Stop thief! Ownership rights and the Personal Property Securities Act

The decision in Chelliah v NSW Police [2018] NSWSC 557 serves as a reminder that the Personal Property Securities Act 2009 (Cth) (PPSA) is not a panacea for any ownership issues arising. In this case, the purchaser of a vintage Lamborghini purported to register a security interest on the Personal Property Securities Register (PPSR) to assert title in the vehicle and sought to rely on the taking free provisions to claim a superior interest to that of the true owner who acquired title to the vehicle under a will. The PPSA did not assist, because the true owner did not have a ‘security interest’ for the purposes of the PPSA and so was not required to register any interest. The purchaser’s claim did not defeat that of an outright owner.

Key takeaways

• Simply registering an interest on the PPSR does not, of itself, establish any right to ownership in property.
• The taking free provisions of the PPSA will not assist a third party acquirer of stolen goods against the claims of the true owner.

Background

Ms Hall’s husband died in March 2015. Mr Hall left an unregistered motor vehicle to Mrs Hall in his will, which was admitted to probate with Ms Hall as the executor of the estate. This vehicle was a rare and costly collector’s item, specifically a 1970’s Lamborghini Espada. In June 2016, Ms Hall discovered that the vehicle was stolen and she notified the police.

The vehicle was discovered to be in the possession of Mr Chelliah who had purchased it from a third party in February 2016. After being notified that the vehicle was stolen, on 18 June 2016 Mr Chelliah surrendered the vehicle to the NSW police. Prior to doing so, Mr Chelliah performed a search of the PPSR and found that there was no security interests registered against the vehicle.  Mr Chelliah registered the vehicle with NSW Roads and Maritime Services.

The NSW police commenced proceedings in the NSW local court to enable them to return the vehicle to the rightful owner. Accordingly, the Court was asked to resolve the competing claims of Ms Hall and Mr Chelliah to the vehicle. On 1 June 2017 (the day prior to the first instance hearing), Mr Chelliah registered a security interest on the PPSR.

Issues for consideration

In support of his claim, Mr Chelliah argued that exceptions applied so that the nemo dat quod non habet (Nemo Dat) rule did not apply. In essence, this rule prescribes that a purchaser of property, from a person who does not own or hold ownership rights in that property (e.g. a thief), does not acquire legal title or an interest in the property.

In particular, Mr Chelliah submitted to the Court that the Nemo Dat rule, which would ordinarily operate in favour of the Ms Hall so that she would have possession of the vehicle returned to her, was displaced by two statutory exceptions. Mr Chelliah sought to rely on the following legislative provisions:

• Section 45 of the PPSA. This section provides that a buyer of a motor vehicle takes that vehicle free from any security interest if searching the register immediately before the time of sale by reference only to the serial number would not disclose a registration.
• Section 27 of the Sale of Goods Act 1923 (NSW). This section provides that where the seller of goods had a voidable title (but had not been avoided at the time of sale), the buyer acquires a good title to the goods provided they purchased the goods in good faith.

In contrast, Ms Hall submitted that but for these exceptions, the Nemo Dat rule operated in her favour.

At first instance, the Magistrate found that Mr Chelliah had failed to satisfy the Court that either of the statutory exceptions to the Nemo Dat rule applied. Further, as a matter of fact, the Magistrate concluded that Mr Chelliah had failed to satisfy the Court that he purchased the vehicle in good faith and without notice of the potential defect in its title. The Court concluded that Mr Chelliah did not act honestly and that he did not honestly or reasonably believe that the party from whom he purchased the vehicle was entitled to sell the vehicle as an agent of the owner. In support of this finding, the Court pointed towards the objectively suspicious circumstances surrounding the purchase of the vehicle by Mr Chelliah. In the circumstances, Ms Hall was found to be entitled to possession of the vehicle.

Decision on Appeal

On appeal to the Supreme Court of New South Wales, Mr Chelliah sought for the first instance decision to be set aside and a declaration that Ms Hall had no interest or entitlement in the vehicle (amongst other orders). In support of his claims, Mr Chelliah relied on the same statutory exceptions to the Nemo Dat principle which he argued at the first instance hearing.

Ultimately, His Honour Justice Garling upheld the first instance decision and dismissed Mr Chelliah’s application. Justice Garling held that as the finding that Mr Chelliah did not act in good faith was a matter of fact, it was not open to challenge on appeal. Accordingly, section 27 of the Sale of Goods Act 1923 (NSW) did not provide a basis for upholding a claim to the vehicle by Mr Chelliah.

Justice Garling also found that the PPSA did not apply on the facts and Mr Chelliah’s argument relying on section 45 of the PPSA must also fail. Pursuant to section 12 of the PPSA, in order to be a security interest which is protected under the PPSA, the security interest must have been acquired in circumstances where the transaction in substance ‘secures payment or performance of an obligation’. Accordingly, Justice Garling at [75] emphasised that it was not every transaction for the sale or purchase of an item involving a transfer of title or a legal interest which creates a security interest and attracts the operation of the PPSA.

Justice Garling found that Ms Hall’s interest in the vehicle was not a security interest within the meaning of the PPSA. Ms Hall acquired ownership of the vehicle as a result of her husband’s will. On applying the statutory wording, the gift was not dependent on any condition being satisfied and did not secure payment or performance of an obligation. Accordingly, Ms Hall did not have a security interest within the meaning of section 12 of the PPSA. Rather, her interest was as outright owner of the vehicle. It followed that section 45 of the PPSA had no application to the circumstances.

Mr Chelliah also argued that because he registered his interest on the PPSR, this meant that he had acquired absolute ownership of the vehicle.  This argument was rejected.  The Court relevantly stated that the mere fact that a party has registered their security interest on the PPSR does not of itself (and without more) establish any right to ownership of the vehicle.  As Mr Chelliah did not have any title or interest in the vehicle, as he had not established any exceptions to the Nemo Dat rule, registration on the PPSR did nothing to improve his position.