Haines Bros Earthmoving Pty Ltd v Rosecell Pty Ltd

1. [1]

   BEAZLEY P: I have had the advantage of reading in draft the reasons of Barrett AJA. I agree with his Honour's reasons and proposed orders.

2. [2]

   SACKVILLE AJA: I have had the advantage of reading the judgment of Barrett AJA. I agree with the orders proposed by his Honour and generally with his Honour’s reasons.

3. [3]

   BARRETT AJA: This is an appeal from a decision of a judge of the Equity Division (White J) upholding a claim for damages for conversion of goods. [1]

4. [4]

   In the Equity Division proceedings as eventually constituted, the present respondents, Rosecell Pty Ltd (“Rosecell”) and GT Haulage Group Pty Ltd (“GT Haulage”), sued two defendants (the present appellants), namely, JP Haines Plumbing Pty Ltd (which has since changed its name to Haines Bros Earthmoving Pty Ltd and is referred to below as “JP Haines”) and Right Price Wholesale Machinery Pty Ltd (“Right Price). Rosecell and GT Haulage claimed damages for conversion by those defendants of items of earthmoving equipment bought by the defendants in April 2008.

5. [5]

   Each of JP Haines and Right Price dealt with one George Abboud in negotiating purchase of the equipment. Abboud held himself out as having authority to arrange sale of the relevant items. It was accepted at trial that, at material times, Rosecell and GT Haulage owned (and had an immediate right to possession of) the items of equipment and that Abboud did not have actual authority of either company to sell them.

6. [6]

   Each defendant argued, however, that Abboud had ostensible authority to sell on behalf of Rosecell and GT Haulage or, alternatively, that good title to the goods was acquired by the buyer in accordance with the concluding words of s 26(1) of the Sale of Goods Act 1923 (NSW):

7. [7]

   The primary judge rejected both defences and accordingly held JP Haines and Right Price guilty of conversion and liable in damages to Rosecell and GT Haulage.

8. [8]

   On appeal, the appellants (JP Haines and Right Price) do not press the proposition that Abboud had ostensible authority to commit Rosecell and GT Haulage to the respective sales. They do, however, contend that the primary judge erred in finding that they did not acquire good title in accordance with the concluding words of s 26(1) of the Sale of Goods Act.

Factual background

1. [9]

   The primary judge found (and it is not disputed on appeal) that Abboud had taken control of the affairs and assets of Rosecell and GT Haulage “by force and threats”. [2] At the time of the relevant transactions in April 2008, Trent Doughty was the sole shareholder of Rosecell and his wife, Annette Doughty, was the sole director. Mr Doughty was the sole director and sole shareholder of GT Haulage.

2. [10]

   Abboud and Mr Doughty had been friends and business associates. They were both members of “Finks” motorcycle gang. Their business interests were complementary. Mr Doughty’s activities were in excavation and earthmoving. Abboud was engaged in haulage and transport. The respective businesses were operated through several companies controlled by each individual at shared premises at Fermoy Road, Marsden Park.

3. [11]

   A rift developed between the two men. Financial difficulties suffered by two of Mr Doughty’s companies in the excavation business caused those companies to go into liquidation. This adversely affected Abboud’s haulage business. The relationship ended abruptly on 2 February 2008 when Mr Doughty became the victim of a vicious physical attack at the hands of a group of men and received severe injuries, including full thickness (or third-degree) burns to both arms and the right buttock (caused by the removal of the motorcycle club tattoos), a broken arm and damage to his legs that left him unable to walk for a time. Abboud was present and watched as Mr Doughty was attacked.

4. [12]

   Immediately after the attack, Abboud threatened Mr Doughty and Mrs Doughty with further dire consequences (including the killing of Mrs Doughty, her children and her brother) unless they “got out of town” and surrendered to Abboud all records and assets of Rosecell, GT Haulage and certain other companies.

5. [13]

   Mr Doughty and Mrs Doughty complied with Abboud’s demand, including by giving him the passwords of the companies’ bank accounts and computers and explaining to Abboud’s wife the companies’ bookkeeping and office procedures. Mrs Doughty attended the office over a period of three days immediately after the attack for this purpose. Mr Doughty, Mrs Doughty and their children then left their home and went to stay with relatives. A few months later they moved to Queensland. The companies’ equipment and business records remained at the Fermoy Road premises.

6. [14]

   In early March 2008, Mr Doughty was attended by a psychologist at Concord Hospital. According to the psychologist’s notes, Mr Doughty did not appear to be emotionally distressed by the events of early February but was relieved to have broken with the motorcycle gang and “was taking his financial losses in his stride”. His concern was for his wife.

7. [15]

   The proceedings were conducted on the footing that Mr Doughty and Mrs Doughty remained at all material times the rightful controllers of the respondents, Rosecell and GT Haulage; that they had been coerced by Abboud’s force and threats into surrendering de facto control of the companies’ affairs and assets to him; and that they played no part in, and had no knowledge of, the transactions entered into with the appellants.

8. [16]

   The primary judge’s summation of the events of early February 2008 was as follows: [3]

9. [17]

   The primary judge also made findings about failure by Mr Doughty and Mrs Doughty to report the matter to the police and their delay in making any attempt to recover control of the companies: [4]

The transactions

1. [18]

   JP Haines paid $243,000 to acquire two Komatsu excavators, an Ingersoll Rand 10T roller, a Mitsubishi canter and a Bomag 120AD roller. Right Price paid $129,520 to acquire a Mack Fleetliner tipper, a Hamelex tipping trailer and a fuel tank.

2. [19]

   In negotiating the sale of the equipment to the appellants, Abboud dealt with Mr Mark Haines, a director of each buyer company. Mr Haines had been told by a third party that “Trent’s Excavation” was closing down and wanted to dispose of its equipment. It was suggested to Mr Haines that he approach Abboud. He was already aware that equipment carrying particular colours and a particular logo was associated with a business he knew as “Trent’s Excavation” or “GT Haulage” (with “GT” standing for “George and Trent”).

3. [20]

   Mr Haines spoke to Abboud who told him that his “partner” had departed, leaving him “in the lurch”, and that he needed to “sort this mess out and sell this machinery and equipment”. Abboud showed Mr Haines the equipment.

4. [21]

   At the conclusion of negotiations, Mr Haines said that he needed invoices to produce to his financier. Abboud arranged the issue of invoices to each buyer. In relation to the items acquired by JP Haines, four separate invoices were produced on Rosecell letterhead, [5] one for a Komatsu PC 200 Excavator with attachments (sold for $143,000), one for the Ingersoll Rand 10T roller (sold for $27,500), one for a Komatsu PC 3000 Excavator with attachments (sold for $60,500) and one for the Mitsubishi canter (sold for $5,500). Each invoice was purportedly signed by Mrs Doughty as director of Rosecell but, as the primary judge found, her signature was forged. In relation to the Bomag 120AD roller, Mr Haines received a letter on the letterhead of Rosecell under the typed name of George Abboud, as “manager”, certifying that the company had sold the item and requesting payment to an account in the name of another company, Civil Constructions Aust Pty Ltd (“CCA”).

5. [22]

   In the case of the items acquired by Right Price, invoices were issued on the letterhead of a company called Tepall Pty Ltd (“Tepall”) for all items bought. [6] The invoices were apparently signed by Mrs Abboud. There was a request in each invoice that the purchase moneys be paid to CCA. It was common ground at trial that Tepall did not own the goods. The findings of the primary judge in relation to Tepall were as follows: [7]

6. [23]

   Neither Rosecell nor GT Haulage received the purchase moneys paid by the buyer of its chattels. All such moneys were, at the direction of Abboud (or his wife), paid to CCA or to Sydney Sand and Soil Pty Ltd, another company apparently controlled by Abboud.

7. [24]

   Important findings of the primary judge regarding the transactions were: [8]

Who sold the goods?

1. [25]

   It is not disputed that, at the time of Abboud’s dealings with Mr Haines, Rosecell was the owner of the goods acquired by JP Haines (as well as the fuel tank acquired by Right Price) and GT Haulage was the owner of the remaining items acquired by Right Price.

2. [26]

   The only persons capable of giving good title consistently with the principle nemo dat quod non habet [9] were accordingly Rosecell, as to certain items, and GT Haulage as to the others. It follows that:

3. [27]

   According to the contemporary documents, the sale to JP Haines was a sale by Rosecell (the owner of the items sold) and the sale to Right Price was a sale by Tepall (which, on any view, did not own the items sold, the true owners being Rosecell as to the fuel tank and GT Haulage as to the remainder). Because of the concession at trial that Abboud did not have actual authority of Rosecell or GT Haulage to sell any of the goods and the primary judge’s finding (not challenged on appeal) that Abboud did not have ostensible authority, the sale to each of JP Haines and Right Price was necessarily a sale by a person other than the owner.

4. [28]

   In the case of the sale to JP Haines, the seller can only have been Abboud. The fact that he had no authority to act for the purported seller, Rosecell, leaves no other possibility. In the case of the sale to Right Price, the seller may have been Tepall (the company by which the invoices were apparently issued); but if Abboud did not have the authority of Tepall to sell, the seller was again Abboud. For the purposes of s 26(1) it is not necessary to identify with precision the non-owner by whom the goods were sold. It is sufficient that it be shown that there was a sale and that it was not a sale by the owner. That requirement is satisfied in the present case.

Relevant “conduct” of the owners – the primary judge’s decision

1. [29]

   It was accepted both at trial and on appeal that, in order for JP Haines and Right Price to make good the s 26(1) defence, they were required to identify particular conduct of Rosecell and GT Haulage and to establish that that conduct was such as to preclude denial by them of the seller’s authority to sell.

2. [30]

   The case of JP Haines, as pleaded in its defence, was as follows:

3. [31]

   The defence of Right Price based on s 26(1) was pleaded in corresponding terms.

4. [32]

   The primary judge summarised the contention of JP Haines and Right Price as follows: [10]

5. [33]

   The reference here to silence as the source of estoppel (and the description of the estoppel as “estoppel by omission”) followed a finding that there had been no representation by conduct that Abboud had authority to deal with the equipment in the way that he did. That finding was expressed in these terms: [11]

6. [34]

   The same issue was addressed in slightly different terms later in the judgment: [12]

7. [35]

   His Honour surveyed relevant case law, including, in particular, Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd, [13] Moorgate Mercantile Co Ltd v Twitchings [14] and Leonard v Ielasi, [15] and identified the need to show that the owner had a duty to speak or act to make his claim known. Particular reference was made to the following passage in the speech of Lord Wilberforce in Moorgate Mercantile Co Ltd v Twitchings: [16]

8. [36]

   The primary judge concluded: [17]

9. [37]

   According to the case presented by JP Haines and Right Price at trial, the relevant “conduct” of Rosecell and GT Haulage, for the purpose of s 26(1), was failing to take steps to make known to (or discoverable by) the buyers their claim to the equipment that was owned by them but in the possession of Abboud. They recognised that it was necessary for them to show also that that conduct – which was conduct by omission – partook of some relevant quality of negligence by the owners in allowing to arise a situation in which the buyers were misled as to the authority of the apparent seller. They contended that that element was present because of the particular circumstances, namely, Abboud’s assumption of possession was manifestly dishonest, produced a strong likelihood that he intended to deal with the corporate assets for his own benefit and enabled him to act as he did towards JP Haines and Right Price, yet the owners did not report Abboud’s actions to the police or take other steps to thwart his apparent purpose.

10. [38]

    The decision of the primary judge was, in essence, that, because of the physical abuse to which Mr Doughty was subjected and the obvious duress applied to him and his wife, it was not negligent for Rosecell and GT Haulage, through the actions of their controllers, to leave Abboud in control of the corporate assets, despite there being a clear risk that he would deal with them fraudulently, as he in fact proceeded to do.

Issues on appeal

1. [39]

   The appellants contend on appeal that the primary judge erred in failing to find that the respondents owed the appellants a duty to take reasonable steps to make known their claim to the relevant property (Ground 1). They also contend that his Honour erred in finding that the conduct of the respondents in not making Abboud’s actions and intentions known to the police was not conduct in breach of such a duty owed by them to the respondents (Ground 2).

2. [40]

   Ground 3, advanced by way of alternative, is that the primary judge erred in finding that the s 26(1) defence depended on principles analogous to those required to give rise to an estoppel by omission at general law. The appellants submit that his Honour should have found that the conduct of the respondents, including not reporting Abboud’s actions and intentions to the police, [18] was conduct within the concluding words of s 26(1). [19]

3. [41]

   The respondents filed a notice of contention by which they argue that the decision below should be upheld because:

4. [42]

   The appellants maintain that they are entitled to succeed whether the correct approach to s 26(1) is the estoppel approach that commended itself to the primary judge or an approach based wholly on the words of the section, uninfluenced by common law notions of estoppel. Although the alternative approach will become relevant only if the appellants fail in their challenge to the primary judge’s decision on estoppel, it is convenient to consider at once whether that approach is supportable.

Does the exception to s 26(1) depend on estoppel?

1. [43]

   A question before this Court in Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd was whether an owner’s conduct, in the form of inaction or omission to make his claim known, can be within the concluding words of s 26(1) where that conduct did not, in accordance with established estoppel principles, breach a duty owed by the owner to the buyer or a class to which the buyer belonged. [20] Kirby P, who was in dissent, answered that question in the affirmative. He accepted that the law of estoppel undoubtedly necessitates the existence of a duty but regarded the importation of that requirement into s 26(1) cases as “a wholly unwarranted diminution by the judges of the beneficial protection which s 26(1) of the Act, by its terms, was apt to provide”. [21] Formulations such as that of Lord Wilberforce in Moorgate Mercantile Co Ltd v Twitchings were perceived by Kirby P as placing an unwarranted gloss on the language of the statute.

2. [44]

   Glass and McHugh JJA, in separate judgments, were of the opposite opinion. The principle was stated by Glass JA in this way: [22]

3. [45]

   Glass JA added: [23]

4. [46]

   McHugh JA noted that courts in England, New Zealand and Australian States had “all insisted that a duty to the buyer is necessary before careless omission to prevent the sale precludes the owner from denying the seller’s authority”. [24] McHugh JA further observed that, as is indicated by the history of the legislation, s 26(1) should be interpreted in accordance with principles of common law estoppel; and that if those principles and the requirement for a duty towards the buyer are not maintained, it will be left to each judge to form an idiosyncratic view of what conduct of an owner was sufficient to preclude denial by that owner of the seller’s authority.

5. [47]

   McHugh JA also said: [25]

6. [48]

   The Sale of Goods Act 1923 (NSW) is based closely on the Sale of Goods Act 1893 (Eng), one of the three great commercial codifications of the late nineteenth century. [26] Mackenzie Chalmers, the draftsman of the English Act, described it as “almost entirely a reproduction of the common law”. [27] It has been suggested that the Act also adopted principles taken from Benjamin’s influential work of 1868 [28] that found no place in the common law, [29] as well as at least one misconception of the common law position for which Benjamin was responsible. [30]

7. [49]

   In cases decided in England soon after the Act’s commencement, judges recognised its provenance and purpose. In 1895, in Payne v Wilson, Pollock B observed that the Act had been passed “to consolidate what was assumed to be the existing law by which sales of good were regulated”. [31] In relation to some matters, the opportunity was taken to make certain that which was uncertain. For example, in Abbott & Co v Wolsey, another 1895 case, Lord Esher MR said that, while the legislation had been passed “to declare the law”, it also introduced certainty in an area that had been the subject of “not quite consistent” decisions and there was no need to go beyond the new statutory definition of acceptance for the purposes of the successor provision to s 16 of the Statute of Frauds 1667 (Eng). [32] The definition turned wholly on factual issues. The statement, in codified form, of the facts necessary to support a finding of acceptance by the buyer left no scope for continued resort to earlier case law.

8. [50]

   Although in some areas the code prescribed legal obligations in a way that might have been thought to make it unnecessary to look at earlier cases, courts nevertheless continued to look at those earlier cases. In Cahn v Pockett’s Bristol Channel Steam Packet Co Ltd, a question about the meaning of a provision of the Act was answered by A L Smith LJ in this way: [33]

9. [51]

   The approach taken by Lord Esher MR in Kirkham v Attenborough was that, in order to determine the position of the buyer under a contract for sale or return, it was necessary to “consider the principles adopted by the Courts and now unhappily, as I think, codified in the Act, the language of which is unfortunately chosen”. [34]

10. [52]

    Dealing with the Bills of Exchange Act 1882 in the 1891 case of Bank of England v Vagliano Bros, [35] Lord Herschell regarded the correct way of approaching that codifying legislation as being to consider the language of the statute in the first place and then to “ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law”, rather than inquiring what the law previously was, assuming that there was probably an intention to leave it unaltered and seeing whether the words will bear an interpretation in conformity with that assumption. [36]

11. [53]

    In the present case, if we take the words of the statute and seek their natural meaning, we are immediately confronted by a need to give content to the concept of “precluded” by “conduct” from “denying” the seller’s authority and to identify the types of “conduct” by which an owner is “precluded” from “denying” that authority. The submission of the appellants is that the court should undertake a general assessment of the owner’s conduct in the whole of the context in which it occurred and, without being constrained by principles of common law estoppel or other preconceptions (but acting judicially), decide whether the conduct is of such a quality that the seller is precluded from denying the seller’s authority to sell.

12. [54]

    The appellants note that statutes are replete with provisions requiring courts to determine questions in the interests of justice. Many statutes make it clear that rights and obligations depend upon what a court determines to be “just and equitable”. [37] The judicial function in a case of that kind was described by Stephen, Mason and Jacobs JJ in Talga Ltd v MBC International Ltd in this way: [38]

13. [55]

    In the present context, the court is not required to apply a statutory definition. [39] Nor is the necessary inquiry a broad inquiry as to what is “just and equitable” according to some legislative “policy”. It is as to the quality of particular conduct engaged in in a particular context: is the conduct of such a kind that the owner “is…precluded” by it from “denying” the seller’s authority? The word “is” deserves emphasis. The court is not called upon to say whether, in light of the owner’s conduct, he or she should be precluded. Rather, it must determine whether he or she “is” precluded “by” that conduct. It is the intrinsic quality of the conduct that is to be addressed. The statute makes no attempt to define or describe precluding conduct. It proceeds on the basis that the relevant quality inheres in conduct according to norms that operate independently of and are extraneous to the statute.

14. [56]

    At the time of the passing of the English Act of 1893, the common law had a well-developed concept of preclusion by conduct from denying a state of affairs. Thus, for example, in Swan v North British Australasian Co Ltd, [40] Channell B spoke of circumstances in which one person was “concluded from averring as against the latter a different state of things”, [41] and Martin B spoke of a man who had “by his conduct estopped himself from averring the truth”. [42] In Woodley v Coventry, a sale of goods case, Bramwell B said that “[i]t frequently happens that a person by making an acknowledgement precludes himself from setting up something favourable to him”. [43] The guiding principle, as enunciated by Lord Denman CJ in Pickard v Sears, [44] was that a person who, by conduct, wilfully causes another to believe in the existence of a certain state of things and induces him to act on that belief so as to alter his position “is concluded from averring against the latter a different state of things as existing at the same time”. A decade later, Parke B observed in Freeman v Cooke that “conduct, by negligence or omission, when there is a duty cast upon a person, by usage of trade or otherwise, to disclose the truth, may often have the same effect”. [45]

15. [57]

    From at least the fourteenth century, the common law recognised concepts of estoppel founded on conduct of a plaintiff binding him to his disadvantage, as a matter of procedure, without creating a real title in the defendant. [46] Those concepts were well-established by 1893 and extended to conduct in the form of negligence or omission. With the law in that state, legislation which, in that year, not only referred to “conduct” by which an owner “is…precluded from denying” a seller’s authority to sell, but also specified no criteria for judging whether conduct is of the relevant quality showed an intention both to import existing common law rules of preclusion and to accommodate the inherent capacity of the common law to develop them. [47]

16. [58]

    In my respectful opinion, the historical analysis made by McHugh JA in Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd and the conclusion reached by both McHugh and Glass JJA as to the scope and meaning of the concluding words of s 26(1) are correct. Like Glass JA, I can find no way of identifying precluding conduct by silence unless “the litmus test of duty” is applied. I am of the opinion that, if the appellants do not succeed in their case based on Grounds 1 and 2 in the notice of appeal, Ground 3 will not avail them either.

The questions of duty and breach

1. [59]

   In advancing Grounds 1 and 2 in the notice of appeal, the appellants submit that the primary judge should have held that Rosecell and GT Haulage owed them a duty, of the kind relevant to the particular species of estoppel, to take reasonable steps to make known their claim to the equipment and that there was a breach of that duty.

2. [60]

   The parties accept that the matter must be approached as one of estoppel by omission or, as it is sometimes inaptly called, “estoppel by negligence”. [48] The gist of the case on appeal is that the primary judge should have found that each of Rosecell and GT Haulage breached a duty owed by it to the buyer of its goods by failing to take steps to assert its title and that it was the breach of duty which was the real and proximate cause of the appellants being induced to buy the goods and to part with the purchase price to the Abboud interests. The essence of the relevant estoppel is described in the current edition of Benjamin’s work in this way: [49]

3. [61]

   In approaching the first of these elements (regarding duty), the course prescribed by Lord Wilberforce in the passage in Moorgate Mercantile Co Ltd v Twitchings set out at [35] above must be followed. Regard must be had to the situation in which the transaction occurred as known to both parties and two questions must be asked: first, whether, in that situation, a reasonable person in the position of the buyer would expect the owner, acting honestly, to make the owner’s claim of ownership known to and discoverable by the buyer; and, secondly, whether, in that situation and in the face of the owner’s omission to take any such step, the buyer could reasonably assume that no such claim of ownership existed.

4. [62]

   The primary judge proceeded, clearly enough, on the basis that it was necessary to find that a duty towards the buyers had arisen. His Honour said that failure to notify authorities of dispossession “can give rise to an estoppel where there is a duty to speak or act”. [50] He also said that a buyer who relied on the owner’s omission to act to prevent sale “had to demonstrate that the owner owed a duty to take such action”. [51] An element of reservation as to the existence of a duty in the present case emerged in the passage quoted at [36] above where, after referring to the owners’ knowledge of Abboud’s dishonesty in relation to the equipment, his Honour used the words, “[b]ut even if this be sufficient to give rise to a duty of care…”. [52] [Emphasis added.]

5. [63]

   The appellants complain that the primary judge did not make a clear and unequivocal finding that the respondents had incurred a relevant duty towards the appellants. They rely on a number of factual matters in support of the proposition that such a duty arose: Mrs Doughty spent three days immediately after Abboud’s forcible appropriation of control tutoring Mrs Abboud in the companies’ bookkeeping and business methods; Abboud and Mrs Abboud were given all relevant passwords so that they could access all assets; Mr Doughty told the hospital psychologist a month after the forcible appropriation that he was “taking his financial losses in his stride”; Mr Doughty gave some evidence of having mentioned the dispossession to friends and of having raised the financial implications of it with the companies’ bank; and, importantly, Mr Doughty and Mrs Doughty made no attempt for more than a year to recover the equipment or even to ascertain what had happened to it. [53]

6. [64]

   The appellants say that Rosecell and GT Haulage lost control of their assets in circumstances where their controllers knew that:

7. [65]

   These factors, coupled with the statutory obligation upon the world at large to report serious crime to the police, [54] are said by the appellants to have compelled a conclusion that Rosecell and GT Haulage had become subject to a duty to take positive steps calculated to put potential buyers of the equipment from Abboud on notice of their rights as owners. On this footing, the test for the imposition of such a duty enunciated in the passage in the speech of Lord Wilberforce in Moorgate Mercantile Co Ltd v Twitchings set out at [35] above is, they say, satisfied. [55]

8. [66]

   The respondents point to an immediate difficulty faced by the appellants in establishing the duty for which they contend, namely, the primary judge’s findings that, by leaving Abboud in possession of the equipment and giving Abboud and Mrs Abboud sole control of the business premises, records and assets, the respondents did not, by conduct, represent that Abboud had general authority to sell the equipment on behalf of the respondent companies. [56] At most, his Honour said, this might convey that Abboud had authority to act for each company in the ordinary course of its business and therefore to sell its assets in the ordinary course of business only.

9. [67]

   It may be that Mr Doughty and Mrs Doughty caused Rosecell and GT Haulage to be “negligent as regards [themselves]” [57] because the companies did not act through the individuals to counter Abboud’s forcible taking of control which foreshadowed further wrongdoing by him. But the question for the primary judge was not as to negligence in that sense. It was, in the first instance, whether the taking of control by Abboud caused the companies to become subject to a duty towards others to correct or counter some misapprehension of fact. Given the primary judge’s findings as to the effect of the inaction of Mr Doughty and Mrs Doughty and the representation thereby implied, any conceivable duty towards others to which the companies became subject was a duty related to the possibility of unauthorised transactions in the ordinary course of business. While carelessness, of itself, is insufficient to give rise to a relevant duty, any duty that does arise can only be a duty to counter a factual misapprehension operating upon the party seeking to set up an estoppel. Any such misapprehension can only be commensurate with assumptions reasonably grounded in the state of affairs actually or impliedly represented by the conduct of the person sought to be estopped – here, on the primary judge’s findings, a state of affairs in which Abboud had authority to act for the companies in the ordinary course of business and to sell their assets in the ordinary course of business.

10. [68]

    This is not a case of a stolen motor vehicle, misappropriated securities or other property taken by a wrongdoer. Abboud, by his actions, put himself into a position from which he could control the whole of the companies’ assets and affairs. His actions did not target the earthmoving equipment as such. Given that he and his own companies carried on a complementary business, the apprehension that could reasonably be assumed is that he would exercise the misappropriated corporate control by carrying on business rather than destroying the capacity to conduct it.

11. [69]

    There is the added point, emphasised by the respondents, that, according to Lord Wilberforce’s formulation in Moorgate Mercantile Co Ltd v Twitchings, the situation in which the relevant transaction occurred must be known to both parties. [58] In Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd, McHugh JA described the words “as known to both parties” as “of critical importance”, noting that “it is the situation in which the transaction occurred which must be known to both parties, not their actual interests or existence". [59] Glass JA also referred to requirement of knowledge on the part of both parties, observing that in the absence of “any relevant transaction known both to [the] owner and the defendant as acquirer there are no circumstances which would raise a duty of care”. [60]

12. [70]

    The critical importance of the words “as known to both parties” is, the respondents correctly submit, a reflection of the fact that the issue is one of estoppel which, of its nature, precludes denial of a particular state of facts. As Dixon J said in Grundt v Great Boulder Proprietary Gold Mines Ltd, [61] estoppel in pais is founded on the principle that “the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purposes of their legal relations”. [62] Precise identification of the factual circumstances known to the party seeking to set up an estoppel is essential to an evaluation of what it is that a reasonable man in that party’s position would expect. Likewise, precise identification of the factual circumstances known to the owner sought to be estopped is essential to an evaluation of what an honest and responsible owner would do to defend his title. Only if both parties are working, as to essential matters, on the same set of facts is it possible to judge whether there exists the reasonable expectation of alerting or disabusing action by the owner central to the existence of the duty on which estoppel is based. A necessary element, therefore, is shared knowledge that the owner’s silence has caused the acquirer to believe that a particular state of affairs exists regarding the relevant property and to rely on that belief.

13. [71]

    A possible qualification or contrary indication arises in the following passage in the judgment of Johnston J in Leonard v Ielasi: [63]

14. [72]

    To the extent that it is here suggested that a duty of the kind relevant to estoppel arises from the owner’s knowledge that a dishonest person is in possession of the goods and is therefore in a position to make an authorised sale if minded to do so, the suggestion cannot be accepted. Knowledge of third party possession and of the dishonesty of the third party is knowledge of a risk of unauthorised sale, not knowledge of a state of affairs that involves a particular buyer and is known to that buyer. Foreseeable risk is a matter relevant to negligence, not estoppel. If, on the other hand, Johnston J’s statement is in truth concerned with knowledge that a dishonest person is in possession of the goods and has taken steps to portray himself to a possible buyer as the owner of them, it deals with knowledge of a state of affairs of the kind relevant to estoppel. It is, in my opinion, necessary to adopt the second interpretation. I accept the respondents’ submissions in that respect.

15. [73]

    In the present case, a centrally important fact of which the owner companies were unaware was that Abboud had engaged in dishonestly misleading conduct towards the buyers of the equipment – indeed, that he was even treating with buyers or intended doing so. The companies’ knowledge that Abboud had the practical ability to act in those ways (as well as any expectation they may have had that he would do so), even when coupled with knowledge of the gross dishonesty that had attended his taking of control of the companies’ assets and affairs, did not involve any implied representation to anyone that he was entitled to sell the companies’ earthmoving equipment in the way he did.

16. [74]

    In another way too, there was a lack of correspondence between the state of facts known to the acquirers and that known to the owner companies. The owner companies knew, but the acquirers did not, that some two months before the sales, Abboud had subjected Mr Doughty and Mrs Doughty to extreme duress and had threatened further dire consequences if he were not left in sole control of the owner companies. That threat was of its nature a continuing threat. Had a reasonable person in the position of the buyers been aware of that circumstance, he or she may well not have expected action by the owner companies to assert title when such action was likely to produce those dire consequences for their controllers. Against this, it might be said that it is not open to a company seeking to defend its own interests to be concerned about physical threats to its controllers. While that may be so in the abstract, we are here concerned with postulated conduct of an owner company that was the alter ego of one or both of the relevant individuals, and the hypothesis as to the way it would act has to be formed according to practical considerations in real-world circumstances.

17. [75]

    In my opinion, the requirement of equivalence of factual knowledge that is central to Lord Wilberforce’s formulation is not met on the facts of this case as found by the primary judge. It follows that those facts did not give rise to any duty of the respondents towards the appellants of the kind relevant to the establishment of the estoppel the appellants assert. Ground 1 in the notice of appeal therefore cannot be upheld and Ground 2 (the issue of breach of duty) does not arise.

Causation

1. [76]

   Nor, for the same reason, is there any need to consider the issue of causation and the question whether conduct (in the form of silence or inaction) by the respondents was the proximate or real cause of the appellants being induced to buy the goods and to pay the purchase price to the Abboud interests. I proceed nevertheless to a brief consideration of causation (raised by the notice of contention) on the assumption that, contrary to the conclusion I have reached, the duty to act asserted by the appellants was both owed and breached by the respondents.

2. [77]

   Central to the issue of causation is the question of reliance. It must be shown by a party alleging estoppel that, in proceeding to buy and to part with the price as he did, he relied on the owner’s silence or inaction. The matter was put thus by Redlich J in Johnson Matthey (Aust) Pty Ltd v Dascorp Pty Ltd: [64]

3. [78]

   In the present case, there was evidence of the things upon which the appellants did rely in making their decision to buy and to pay the price. The primary judge found that Mr Haines made an assumption that Abboud was authorised to arrange the sale of the equipment. [65] The basis for the assumption was not mere intuition or blind trust. The primary judge referred to a combination of facts that operated upon Mr Haines’ thinking: that the equipment was located on the Fermoy Road property; that Abboud had possession and control of the property and the equipment; that Abboud acted as if he owned the equipment; that Abboud and his wife had control of the office and the business records relating to the equipment and knew about the equipment; that the equipment had distinctive orange or orange and black markings that were consistent with other equipment Mr Haines had seen that related to “GT Haulage”; and that he had heard from truck drivers who had done subcontracting work for “GT Haulage” that Abboud was associated with the “GT Haulage” business.

4. [79]

   These findings were reflective of evidence that Mr Haines was content to proceed on the basis of his appreciation, gleaned from the business circles in which he operated, that Abboud (who, as he had observed, had possession of the equipment and acted as if he owned it) had a legitimate and established association with “GT Haulage”, the business in which he understood equipment carrying the distinctive markings appearing on the relevant items to be used. There was no evidence that Mr Haines questioned the direction to pay the purchase moneys to companies other than the purported sellers (Rosecell as to some items and Tepall as to the others); and there was an express finding that he did not make any inquiry whether Abboud had the owner’s authority to sell.

5. [80]

   It is thus clear that the appellants, through Mr Haines, were content to rely on – and did rely on – a series of observations of their own and assumptions generated by those observations. Their willingness to proceed as they did existed in the absence of any steps taken by them to question or verify Abboud’s authority and despite the suspicion that should have been aroused by the directions to pay the purchase moneys to third parties having no apparent connection with the transaction. Given the evidence of the several matters on which the appellants did place reliance in pursuing the course that ultimately occasioned their loss, there cannot be said to have been, in the words of Redlich J, “compelling evidence establishing that the buyer has relied upon the owner’s failure to act”. [66]

6. [81]

   The contentions in the notice of contention on the issue of causation should be accepted.

Conclusion

1. [82]

   This is one of those unfortunate cases in which the contest is between innocent parties, one of whom must ultimately suffer loss for which a dishonest non-party should bear responsibility. On the legal analysis I consider to be dictated by the facts, it is the appellants who must bear the loss in this instance.

2. [83]

   In my opinion, the appeal should be dismissed with costs.