Commercial Law Note: Banks Vs Ferrari - Case Study Example

Case citation: Banks v Ferrari and Ors [2000] NSWSC 874 (7 August 2000) Court: New South Wales Supreme Court Judges: Dowd J Parties: Plaintiff/ Appellant: Beverley Joy Banks Defendants/ Respondents: Luisa Ferrari, John Fausto Ferrari and Ferrari Enterprises of Australia Pty Limited Procedural History The case was first filed at the Local Court where the plaintiff prayed for the recovery of her personal chattels which have been detained by the defendants. The judgment of the Local Court by Barkell M favored the defendants contending that, “the plaintiff did not have better right to the goods than did the defendants.” The learned Magistrate further held that under s58(1) of the Bankruptcy Act 1966 (Cth) “the property owned by the plaintiff must be vested in the Trustee in Bankruptcy as a result of her having become bankrupt.” Barkell M also finds that the plaintiff, “had no legal rights or entitlement in relation to the goods because of the operations of vesting provisions of the Bankruptcy Act, or that the plaintiff was unable to claim title to the goods because the Trustee in Bankruptcy exercised a discretion to make no claim to the goods.” It is due to these reasons that the plaintiff further filed an appeal before the Supreme Court of New South Wales where judgment of the Local Court was set aside. Statement of Facts On October 10, 1991 Henry George Banks, the plaintiff and one of her sons, Graeme Lachlan Banks registered Malgrae as a duly incorporated company and that the directors upon its inception are Graeme Banks and the plaintiff. The plaintiff resigned as director of Malgrae on 23 May 1994 while Graeme Banks continued as director where Henry George Banks was appointed as chairman and Malcolm Francis George Banks as director. But both Graeme and Malcolm Banks resigned as directors on 22 January 1996 following the amendments of the Corporations Law in December 1995. On December 1, 1995 Ferrari Enterprises and Malgrae and Associates Pty Ltd entered into a licence agreement. It was provided in the agreement that Malgrae is to operate Lakeview at the premises. Malgrae then occupied the premises and commenced operation of the basis. Having entered into the agreement the plaintiff brought onto the premises her own personal effects to decorate, adorn, and to be used in the premises which include among others a Bluthner grand piano, solid oak table, Colebrookdale tables and chairs, wine glasses, candelabras, paintings, clothing, and toiletries. The defendants, husband and wife are directors of Ferrari Enterprises and former owner and operator of the Lakeview Reception Centre which is a restaurant situated at Box Hill (“the premises”). Prior to March 20, 1996 the plaintiff was an employee of Malgrae and even though she had been a shareholder of Malgrae she was not in any way a financial contributor to the operation of Malgrae. Her contributions to the company included cooking, washing, cleaning, gardening, and organizing the music programme. On May 27, 1994 the plaintiff was declared bankrupt and was discharged from bankruptcy after three years. The Trustee in Bankruptcy admitted in evidence through a letter dated 23 October 1998 making no claim to the personal effects that the plaintiff brought onto the defendants’ premises. Non-payment of rents and non-compliance of the agreement prompted the defendants to initiate legal proceedings against Malgrae. The plaintiff however, was prevented from gaining access to the premises to remove her belongings and that it shall remain with the defendants unless the bond and rent have been paid. Legal Issues Whether or not the defence of jus tertii by the defendants applies in the case at bar? Whether or not the property in question of the plaintiff falls under the Bankruptcy Act? Whether or not the cause of action of conversion and detinue pleaded against the defendants tenable? Ratio Decidendi Jus Tertii In pleading her case the plaintiff submitted that the defence of jus tertii is only applicable where the plaintiff has a better right to possession than the defendant of which the defendant countered that the plaintiff has no right at all because absolute title is vested in the third party. The plaintiff rightly pointed in the case of Leake v Loveday Leake v Loveday and Brooks [1842] EngR 1063; 134 ER 399 at 402-403, per Tindal CJ: “The defence of jus tertii is appropriately applied in cases where title as between the defendant and the plaintiff is at issue, where paramount title and possession in the property had actually passed to the defendant and had never rested with the plaintiff.”1 On the basis of the above case it was further held: “Possession with an assertion of title, or even possession alone, gives the possessor such a property right as to enable them to maintain an action against a wrongdoer.”2 In relation to the case at bar, the plaintiff asserted that the defendants have no title or right to possession. The plaintiff further added that it was not open to the defendants to argue that title was vested in the third party because the latter failed to establish that title was vested in the third party, the Trustee in Bankruptcy. The Trustee never made a claim to title of the chattels. Bankruptcy Act It was the contention of the defendant with regards to the actual possession of the plaintiff as quoted in S. Fisher., Commercial and Personal Property Law (Sydney: Butterworths, 1997), at 85: “As soon as a natural person becomes bankrupt, under s58 of the Bankruptcy Act, all the property of the bankrupt vests immediately in the registered Trustee in Bankruptcy. So far as the interests of possession are concerned, bankruptcy deprives the bankrupt of all the attributes of ownership of his or her property, including possession and the right to possess goods and other forms of tangible personalty”.3 Section 16 of the Bankruptcy Act 1966 provides that: “The Trustee can determine and dispose physically those goods and chattels in any way that he or she wishes, consistent with the rights of the creditors. If such determination is made that the goods are located somewhere, it is open to him or her, even if the argument that they may not divest themselves of the property in the goods, they may physically allocate possession of those goods to any person, or may allocate the right to obtain possession of them.”4 Conversion and Detinue In an action for conversion the injurious act is the original taking interference with the dominion of the true owner, while in detinue the injurious act involves the wrongful detention of the goods. According to Coleman v Harvey [1989] 1 NZLR 723 at 730, per Somers J:5 “Conversion essentially consists of a positive wrongful act of dealing with goods in a manner which is inconsistent with the rights of the owner. This must be coupled with the intention of denying the owner’s rights or asserting a right that is inconsistent with them. Among such rights is the right of possession to the immediate claim to it.” It is important that the plaintiff must have the right to immediate possession of the goods for conversion to prosper. The following three elements must be proved so that the action for detinue will be established: Firstly, as held in Timewell v Virgoe (1868) 5 WW&A’B L 147 at 151, per Stawell CJ: “The plaintiff must specifically make a demand for the return of the goods on the person who has legal possession on them. The plaintiff’s immediate right to possession must simultaneously subsist at the time the demand is made.”6 Secondly, as it was ruled in Nelson and Another v Nelson [1923] St R Qd 37 at 40, per McCawley CJ: “The plaintiff’s demand must have been refused by the alleged tortfeasor.”7 Thirdly, as contended in EE McCurdy Ltd (in liq) v Postmaster-General [1959] NZLR 553 at 556-557, per McGregor J: “Where the goods are in actual possession of the alleged tortfeasor, the refusal to return the goods to the plaintiff must be unreasonable. In the event that the goods are not in the actual possession of the tortfeasor, the tortfeasor must have wrongfully parted with possession.”8 Decision of Court The appeal by the appellant was decided by the Court in the affirmative contending in the words of Dowd J as follows: “In my view, the argument of the defendants that pleads the right of third party fails. The defendants do not have the right, in their circumstance as involuntary bailee, to set up the right of third party. Such right only arises if there is a competing claim between the defendants and the plaintiff for ownership. Ownership is not contended by the defendants.”9 Furthermore, Dowd J contends that: “The plaintiff has at least a right to the possession of the goods on the basis that the Trustee in Bankruptcy has excluded them from the property of the bankrupt, and has in fact determined that he does not dispute her entitlement to possession of the goods.”10 The plaintiff is entitled to recovery of possession of the property which the defendants wrongfully refused to return. The decision of the proceedings before the Local Court penned down by Barkell M was hereby set aside. Analysis In consideration of the contentions mentioned above, the appellant has the right to recover possession of her personal effects that was brought onto the premises. Notwithstanding the fact that she was declared bankrupt by the Trustee in Bankruptcy, her personal belongings were not among those declared by the Trustee to be determined and disposed of physically without prejudice to the rights of the creditors. The respondents on the other hand, cannot claim the defence of a third party or that of a bailee since in the first place the appellant’s personal effects never belonged to a third party. Therefore, the respondents cannot legally withhold the appellant’s belongings and make a compromise as to its release in consideration of the bond and rental payment of the premises. The possession of the belongings must be rewarded back to its rightful owner, and that was the appellant. Bibliography: Banks v Ferrari and Ors [2000] NSWSC 874 (7 August 2000) Coleman v Harvey [1989] 1 NZLR 723 at 730, per Somers J. EE McCurdy Ltd (in liq) v Postmaster-General [1959] NZLR 553 at 556-557, per McGregor J. Leake v Loveday Leake v Loveday and Brooks [1842] EngR 1063; 134 ER 399 at 402-403, per Tindal CJ. Nelson and Another v Nelson [1923] St R Qd 37 at 40, per McCawley CJ. S. Fisher., Commercial and Personal Property Law (Sydney: Butterworths, 1997), at 85. Timewell v Virgoe (1868) 5 WW&A’B L 147 at 151, per Stawell CJ. Section 16, Bankruptcy Act 1966. Read More