National Discounts Ltd v Jaques; Re Doyle [1955] HCA 54; (1955) 93 CLR 449 (20 October 1955)

HIGH COURT OF AUSTRALIA

NATIONAL DISCOUNTS LTD. v. JAQUES; RE DOYLE [1955] HCA 54; (1955) 93 CLR 449

Bankruptcy

High Court of Australia
Williams(1), Fullagar(2) and Taylor(1) JJ.

CATCHWORDS

Bankruptcy - "Commencement of the bankruptcy" - "Property of the bankrupt" - Motorcar - "Possession" of the bankrupt - Order or disposition - Reputed ownership - Consent of the true owner - Bill of sale - Rights - Statutory protection - Bankruptcy Act 1924-1950, s. 91 (e), (iii), (iv) - Bills of Sale Act 1898- 1938 (N.S.W.).

HEARING

Sydney, 1955, August 24-26;
Melbourne, 1955, October 20. 20:10:1955
APPEAL from the Federal Court of Bankruptcy.

DECISION

October 20.
The following written judgments were delivered: -
WILLIAMS AND TAYLOR JJ. This is an appeal from an order of the Federal Court Receiver and Trustee of the estate of Reginald Aubrey Doyle under the provisions of the Bankruptcy Act 1924-1950 asking for declarations (1) that the 1950 model Buick car, registered number AHB 405, forms part of the property of the bankrupt within the Bankruptcy Act and (2) that the bill of sale dated 26th November 1952, registered number 22083/52, given by the bankrupt to the respondent, National Discounts Ltd., is not enforceable. One of the items comprised in the bill of sale as having been bargained, sold, assigned and transferred to the company is the car in question. The respondents to the motion were Colin James Delaney, Commissioner of Police for the State of New South Wales, Roscoe Imrie Conn (and later by amendment his wife Mona Elizabeth Conn) and National Discounts Ltd. The only order made by his Honour was to dismiss the motion. He did so because he found that the car was the property of Mr. and Mrs. Conn and, having done so, apparently considered that it was unnecessary to declare whether the bill of sale was or was not enforceable. The respondent company appealed from his Honour's order, making the Official Receiver, Mr. and Mrs. Conn and Mr. Delaney respondents to the appeal. But Mr. Delaney has no interest in the appeal because the car, which was in the possession of the police at the date of the notice of motion, was subsequently sold by arrangement between the parties and the proceeds of sale are at present held in a trust account to abide its outcome. (at p461)

2. One point argued before his Honour was whether the car, even if it was the property of the Conns, was nevertheless part of the estate of the bankrupt because within the meaning of s. 91 par. (iii) of the Bankruptcy Act it was, at the commencement of the bankruptcy, in the possession, order, or disposition of the bankrupt, with the consent and permission of the true owner, under such circumstances that Doyle was the reputed owner thereof. On this point his Honour expressed no opinion, although it clearly arose on his findings of fact. When the appeal came on for hearing, counsel for the Official Receiver at first sought an extension of time under r. 13 of O. 70 of the rules of this Court to file in the registry a notice of cross-appeal so that he might argue this point should it not be open to the appellant to do so. But the only order made by his Honour was to dismiss the motion and such an order is not susceptible of being appealed from in part. Counsel then sought special leave to appeal from the whole of the order under r. 6 (2) of O. 70. This application is not opposed by the other parties. As the interest of the appellant company to argue this point, which is of considerable public importance, may be doubtful we have decided to grant the application, the grounds of appeal to be the same as those stated in the notice of appeal of the appellant company. (at p462)

3. We can now approach the facts. The estate of the bankrupt was sequestrated on a creditor's petition on 13th February 1953. The act of bankruptcy proved was that on 30th January 1953 with intent to defeat or delay his creditors Doyle departed from his dwelling-house. No earlier act of bankruptcy has been proved so that the time of the commencement of the bankruptcy is 30th January 1953. To prove that the car is part of the bankrupt estate, the Official Receiver relied chiefly on the evidence of Doyle, but his Honour was not prepared to accept his evidence. He said that it was studded with false statements and that it was impossible to believe one word of it. This complete rejection of Doyle's evidence should not perhaps be read too literally for a good deal of it is corroborated by other facts and in parts it must be true. The evidence as a whole is in a very unsatisfactory condition because at the time of the hearing of the motion the Conns were in the United States of America and their evidence was given by affidavits on which they were not cross-examined and these affidavits do not deal with several material matters which could not be brought to their attention because they only arose on the subsequent hearing of the motion. (at p462)

4. Some facts are common ground. They prove that the car was originally purchased in the United States by the Conns in 1950 and was duly imported by them into Australia. It was first registered in Australia in the name of Mr. Conn under the Motor Traffic Act 1909-1949 of New South Wales for a year commencing on 3rd November 1950, the registered number being OF 355. This registration was renewed by him for a further year on 3rd November 1951. Mr. Conn left for the United States in August 1951 in order to try and purchase a business there. He returned to Australia at the end of November 1951. He and his wife left Australia for the United States at the end of March 1952 and have not returned. It is apparent that they were anxious to sell the car before they left. They advertised it for sale and placed it in the hands of a seller of second-hand cars on several occasions but it was not sold. About Christmas 1951 they met Doyle who simulated interest in the car, either as a possible purchaser himself or as an agent for sale. According to Doyle, he agreed to purchase the car for 2,500 pounds, paid the purchase money, and obtained a receipt which was subsequently lost. His evidence is supported by Mr. R. G. Lewin, an investigator in the Income Tax Department, who had a conversation with Conn at the department on 21st March 1952 when Conn told him that Doyle had paid him 2,500 pounds for the car. This conversation was objected to as being a communication made in breach of s. 16 of the Income Tax and Social Services Contribution Assessment Act 1936-1953 but it is clear from Canadian Pacific Tobacco Co. Ltd. v. Stapleton [1952] HCA 32; (1952) 86 CLR 1 that it was admissible. But it appears that at the time Lewin was in hot pursuit of both Doyle and Conn for alleged breaches of the Income Tax Acts so that, when his Honour said that, while he accepted Lewin's evidence, he did not think it helped the Official Receiver, he must have thought that Conn was deceiving Lewin. (at p463)

5. The case for the Conns is that the car was placed in Doyle's hands for sale. It is clear that he was in possession of the car and driving it about, and even driving them about in it, between about Christmas 1951 and the date they left Australia. But according to them this was in order that he might complete the sale to a purchaser who was supposed to be willing to purchase the car, apparently for 3,300 pounds, but who was having difficulty in finding the money, or so that he could sell it to someone else. Admittedly Conn gave Doyle a receipt for 2,500 pounds as purchase money for the car but Conn said that he did this at Doyle's request so that Doyle would be in a position, if necessary, to make a quick sale. The car was still in Doyle's possession when the Conns left for the United States and remained in his possession until 30th January 1953. He made full use of the car for his own purposes and paid for its maintenance and upkeep. Soon after Conn's registration expired on 3rd November 1952 he returned the traffic plates to the Traffic Department and on 11th December 1952 caused the car to be re-registered in the name of a fictitious owner, Jack W. Thompson, under a new number AHB 405. On the morning of 30th January 1953 Doyle left his home at Clontarf in the car after breakfast and drove it to behind Parliament House, his usual parking place. At Parliament House he received a message of such dread import that it caused him to go into immediate hiding. But he telephoned to Mrs. Doyle who at his request went to Parliament House and drove the car from there to the roadway in front of the Mitchell Library and rang the police. The police received the keys of the car from Mrs. Doyle at the Hotel Australia and went to the front of the Mitchell Library and took possession of the car on 2nd February 1953. Subsequently the car was sold by arrangement between the parties for 1,800 pounds. (at p464)

6. In their affidavits the Conns state that before they left for the United States and after they arrived there they made several demands on Doyle to account for the purchase money but Doyle kept postponing settlement and that the only moneys they received from him were two five-dollar notes sent by post in separate letters. Otherwise they had received no payment from Doyle for the car which they both swore was their own property and that no other person had any interest therein. There is also the evidence of Mr. J. C. Rhind, which his Honour accepted. Rhind went to the United States in October 1952 and returned to Sydney at the end of November 1952. At Conn's request he interviewed Doyle and asked him about the unpaid purchase money for the car. Doyle told Rhind that he had sold the car, but had not fixed up with the Conns for the purchase money. Doyle said that he was endeavouring to send the money but was doubtful how to do it. He had sent the two five-dollar notes as a preliminary step to test whether Conn's mail was being tapped. Doyle never at any time told Rhind that he had bought the car himself or that he had paid any money of his own for the car or that the car had been paid for. Rhind appears to have had some form of power of attorney from Conn and it is possible to infer that he reported the conversations he had with Doyle to Conn but the questions he asked could hardly be described as precise or penetrating and it would not have been difficult to have asked him expressly if he had done so. His Honour found that Doyle did not purchase the car from the Conns and he suspected that Doyle never intended to find a purchaser for the car. He was satisfied, having regard to the evidence which he accepted, that the evidence contained in the Conns' affidavits was substantially true. He must have inferred that they believed that Doyle had sold the car on their behalf and had not accounted for the purchase money. There are many difficulties in the way of reaching this result. If the car was entrusted to Doyle for sale one would have expected some evidence of the terms and conditions on which he was authorized to sell it and use it in the meantime. One would also have expected that the transfer form on the back of the renewal of the certificate of registration from 3rd November 1951 to 3rd November 1952 would have been signed by Conn in blank and given to Doyle so that the latter could take the necessary steps to transfer the registration to a purchaser. At the hearing of the motion this document was produced by counsel for the Conns. The lack of interest by the Conns in the subsequent fate of a valuable car after they left Australia, including its maintenance and safe custody, assuming they had not sold it to Doyle, is quite remarkable. And the Conns admittedly gave Doyle a receipt which represented that he had purchased the car for 2,500 pounds and had paid for it in cash. Be all this as it may, the case does not appear to be one in which we can interfere with the findings of fact by his Honour. On the affidavits of the Conns supported by Rhind's evidence his Honour was justified in finding that the receipt for 2,500 pounds was not a genuine document and that 2,500 pounds was not in fact paid by Doyle to the Conns. At least it can be said that the onus would be on the Official Receiver to prove that Doyle purchased the car from the Conns and that, Doyle's evidence having been emphatically rejected, there is no sufficient evidence to sustain that onus. His Honour's finding that the car never became the property of Doyle is not one which, applying well understood principles, can be overruled. (at p465)

7. It therefore becomes necessary to consider the application of the provisions of s. 91 par. (iii) to the facts as found by his Honour. The car was assigned by Doyle to the appellant company by the bill of sale dated 26th November 1952. That bill of sale was duly registered under the provisions of the Bills of Sale Act 1898-1938 (N.S.W.). It is a valid bill of sale under that Act. But the company is carrying on the business of a money-lender and it is admitted that its provisions are unenforceable because the requirements of s. 22 of the Money-lenders and Infants Loans Act 1941-1948 (N.S.W.) were not complied with. The company advanced 3,500 pounds to Doyle on the security of the assets comprised in the bill of sale. But, apart from the car, the assets were non-existent, and the car was, on his Honour's findings, not the property of Doyle but of the Conns. Section 91 of the Bankruptcy Act provides that the property of the bankrupt divisible among his creditors, and in this Act referred to as "the property of the bankrupt" shall not include . . . par. (e) except as provided in par. (iv) of this section, inter alia, chattels in respect of which a valid bill of sale has been filed or registered and kept registered under any Act or State Act or law of a Territory. Section 91 also provides that, subject to this Act, the property of the bankrupt shall include (iv) the claim or right of the bankrupt to property under, inter alia, any bill of sale made by or with the bankrupt or debtor on his trustee discharging or offering to discharge any legal liability with respect thereto. The effect of par. (e) is to exclude from the property of the bankrupt, except to the extent provided for in par. (iv), chattels comprised in any of the instruments therein mentioned including a valid registered bill of sale. Such chattels, although they are at the commencement of the bankruptcy in the possession, order or disposition of the bankrupt with the consent and permission of the holder of the bill of sale under such circumstances that he would otherwise be the reputed owner thereof, do not become the property of the bankrupt under the provisions of par. (iii). It was contended that par. (e) has this effect whether the holder of the bill of sale is the true owner of the goods or not and that the paragraph still operates although, as in the present case, the debtor had no property in the chattels, in this case the car, which he could assign by the bill of sale. Counsel for all parties were inclined to accept this construction, but it is not one which we should adopt. Paragraph (e), on its true construction, operates only to protect the proprietary rights in the goods created by the instruments to which it refers. In effect it permits the true owners of such rights to leave such goods in the possession, order or disposition of the debtor under such circumstances that he is the reputed owner thereof without incurring the penalty of the forfeiture of these rights if the debtor becomes bankrupt. The paragraph does not operate to protect the true owner of the goods if they are not in fact the property of the bill of sale holder. This is apparent from the requirement that the instrument must be a valid instrument. It must be efficacious to confer proprietary rights in the goods on the bill of sale holder of which he becomes the true owner: Colonial Bank v. Whinney (1886) 11 App Cas 426, at p 434 . If the goods are the property of a third person so that the instrument is quite inefficacious to confer any such proprietary rights, the true owner cannot invoke the protection of the paragraph for goods which would otherwise be caught by the provisions of par. (iii). The bill of sale of 26th November 1952 was quite inefficacious to confer any proprietary rights on the appellant company in the Buick car which was the property of the Conns and not of Doyle and the Conns cannot rely on the provisions of par. (e) to take the car out of the reputed ownership clause. It is therefore unnecessary finally to decide whether the bill of sale, being duly registered under the Bills of Sale Act 1898- 1938, although unenforceable because of the provisions of the Money-lenders and Infants Loans Act 1941-1948, is nevertheless a valid bill of sale within the meaning of par. (e). But it would not appear to be so. A person cannot be under any legal liability in respect of an instrument which is unenforceable. But par. (iv) pre-supposes that the instruments mentioned in par. (e) would create enforceable legal liabilities which it would be the duty of the trustee to discharge or offer to discharge before any claim or right of the bankrupt to the goods could become part of his property divisible amongst his creditors. Accordingly the fact that Doyle purported to assign the car to the appellant company as his own property under the bill of sale does not affect the question whether the car was at the commencement of the bankruptcy in the possession, order or disposition of Doyle with the consent and permission of the Conns under such circumstances that he was the reputed owner thereof. (at p467)

8. It was contended by counsel for the Conns that the car was not in Doyle's possession, order or disposition at the commencement of the bankruptcy because the time of such commencement was when he received the message at Parliament House which caused him to go into hiding and at that moment the car was parked behind Parliament House and was not in his possession, order or disposition. This was the exact time at which the bankruptcy commenced within the meaning of s. 90 of the Bankruptcy Act: Ex parte Bignold; In the matter of Newton (1836) 3 Mont & Ayr 9, at p 13 ; Ex parte Villars; Re Rogers (1874) LR 9 Ch App 432, at p 445 ; Re Bumpus; Ex parte White (1908) 2 KB 330 ; Re Hardman (1932) 4 ABC 207, at p 213 ; Acts Interpretation Act 1901-1950 s. 37. But the car remained in Doyle's possession, order and disposition at least until his wife drove it away from behind Parliament House to in front of the Mitchell Library, and that was at a later moment of time than the commencement of the bankruptcy. It was also contended that in January 1953 the custom of persons purchasing cars on hire purchase, and the hirers allowing the purchasers to register the cars in their own names and to have possession of them, was so prevalent and notorious that no inference should be drawn that a person in possession of a car and using it openly and regularly for his own purposes owned the car. But such a custom, unless held to be established by some decision, cannot be assumed but must be proved and there is no such proof in the present case. Claims that similar customs existed were made but rejected in Ex parte Brooks; Re Fowler (1883) 23 Ch D 261 ; in Re Tabor; Ex parte Cork (1920) 1 KB 808 and in Re Kaufman Segal and Domb; Ex parte The Trustee (1923) 2 Ch 89 . It has been said repeatedly that it is necessary that the circumstances should be such that the inference of ownership by the bankrupt must arise: Re Fox; Ex parte Oundle and Thrapston R.D.C. v. The Trustee (1948) Ch 407, at pp 415, 416 . The meaning of this inference is explained by P. O. Lawrence J. in Kaufman's Case (1923) 2 Ch 89 . He said: "The right view to take is, that, in the absence of any general custom as to hiring, the inference which a reasonable man would necessarily draw from the fact that the articles in question were in the possession of the bankrupts and were being used by them in their trade is that these articles belonged to the bankrupts, and that the inference so drawn is an inference which, within the meaning of Vaughan Williams L.J.'s statement of the law 'must' arise" (1923) 2 Ch, at p 94 . Later, on the same page, his Lordship said: "It will be observed that neither in Ex parte Brooks (1883) 23 Ch D 261, at pp 265, 266 nor in In re Tabor (1920) 1 KB 808 were there any facts proved beyond the fact that the goods were in the possession of and were being used by the bankrupts" (1923) 2 Ch, at p 94 . (at p468)

9. The crucial question is therefore whether on 30th January 1953 the car was in Doyle's possession, order or disposition with the consent and permission of the Conns. In the passage from the judgment of the Court of Appeal delivered by Vaughan Williams L.J. in Re Watson & Co.; Ex parte Atkin Brothers (1904) 2 KB 753, at p 757 cited in Re Fox (1948) Ch 407, at pp 415, 416 appears a citation from the statement of Lord Redesdale L.C. in Joy v. Campbell (1804) 1 Sch & Lef 328, at p 336 , that the true owner must have unconscientiously permitted the goods to remain in the order or disposition of the bankrupt and his Lordship then said: "This does not mean, as we understand it, that he (the true owner) must have intended that false credit should be obtained by the bankrupt's apparent possession of the goods, but it does at least mean that the true owner of the goods must have consented to a state of things from which he must have known, if he had considered the matter, that the inference of ownership by the bankrupt must (observe, not might or might not) arise" (1904) 2 KB, at p 757 . Consent and permission imply knowledge and the Conns could not be held to have been consenting to or permitting Doyle holding himself out as the owner of the car at the commencement of his bankruptcy unless they knew that it was still in his possession, order or disposition on 30th January 1953. But on the facts as found by his Honour, and in particular on the evidence of Rhind, the Conns must have believed that the car had been sold and the purchase money paid to Doyle prior to November 1952 and their ownership and interest in the car thereby determined. The onus is on the Official Receiver to prove all the facts necessary to bring the case within s. 91, par. (iii), and, if they so believed, it is impossible to find affirmatively that the car was still in Doyle's possession, order or disposition with their consent and permission on 30th January 1953. Counsel for the Official Receiver urged that once the car was proved to be in the possession, order or disposition of Doyle with the consent and permission of the Conns, that consent and permission must be presumed to have continued until the Conns took the necessary steps to retake possession of the car. That would be so if the Conns knew that the car was still in Doyle's possession: Rutter v. Everett (1895) 2 Ch 872, at pp 878-881 ; Times Furnishing Co. v. Hutchings (1938) 1 KB 775, at pp 784, 785 . But each case must depend on its own facts. The true owner must have unconscientiously permitted the goods to remain in the possession, order or disposition of the bankrupt. The material time is the moment of the commencement of the bankruptcy and, at that moment of time, the person who is in fact the true owner of the goods cannot be said to be unconscientiously permitting the goods to remain in the possession, order or disposition of the bankrupt if he then has reason to believe that the bankrupt has disposed of the goods to another so that he is no longer the true owner thereof. It is not inappropriate to quote some extracts from the passage in the Irish judgment relating to the order and disposition clause cited by Lord Fitzgerald in Colonial Bank v. Whinney (1886) 11 App Cas 426 : "Surveying the conditions with which the exercise of this exceptional and questionable power has been hedged round by this statute, it is impossible to avoid seeing that of all its requirements the most distinctive and central is 'the consent and permission of the true owner'. All the others may combine. The goods may be in the possession of the bankrupt, they may be in his order and disposition, he may be the reputed owner of them; but unless all this has been sanctioned by the consent and permission of the true owner, the clause rests as a dead letter. And it is this alone which redeems this law from the charge of naked confiscation. As the mens rea is essential for incurring the punishment of guilt, so the mens volens is essential for incurring the forfeiture imposed by this order and disposition clause" (1886) 11 App Cas, at p 444 . (at p470)

10. For these reasons both appeals fail in substance and should be dismissed, but the order made by his Honour requires variation. The application of the Official Receiver for special leave to appeal from that order should be granted and the order varied by substituting for the order dismissing the motion (1) a declaration that the proceeds of the sale of the 1950 model Buick car, registered number AHB 405, do not form part of the property of the bankrupt within the meaning of the Bankruptcy Act but are the property of the respondents, Roscoe Imrie Conn and Mona Elizabeth Conn; (2) a declaration that the bill of sale dated 26th November 1952, registered number 22083/52, given by the bankrupt to the respondent, National Discounts Ltd., is not enforceable; and (3) an order giving liberty to the respondents Roscoe Imrie Conn and Mona Elizabeth Conn to apply to the Federal Court of Bankruptcy for any directions that may be required so that the sum of 1,800 pounds being the proceeds of the sale of the car may be paid to them. Subject to these variations the appeals of the Official Receiver and of National Discounts Ltd. should be dismissed with costs. (at p470)

FULLAGAR J. In this case I have had the advantage of reading the judgment of my brothers Williams and Taylor, and, although I have felt the case to be one of some difficulty, I agree with that judgment. (at p470)

2. So far as the question of the actual ownership of the car is concerned, my main difficulty has arisen from an inability to regard Mr. Conn (who regrettably escaped cross-examination) as in any degree more worthy of trust or credence than Mr. Doyle. As for Mr. Rhind, I will only say that it seems to me a very strange thing that the fact of his close friendship with Mr. Conn was elicited in re-examination and not in cross-examination. The most inherently probable view of the facts is, I think, that Doyle simply bought the car but never paid for it. However, I have felt in the end, as Williams J. and Taylor J. have felt, that we should be departing from established principles if we refused to accept the findings of Clyne J., which there is, I think, sufficient evidence to support. (at p470)

3. With regard to the question of reputed ownership, I agree that the crucial question is whether Doyle's possession of the car was "with the consent and permission" of Conn and his wife within the meaning of s. 91 (iii) of the Bankruptcy Act. I think that the passage from the judgment of Christian L.J. in Re Hickey (1875) 10 Ir R Eq 117, at p 129 which is quoted by Lord Fitzgerald in Colonial Bank v. Whinney (1886) 11 App Cas, at p 444 is expressed in much too "vigorous" terms, but I agree that Doyle's possession could not be held to be with the consent and permission of Conn and his wife if they believed at the date of commencement of Doyle's bankruptcy that the car had been sold by Doyle. I cannot myself find any satisfactory evidence that they did so believe at any time, but the evidence accepted by Clyne J. is consistent with their having so believed, and, that being so, the Official Receiver has failed to sustain the burden of proof resting upon him. (at p471)

ORDER

Application of the Official Receiver for special leave to appeal from the order of the Federal Court of Bankruptcy dated 29th October 1954 granted, the grounds of appeal to be the same as those stated in the notice of appeal of the appellant company. Both appeals from that order to be heard together and, subject to the following variations of that order, both appeals to be dismissed with costs. The order of 29th October 1954, to be varied by substituting for the order dismissing the motion (1) a declaration that the proceeds of the sale of the 1950 model Buick car, registered number AHB405, do not form part of the property of the bankrupt within the meaning of the Bankruptcy Act 1924-1950 but are the property of the respondents, Roscoe Imrie Conn and Mona Elizabeth Conn; (2) a declaration that the bill of sale dated 26th November 1952, registered number 22083/52, given by the bankrupt to the respondent, National Discounts Ltd., is not enforceable; and (3) an order that the respondents Roscoe Imrie Conn and Mona Elizabeth Conn be at liberty to apply to the Federal Court of Bankruptcy for any directions that may be required so that the sum of 1,800 pounds being the proceeds of the sale of the car may be paid to them.