or performed by him, the grantee shall not institute proceedings in any court to recover possession of the grantor’s personal chattels assigned to him under that bill of sale until the expiration of the period of 14 days following the service by him of the grantor of a notice informing the grantor –
(a) that he has made such a default; and
(b)that the grantee intends, at the expiration of that period, to institute those proceedings against him.
(2) A grantee who contravenes subsection (1) is guilty of an offence and is liable on summary conviction to a fine not exceeding 5 penalty units.
45B. (1) Where –
(a) a person (in this section referred to as ‘the guarantor’) guarantees the payment of the principal, interest, and other money secured by a bill of sale by pledging his personal chattels as part of the security for the payment of that principal, interest, and other money;
(b) the bill of sale contains a covenant, condition, or agreement required to be observed or performed by the guarantor that the grantee may, if the grantor makes default in the payment of that principal, interest, or other money, enter the premises at which the personal chattels so pledged are kept by the guarantor and take possession of them; and
(c) the grantor makes default in the payment of that principal, interest, or other money –
notwithstanding anything to the contrary in that covenant, condition, or agreement, the grantee shall not –
(d) enter those premises and take possession of those personal chattels until the expiration of the period of 14 days following the service by him on the guarantor of a notice informing the guarantor –
(i) that the grantor has made such a default; and
(ii) that the grantee intends, at the expiration of that period, to institute those proceedings against him.
(2) A grantee who contravenes subsection (1) is guilty of an offence and is liable on summary conviction to a fine not exceeding 5 penalty units.”
The Bill of Sale forms part of a contract between Imre Nagy (the borrower) and Capital whereby the borrower offers to borrow the “Amount of Credit” ($37,240.30) and give a mortgage over the vehicle and Capital accepts that offer. The terms and conditions include, in cl 9.1, a provision that the borrower defaults under the contract on failure to pay any money when due, or to comply with any obligation under the contract. By cl 9.2, if the borrower defaults he must pay Capital on demand the outstanding balance of the loan and all other moneys payable under the contract. Clauses 9.3 and 9.4 provide:
“9.3CAPITAL’s right to demand payment under clause 9.2 is subject to you failing to remedy the default within the time allowed by any notice CAPITAL must give you under any applicable provisions of the Credit Code. You will be deemed to have failed to remedy the default if, at the end of the time allowed by that notice, you are in default under this Contract because of the breach specified in the notice or because of a subsequent breach of the same type.
9.4If CAPITAL becomes entitled to demand payment under clause 9.2, it may then (subject to any applicable provisions of the Credit Code or any other legislation) repossess and sell the Goods and then apply the proceeds of sale (less any GST that CAPITAL pays out of the proceeds) towards satisfaction of your liability under this Contract.”
The Credit Code (Tasmania) (the Code) is in force by virtue of the Consumer Credit Act (Tasmania) 1996 (Tas). Section 80 of the Code provides:
“80. (1) Enforcement of credit contract. A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract unless the debtor is in default under the credit contract and –
(a) the credit provider has given the debtor, and any guarantor, a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default; and
(b) the default has not been remedied within that period.
Maximum penalty – 50 penalty units.
(2) Enforcement of mortgage. A credit provider must not begin enforcement proceedings against a mortgagor to recover payment of money due or take possession of, sell, appoint a receiver for or foreclose in relation to property subject to a mortgage, unless the mortgagor is in default under the mortgage and –
(a) the credit provider has given the mortgagor a default notice, complying with this section, allowing the mortgagor a period of at least 30 days from the date of the notice to remedy the default; and
(b) the default has not been remedied within that period.
Maximum penalty – 50 penalty units.
(3) Default notice requirements. A default notice must specify the default and the action necessary to remedy it and that a subsequent default of the same kind that occurs during the period of 30 days may be the subject of enforcement proceedings without further notice if it is not remedied within the period.
(4) When default notice not required. A credit provider is not required to give a default notice or to wait until the period specified in the default notice has elapsed, before beginning enforcement proceedings, if –
(a) the credit provider believes on reasonable grounds that it was induced by fraud on the part of the debtor or mortgagor to enter into the credit contract or mortgage; or
(b) the credit provider has made reasonable attempts to locate the debtor or mortgagor but without success; or
(c) the Court authorises the credit provider to do so; or
(d) the credit provider believes on reasonable grounds that the debtor or mortgagor has removed or disposed of mortgaged goods under a mortgage related to the credit contract or under the mortgage concerned, or intends to remove or dispose of mortgaged goods, without the credit provider’s permission or that urgent action is necessary to protect the mortgaged property.
(5) Non-remedial default. If the credit provider believes on reasonable grounds that a default is not capable of being remedied –
(a) the default notice need only specify the default; and
(b) the credit provider may begin the enforcement proceedings after the period of 30 days from the date of the notice.
(6) Other law about mortgages not affected. This section is in addition to any provision of any other law relating to the enforcement of real property mortgages and does not prevent the issue of notices to defaulting mortgagors under other legislation. Nothing in this section prevents the issue of any such notice when a default notice is given under this section.”
The Bill of Sale is a “credit contract” within the meaning of the Code. It is a contract under which credit is to be provided (s 5) and the credit is for personal, domestic or household purposes (s 6).
Section 4A of the Act provides that where a bill of sale secures the provision of credit to which the Code applies, any inconsistent provision of the Code prevails to the extent of that inconsistency.
It is common ground that the Bill of Sale is a bill of sale within the meaning of the Act. That being so, the first question which arises is whether the Bill of Sale is one
“whereby (Capital) … (has) power at any time after the expiration of 14 days following the service by (it) of a notice on the (borrower) informing him that (it) intends to do so, to seize or take possession of the personal chattels comprised in or made subject to a bill of sale.”
If yes, then s 5(1) applies on its literal meaning and the Bill of Sale is void for non-registration. If no, then a second question arises whether canons of construction can be applied to give s 5(1) some extended, or modified, construction so as to catch the Bill of Sale.
Question 1: Is the Bill of Sale within the literal meaning of s 5(1)?
Section 80(2) of the Code is applicable of its own force. Moreover, its application is expressly acknowledged in cl 9.4 (and also in cl 9.3). I do not think the expression “enforcement proceedings” extends to taking possession, selling etc. so that the provision only restricts legal proceedings (as does s 80(1)). Rather s 80(2) is to be read as follows:
“A credit provider must not
§ begin enforcement proceedings against a mortgagor to recover payment of money due, or
§ take possession of, or
§ sell, or
§ appoint a receiver, or
§ foreclose
in relation to property subject to a mortgage unless …”
This reading is consistent with subs (4)(d) which assumes that the credit provider would ordinarily need to give a default notice before taking possession but need not do so where there is some immediate threat of disposal or damage to the chattels secured.
Thus cl 9.4, as modified by s 80(2) of the Code, has the effect that possession cannot be taken until thirty days after a default notice has been given.
The Bill of Sale is therefore not within the literal meaning of s 5(1) of the Act. Capital cannot take possession of the vehicle at any time after the expiration of fourteen days from the giving of notice; it must give thirty days notice and only after the expiration of that period (and if the default has not been remedied) can it take possession.
Section 41(i) does not assist. The covenant therein provided for has been modified by the express terms of cll 9.3 and 9.4: see Helicopter Sales Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1 at 11-12.
Question 2: Can the literal meaning of s 5(1) be extended or modified?
Behind s 5(1) lie two policy objectives in relation to bills of sale:
§Grantors should be given a reasonable opportunity to remedy defaults before a grantee can take possession of chattels secured by the bill;
§Secured liabilities of grantors should be disclosed on a public register for the information of potential creditors.
Unfortunately, the drafting of the 1987 amendment seems to have confused the two objectives. Neither is achieved. Read literally, a bill of sale is only void for non-registration where it provides for a fourteen day notice. If a bill provides for a shorter or longer notice than fourteen days, or no notice at all, it does not answer the description of s 5(1). Well-advised grantees would therefore ensure their bills of sale had no proviso for notice, thus defeating both objectives.
Sections 45A and 45B of the Act do not resolve this dilemma. The former only applies to proceedings in a court, and the latter only to guarantors.
There is however s 80(2) of the Code, which on its face is inconsistent with s 5(1) of the Act. Section 80(2) has the effect that all bills of sale which are also “credit contracts” within the meaning of the Code cannot provide for taking possession by the grantee unless thirty days notice is given. Therefore, the only bill of sale (which secures a “credit contract”) to which s 5(1), read literally and in isolation, can apply is one made unlawful by the Code.
What is called for is the process of statutory construction described as reconciliation. In the words of Dixon J in R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598 at 616,
“In considering the interpretation of a legislative instrument containing provisions which could contradict one another if to each were attached the full meaning and implications which considered alone it would have, an attempt should be made to reconcile them.”
This process is made less difficult in the present case because, as already mentioned, s 4A of the Act has the effect that a provision of the Code must prevail over any inconsistent provision of the Act.
Since bills of sale which are “credit contracts” must require thirty days notice for possession, such bills are the only ones on which s 5(1) can operate. It follows that s 5(1) must be read as having the effect that such bills must be registered, and are void for non-registration.
The problem would still remain for bills of sale which are not “credit contracts”. Since such bills are likely to be those issued in trade or commerce, where registration is particularly important for the protection of potential creditors, it seems desirable that the relevant authorities reconsider s 5.
Conclusion
I conclude therefore that the Bill of Sale is void for non-registration. There will be orders as sought in the amended application. Capital must pay the trustee’s costs.
I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey. Associate:
Dated: 22 June 2004
Counsel for the Applicant: A Perkins Solicitors for the Applicant: Piggott Wood and Baker Counsel for the Respondent: M Rapley Solicitors for the Respondent: Page Seager Date of Hearing: 10 June 2004 Date of Judgment: 22 June 2004
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