Fraudulent Purchase of Car: Appeal Dismissed by NSW Court of Appeal

The Court of Appeal dismissed the appeal, confirming the existence of a contract between the parties despite the fraudulent actions of one party. The contract was evidenced by an invoice and payment, and the court ruled that the exclusion clause did not exclude warranty as to title.

[ADDRESS] of Appeal

CITATION: [NAME] v [NAME] [2005] NSWCA 347

HEARING DATE(S): 13 July 2005

JUDGMENT DATE: 10 October 2005

JUDGMENT OF: Tobias JA at 1; [NAME] at 2; [NAME] at 36

DECISION: Appeal dismissed with costs.

CATCHWORDS: CONTRACT - fraudulent purchase of car - finance obtained for purchase of car through two separate car dealers from two separate financiers - whether valid contract between the fraudulent purchaser and [NAME] - whether a contract formed between the financier and [NAME] evidenced by invoice and payment of the amount of the invoice - whether exclusion clause in contract excluding "all warranties and conditions" effectively excluded warranty as to title - EVIDENCE - further evidence - whether certificate of conviction of fraudulent purchaser in relation to the transaction should be tendered on appeal under s75A of the Supreme Court Act 1973

District Court Act 1973 (NSW) LEGISLATION CITED: Supreme Court Act 1970 (NSW)

[NAME] v [COMPANY] (1994) 34 NSWLR 155 [COMPANY] v [COMPANY] (1984) 51 ALR 641 Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd [2005] NSWCA 319 CASES CITED: Coulton v Holcombe (1986) 162 CLR 1 Esanda Ltd v Clark (1985) 159 CLR 543 Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116

[NAME] (First Appellant) [NAME] (Second Appellant) PARTIES: [NAME] (Third Appellant) [COMPANY] (Respondent)

FILE NUMBER(S): CA 40982/04

[NAME]/[NAME] (First-[NAME]) COUNSEL: [redacted]

[NAME] (First-[NAME]) SOLICITORS: [redacted]

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): 5508/03

LOWER COURT JUDICIAL OFFICER: [NAME]

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40982/04 DC 5508/03

TOBIAS JA [NAME]

10 October 2005 [NAME] v [COMPANY] Judgment 1 TOBIAS JA: I agree with [NAME]. 2 [NAME]: This is a case based on fraud. The question for determination is who should bear the loss resulting from the fraud. The subject matter of the fraud was a 1999 Porsche 911 Carerra convertible. On 15 June 2000, a company, [COMPANY], through its principal, [NAME], arranged finance for the purchase of the vehicle through two separate car dealers, from two separate finance companies. Unfortunately, [NAME] was successful in this exercise. 3 On 15 June 2000, a [NAME], [COMPANY] of Crown Street, Wollongong, issued an invoice to [COMPANY] in relation to the car, showing an amount financed of $195,000. The invoice indicated that the car was "for delivery to" [COMPANY] of [ADDRESS], Dapto. Although the full documentation for that transaction was not before the trial judge, it was common ground that the car was effectively transferred by Dwyers to [COMPANY], which became the owner. 4 Also on 15 June 2000, a separate dealership, known as [NAME], being the business of a partnership run by the three [NAME], issued an invoice in similar form with respect to the same car to [COMPANY]. This invoice also required payment of an amount of $195,000 and provided that the car was "for delivery to" [COMPANY], of 3/[ADDRESS], Wollongong. (Nothing turns on the different addresses given for [NAME]'s company.) Payment was made on this invoice by [COMPANY] (the Respondent) on 21 June 2000, by electronic transfer to the [COMPANY] account of the [NAME]. However, because the [NAME] had no title to the car, no title passed to the Respondent. 5 On 30 September 2002 the true owner, [COMPANY], sold the vehicle for a sum of $143,440.75, the full amount of which was retained by BMW. 6 On 25 November 2003, the Respondent commenced proceedings against the [NAME] in the District Court claiming the value of the car at the time of the purported purchase, namely $210,000 or, in the alternative, the amount which the Respondent had paid, namely $195,000. The Respondent also claimed interest on the appropriate amount until judgment, pursuant to s 83A(1) of the District Court Act 1973 (NSW). 7 On 13 October 2004, [NAME] handed down judgment in favour of the Respondent for the full amount of $210,000 together with interest and costs. Judgment was entered on 3 November 2004. 8 After setting out the relevant facts, the trial judge stated at [40]: "One should be forgiven for thinking that there had been a total failure of consideration and that the plaintiff would be entitled to recover $195,000 on an action for moneys had and received by the defendants to the use of the plaintiff. Such a claim is made in the statement of claim. However, it is strenuously opposed by the defendants. The real question before me is the correct legal analysis of what actually happened as far as it has been proven in evidence."

No point is taken by the [NAME] as to the amount of the judgment: their appeal is restricted to the propositions that, first, there was no contract between them and the Respondent and, in the alternative, if there were a contract, it was a written contract which excluded liability for failure to pass title.

A contractual relationship? 9 At trial, the Respondent at first put its case on two and, later on three bases. The first and most direct basis was the existence of a contract of sale evidenced by the issue to it by the [NAME] of the invoice dated 15 June 2000 together with the payment of the amount of the invoice on 21 June 2000 by way of electronic transfer to the [NAME]' [COMPANY] account. 10 These facts are, as the Respondent noted, similar to those upon which the High Court upheld the existence of a contract between a supplier and a finance company in [COMPANY] v [COMPANY] (1984) 51 ALR 641 at 642-644 (Gibbs CJ, Mason, Wilson, Deane and Dawson JJ agreeing). That case involved paging units to be supplied by [NAME], for use by a company known as [NAME] & [COMPANY]. [NAME] issued an invoice to [NAME] describing it as "the customer", identifying the goods and the price and providing, after the words "deliver to" the name and address of [NAME]. Gibbs CJ noted the issue and the result in the following passage at 643(45)-644. "The critical issue in the case is simply one of fact: Was there a contract between the appellant and [NAME]? … The two documents, the invoice and the cheque, standing alone provides [sic] strong evidence that there was a contract. The evidence that there were no communications between [NAME] [an officer of the appellant] and [NAME] does not lead to a different conclusion. If there had not been some communications between the parties, however indirect, the invoice would never have been issued at all. There is much to be said for the view that the invoice was not an offer, but was, as it appears on its face to be, a record of a concluded transaction – in other words, that it acknowledged the acceptance of an offer previously made by the appellant through channels the nature of which the evidence does not disclose. But if that is not a correct conclusion, and the invoice was no more than an offer, acceptance could, of course, be made in the manner indicated, expressly or impliedly, by the offeror. In the circumstances of the present case, when [NAME] and the appellant were not in direct communication, and [NAME] chose to give the invoice to [NAME], it can safely be inferred that [NAME] intended that acceptance could be made by giving the cheque to the person who had possession of the invoice, that is, either to [NAME] or its agent or broker. On either view, there was a concluded contract. The fact that [NAME] subsequently made the deliveries that it did showed that it believed that a contract had been made, although it had not then received the cheque." 11 The present case was similar in that there was no oral evidence called, although there was some further documentation. In particular, there was a memorandum sent by facsimile by the Respondent to the finance broker, engaged by [NAME], [COMPANY], dated 16 June 2000. That would appear to be a response to a document entitled "CHP Application" prepared by [NAME] and dated 13 June 2000. The trial judge accepted, and it is common ground, that "CHP" referred to "commercial hire purchase". 12 It is clear from this documentation that, by 16 June, the broker had been in touch with the Respondent, and probably not only by way of transmission of the 13 June application. The amount of the finance required, the term of the facility, the residual value and the interest rate, as set out in the application, were those accepted by CBFC. Further, CBFC had apparently been told, before 16 June, (though it is not recorded in the application) that the dealer, [NAME], was "accredited with [NAME]" and sought details of the accreditation. These circumstances make it more probable than not that there had been verbal as well as written communication between [NAME] and [NAME] prior to 16 June. 13 Further, those communications were known to one of the [NAME], who appears to have been responsible for arranging the sale transaction. He is identified in a document headed "Motor Vehicle Sale Contract", dated 15 June 2000, as the salesperson for [NAME]. That document also identified that a credit provider would be involved, namely "[NAME]". Furthermore, the invoice, over the name of [NAME], was also issued to [COMPANY] on 15 June. Finally, the document signed by a manager of CBFC on 16 June, addressed to [NAME], stated that: "We confirm approval of above deal on the following basis." 14 These factors taken in combination indicate an agreement reached prior to 16 June, brokered by [NAME], which required the sale of the car from [NAME] to [COMPANY]. That deal was known to [NAME] on 15 June when he prepared and signed the invoice and the "Motor Vehicle Sale Contract". The arrangement noted in the invoice was effected by delivery of the vehicle to [NAME] and payment of $195,000 by [NAME] to [NAME]. It should be accepted that these steps took place pursuant to a contract of sale between the [NAME] and the Respondent entered into on or about 15 June 2000. That is consistent with the preferred approach adopted by Gibbs CJ in [NAME], noted above, namely that the issue of an invoice tends to evidence an agreement already reached, rather than an offer. Where finance arrangements are to be agreed between a financier and the party to whom the goods are to be delivered, it would make little commercial sense for a dealer to send an invoice to the financier until advised that the terms of finance have been approved and accepted. 15 The [NAME] sought to resist the reasoning and conclusions set out above on three bases. The first and primary basis was that, on 15 June 2000, [NAME] prepared a "Motor Vehicle Sale Contract" showing the purchaser as "[NAME]". This document, it was said, was inconsistent with a sale of the vehicle to CBFC. True it was, the [NAME] argued, that the contract expressly noted that the purchaser required credit, but it did not identify the nature of the credit. Had the credit been by way of a loan, the sale to [NAME] would have been the appropriate contractual arrangement. Further, as the document suggested, [NAME] was to provide a deposit of $15,000, a fact consistent with [NAME] being the purchaser. If the finance arrangements required [NAME] to transfer title in the vehicle to CBFC, that was an entirely independent matter and did not involve the [NAME]. 16 Taken in isolation, the motor vehicle sale contract might have given rise to the kind of inference relied on by the [NAME]. Understood in the context of the other documents referred to above, that conclusion is untenable. First, the fact that the invoice to [NAME] was also prepared on 15 June 2000, by [NAME], suggests that the finance arrangement was known at the time of the motor vehicle sale contract being executed. That fact is confirmed by the express reference to [NAME] in the sale contract. It gains further support from the identification in the sale contract of an estimated delivery date of 19 June 2000. 17 There was some debate about when the invoice was sent to [NAME]. The [NAME] argued that there was no evidence in that regard and that it may not have been sent until after 21 June, being the date of payment of the $195,000 to [NAME]. That submission is implausible, because, by 21 June, [NAME] had the details of the [COMPANY] account of the [NAME], which details are set out on the invoice. However, that debate is really beside the point. The invoice prepared by [NAME] dated 15 June and addressed to [NAME] demonstrated that Mr [NAME] was aware of the nature of the commercial transaction with [NAME], outlined above, and demonstrated that this was the transaction to which effect was intended to be given when the car was delivered to [NAME]. 18 Secondly, the [NAME] objected that, on this understanding, the sale contract with [NAME] was purposeless and ineffective. On the basis of the evidence before the Court, that much may be conceded. Why it was entered into is unknown, at least in part because none of the [NAME] entered the witness box to explain any aspect of the documentation, nor was [NAME] called. The trial judge was entitled to draw the inference that no explanation would have been given which could have assisted the [NAME]. That inference is equally open in this Court and should be accepted. 19 The third argument put by the [NAME] was that, consistently with the motor vehicle sale contract, [NAME] paid $15,000 by way of deposit. If the purchaser of the vehicle was [NAME], the payment must have been made on its behalf, but there was no evidence from which it could be inferred that any such agency arrangement existed. 20 This argument is without substance for two reasons. First, the factual premise, that [NAME] paid $15,000 by way of deposit, was not proven. Although the sale contract noted the deposit as "paid" the space to fill in the details of the receipt number are left blank. If it were relevant, I would not be willing to infer that the deposit was paid merely because the balance payable was stated as $195,000. 21 However, assuming, as both the parties and the trial judge appear to have done, that the deposit was paid, that fact is entirely beside the point. Clearly the [NAME] did not intend to pass any title they had in the vehicle to [NAME] upon payment of 7% of the purchase price. Indeed, clause 4 of the sale contract expressly provided that property would not pass until the balance was paid. Further, there is nothing inconsistent with the proposition that an invoice to the finance company, followed by payment of that invoice is in any way inconsistent with title passing to the finance company, because some other part of the consideration had been paid by a third party. Similar circumstances arose in [NAME], referred to above. 22 It follows that the documentary evidence in this case is consistent with there being a contract between the [NAME] and the Respondent, by which the [NAME] intended to transfer title in the vehicle to the Respondent, in exchange for a payment of $195,000.

An exclusion clause? 23 The second basis upon which the [NAME] sought to challenge the judgment below depended upon the effect of the sale contract entered into between [NAME] and [NAME] which included a clause excluding, to the extent permitted by law, "all warranties and conditions". Accordingly it was said, the [NAME], as vendors, gave no warranty as to title to the vehicle. 24 This argument must fail for three independent reasons. First, as already noted, the relevant sale was not to [NAME], but to [NAME]. The inclusion of such a provision in a sale contract with [NAME] would not be relevant. Secondly, there was no evidence to support an inference that the terms and conditions of the sale contract between [NAME] and [NAME] were incorporated into the contract between [NAME] and [NAME]. True it is that [NAME] received a copy of the motor vehicle sale contract at some stage. However, the only form of the contract which appears in evidence produced by CBFC, includes a "delivery receipt" signed by [NAME] for [NAME] and dated 19 June 2000. Unless that was a false receipt, [NAME] could not have received that copy of the sale contract prior to the conclusion of its own agreement with the [NAME], on or before 16 June 2000. 25 Finally, a contractual term purporting to exclude "all warranties and conditions" must be read consistently with the other terms of the contract. Where there is a specific term expressly or impliedly providing a warranty, that term must prevail over the generality of the exclusion clause. Clause 4 of the contract provided that "title in the motor vehicle will pass to the purchaser upon the latter of" two specified events. The first was the receipt of the balance payable under the contract and the second the date on which the [NAME] received title to any trade-in vehicle. The clear implication of this provision was that the [NAME] had title to pass.

Accordingly, the sale contract should not in any event be read as excluding that implied warranty, without which the commercial basis of the contract would be rendered nugatory: see Esanda Ltd v Clark (1985) 159 CLR 543.

Further evidence 26 At the commencement of the appeal, the Respondent sought to tender further evidence, pursuant to s 75A of the Supreme Court Act 1970 (NSW). That evidence included a certificate of conviction, on a plea of guilty of [NAME], upon indictment on the following charge: "Between the 19th June 2000 and the 22nd June 2000, at Wollongong, in the State of New South Wales did dishonestly obtain for [NAME] a financial advantage, to wit, $195,000.00 from [NAME], by deception, namely by producing false and misleading documents." 27 The tender of this further evidence was vigorously resisted on behalf of the [NAME]. It was said to be irrelevant to the proceedings as pleaded below and to the contentions as pleaded in this Court. It was also said to cause embarrassment to the legal representatives of the [NAME] in that the conviction concerned one only of the three [NAME], albeit the person who was responsible for the present transaction. 28 It was further suggested that, if successful, the tender would demonstrate that the contractual arrangements were based on fraud and that a claim might arise for damages for the tort of deceit. The Respondent in part accepted these arguments and proposed an amended notice of contention and an amended pleading. These proposals were met by a complaint from the [NAME] that they were unprepared to deal with these matters and that they were precluded from calling evidence which might have been relied upon to resist a claim in deceit: see Coulton v Holcombe (1986) 162 CLR 1. 29 There was also considerable debate as to whether the evidence was truly "fresh", the Respondent arguing that it was not available to it at the time of the civil trial in the District Court, because, although [NAME] had been charged prior to the trial, he had pleaded not guilty, his guilty plea only being entered after the civil trial was completed. 30 This last debate appears to have been based, at least implicitly, on the three conditions governing admission of further evidence under s 75A, identified in [NAME] v [COMPANY] (1994) 34 NSWLR 155 at 160. However, those conditions were expressed to apply to "fresh evidence" whereas s 75A extends to evidence which cannot properly be identified as fresh, as might be the case with the material tendered on this appeal. In that circumstance, a more flexible approach may be available, as noted by Heydon JA in Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116: see also Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd [2005] NSWCA 319 at [98]-[106]. 31 The relevance of this material in the present case is, with respect, not entirely clear. In any event, because, in my view, the appeal should be dismissed on the basis set out above, there is no need to rule upon the tender of the further evidence.

Conclusions 32 For the reasons set out above, the appeal should be dismissed. However, it may be noted that the reasoning adopted is not that of the trial judge. Rather, his Honour accepted at [50] the following submission which he set out at [47]: "The next submission put is that the contract made by [NAME], on 15 June 2000, with [[NAME]], was ratified by [[NAME]] on 16 June 2000 when it approved the finance, the contract having been made by [NAME] as the agent of [[NAME]]."

With respect, it defies commercial reality to suggest that a purchase agreement entered into between a customer and a [NAME] is "ratified" by the credit provider in circumstances where the credit provider later agrees to provide finance on a basis which requires that it obtains title to the vehicle. Nor did the 'confirmation' received from [NAME] in the present case give any express support for the view that it was ratifying an existing contract made by a customer who did not purport in terms to contract on its behalf. 33 His Honour rejected the approach suggested above on the basis that it contained "both approbation and reprobation of what actually occurred on 15 June": at [51]. That statement appears to have been a reference to a passage in Bowstead on Agency, at 2.079, to which his Honour was taken, suggesting that a contract could not be ratified in part. That, however, suggests that the argument put to his Honour was somewhat different from that accepted above. 34 In the circumstances, the effect of the conclusion proposed above is that identified in the first paragraph of the notice of contention filed on behalf of the Respondent, and not that relied on by the trial judge. 35 I would propose that the appeal be dismissed with costs. 36 [NAME]: I agree with [NAME]. **********

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