Registration Of Interests In Goods Amendment Bill

The Hon. E. M. OBEID (Minister for Mineral Resources, and Minister for Fisheries) [6.52 p.m.]: I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The Registration of Interests in Goods Act 1986 provides a system for the registration of security interests for motor vehicles, and other prescribed goods, so that potential purchasers can check whether the goods are encumbered. In November 1991 Premiers and Chief Ministers agreed to develop a National Vehicle Security Register to address the financial losses suffered by consumers, credit providers and motor vehicle dealers from the fraudulent movement of encumbered or stolen vehicles across State and Territory borders.

A national vehicle security register project was established under the strategic national agenda of the Ministerial Council on Consumer Affairs. Its terms of reference were to conduct a review of vehicle security registration legislation in Australia. The review was to identify and examine inconsistencies between each jurisdiction and to develop a nationally consistent vehicle security registration system. Currently all jurisdictions have laws relating to vehicle security interests, despite the lack of consistency in the laws. The level of protection for consumers and security holders varies according to the State in which they live or where the transaction takes place.

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This lack of consistency has the potential to have significant impact on residents living close to State borders who purchase a vehicle in the neighbouring State. The national vehicle security register project engaged Professor Duggan to prepare a comparative analysis of each jurisdiction’s law and make recommendations aimed at achieving national consistency. A discussion paper was distributed to industry groups, consumer organisations, government departments and other interested parties during 1995. Submissions generally endorsed the objectives of the national vehicle security register project. The final Duggan report was prepared based on community response to the discussion paper.

In August 1997, the Ministerial Council on Consumer Affairs gave in principle support for legislative change, based on the report’s recommendations. The Registration of Interests in Goods Amendment Bill 1999 implements the recommendations of the report so New South Wales becomes a consistent jurisdiction. In November last year, Victoria amended its vehicle registration legislation. Western Australia has implemented a number of the recommendations, with the remaining to be enacted through the course of the year. I am advised that South Australia intends to introduce a bill this year.

In addition to the proposed reforms aimed at providing nationally consistent legislation, the bill includes an amendment intended to address legislative deficiencies which have been identified in the financial provisions of the Act. The bill makes clear that, in the case of unregistered security interests, the meaning of "notice" of a security interest in a vehicle is limited to actual notice or wilful ignorance. The register of encumbered vehicles [REVS] legislation of each State and Territory incorporates the following two principles:

(a) where a security holder has a security interest registered, the interest of the security holder will prevail in any dispute; and

(b) where the security holder’s interest is not registered, the purchaser’s rights will prevail where the vehicle has been purchased in good faith and without notice of the security holder’s interest.

"Notice" is defined by each State’s legislation as either:

(a) constructive notice - that is, facts that could be discovered by making reasonable enquires; or

(b) actual notice or wilful ignorance - for example, where a person consciously chooses not to check a register of which she/he is aware.

Professor Duggan said the main policy concern about notice is to ensure that any loss falls on the party who is better placed to avoid that loss. The risk of loss should act as an incentive to any security holder to ensure that an interest is registered. Where notice is limited to actual notice or wilful ignorance and the onus is on the purchaser, there is a stronger incentive for a security holder to register an interest than when a constructive notice rule applies. Accordingly, the proposed amendment makes clear that, in the case of unregistered security interests, the meaning of "notice" of a security interest in a vehicle is limited to: a person’s actual knowledge of the registrable interest; or that a person has been made aware of the existence of the registrable interest and has deliberately abstained from making an initial or further inquiry when the person might reasonably have expected such inquiry to reveal the registrable interest.

To ensure consistency for repairer’s making claims, New South Wales will implement the Duggan report recommendation that a repairer’s lien takes priority over the claim of the security holder. This will result in the repairer’s costs being paid first after the disposal of the vehicle by the security holder. Duggan concluded that, if a repairer’s lien did not take priority regardless of the sequence of events, motor vehicle repairs would become more costly, to the detriment of owners and security holders alike. Currently this issue is governed by common law.

Where a validly created possessory line has priority over a registrable interest the proposed amendment enshrines this principle to provide that a repairer’s lien on goods, whether or not registered, takes priority over any registrable interest in the goods whether or not the registrable interest is registered and whether the registrable interest arose before or after the repairer’s lien. The bill goes on to define a repairer’s lien to mean a lien on goods in the possession of a person as the security for payment of services or materials furnished in respect of those goods by that person in the ordinary course of business.

At present, the Act does not contain provisions that deal with the choice of jurisdiction to apply. This means that in New South Wales the common law would determine whether the Act applied to a dispute. The choice of law rules need to be nationally consistent, otherwise, the outcome may be different depending on the State or Territory in which the action is brought. Inconsistent choice of law rules can also lead to situations where the laws of two or more States have simultaneous application. The proposed amendment provides that section 9 - which is the operative provision of the Act - applies to a purchase of goods only if the goods are situated in New South Wales at the time of the purchase. Another aspect of the bill deals with extinguishment. As noted earlier, in most REVS statutes, the two general rules which underpin extinguishment disputes are that:

(a) if a security interest is registered, it is protected from extinguishment; and

(b) if a security interest is not registered, it should be extinguished if the vehicle is later purchased by a purchaser in good faith and without actual notice of the security interest.

The Act currently provides for a number of exceptions to these rules. For example, section 9(3) provides that, where a person purchases a vehicle, which is subject to a registrable interest, from a motor vehicle dealer in good faith and for value - the purchaser acquires the vehicle free of the security interest and the security holder’s interest is extinguished. However, the Duggan report identified a situation where the application of these two general rules has an unintended result. This is where an unregistered security interest is held over a vehicle, in the possession of the debtor and the debtor colludes with a "purchaser" to sell the vehicle to a financier with the express intention of having the financier supply the vehicle on terms to the "purchaser", where both the debtor and the "purchaser" are aware of the security interest.

Examples of the supply of the vehicle by the financier to the "purchaser" on terms would be by lease or hire-purchase agreement. Presently, in such circumstances, the security interest would be extinguished under the Act as a result of the collusion of the debtor and the "purchaser". This bill addresses the situation by preventing the extinguishment of the security interest if the "purchaser" failed to act in good faith and had notice, at the time of the payment of the purchase price, of the registrable interest to which the goods are subject.

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Under the Act, where the debtor sells a vehicle to a purchaser, the onus lies on the security holder, to prove that the security interest has not been extinguished. An exception to this is the case where the debtor and the purchaser are related parties - for example, of the same household or related companies. Here, the onus of proof falls on the purchaser to prove that the security interest has been extinguished. The Duggan report indicates that proof that the security interest has been extinguished is, in both cases, most likely to be established based upon whether the purchaser acted honestly and without notice of the security interest.

It further points out that the matter of the purchaser’s honesty is more likely to be within the knowledge of the purchaser than the security interest holder. Accordingly, the Duggan report recommends that the most appropriate rule concerning the extinguishment of security interests should be that the onus of proof lies on the party who claims that the security interest has been extinguished, that is, the purchaser. This shift of onus of proof should have limited ramifications in practical terms. In general, it should be fairly easy for a person to establish that they purchased goods in good faith, for value and without notice of the security interest.

The proposed amendment accepts the recommendation and reflects an approach taken by Victoria, Western Australia, Tasmania and Queensland to provide that the standard of proof for "related companies or persons" is proof beyond reasonable doubt. Currently, the Act does not contain provisions that deal with priority disputes, hence in New South Wales, common law principles are used to settle disputes between competing security holders. In order to achieve substantially consistent legislation regarding priority between two or more competing registered security interests, the Duggan report recommends that each jurisdiction’s legislation determine priority. The proposed changes are consistent with the main principles of the Victorian-Western Australian model which are:

(a) if there are two or more security interests in relation to the same goods and one or more of those security interests is registered, the interests will take priority based on the date of registration;

(b) the order of priority is subject to any express contrary provision in the Corporations Law and to any agreement between the holders of the security interests; and

(c) in the case where there are two unregistered security interests in a vehicle which is subsequently repossessed by the holder of one of the security interests, the party having possession of the vehicle has priority over any subsequently registered security interest.

This legislation improves the provisions relating to compensation matters At present, the Act provides that in the case of computer system errors the security interest is extinguished; however, the holder of the security interest is entitled to compensation. Section 14 of the Act currently limits the amount of compensation payable to the security holder, to the value of the loss or the amount of the purchase price of the vehicle, whichever is the lesser. This limitation disadvantages the holder of the security interest in cases where the actual value of the vehicle is greater than the purchase price. In such circumstances the security interest holder will be left to bear the shortfall.

The Duggan report recommends that the amount of compensation should be limited to the lesser of the amount of the debt or the value of the vehicle. The value of the vehicle should be taken to be the purchase price unless it is established that the value is greater than the purchase price. The amendment to the Act reflects this. As mentioned earlier, the bill also includes an amendment intended to address legislative deficiencies which have been identified in the financial provisions of the Act. The Act already establishes the registration of interests in goods account. Funds in this account are generated from fees charged for using REVS.

Section 11 of the Act details a very limited range of purposes for which funds in the account may be used, such as payment of an award of compensation for loss and amounts required to repay an advance made by the Treasurer. Historically, it has been the practice of the Department of Fair Trading to levy an administration charge against the account to meet staffing and other operational expenses incurred in administering the Act. This practice is in keeping with the then Government’s stated intention when the Act was introduced. On 16 April 1986, during the second reading speech, the then Minister stated that "the cost of operating REVS will not come out of consolidated revenue . . . operating costs will be achieved by charging a nominal fee for a certificate that will contain details of encumbrances".

It has become apparent the Act does not fully reflect the intention of the Parliament. This position has recently been confirmed by advice received from the New South Wales Crown Solicitor. The Crown Solicitor commented in his advice that the wording of section 11, as originally enacted, suggested that Parliament intended REVS to be self-funding in the sense that fees paid into consolidated fund would match the costs of REVS. However, in 1989 the Act was amended by the Registration of Interests in Goods (Amendment) Act 1989 which substituted the current section 11. This substituted section is far more prescriptive as to the purposes for which withdrawals can be made from the account.

In the 1989 amendment Act’s second reading speech in reference to the new section 11, the then Minister commented that ". . . the bill reflects the fact that REVS is now a commercial, off-budget operation . . . " To ensure there is no ambiguity, it is proposed to amend the Act to enable an amount authorised by the Director-General of the Department of Fair Trading, with the consent of the Minister for Fair Trading, to be paid out of the account to meet costs which are incurred by the department in administering the Act. It is also proposed to amend the Act to enable the account to be used for a broader range of purposes in the Fair Trading portfolio to provide even greater consumer protection. Expenditure of this nature will require the consent of the Minister.

The ability to use the account for a wider range of purposes will enable the department to fund various activities, which can benefit motor vehicle consumers and industry alike. This could include consumer protection measures encouraging the purchase of motor vehicles from licensed motor dealers and compliance strategies for the purpose of increasing conformity with other legislation in the Fair Trading portfolio which also relates to motor vehicles, for example the Motor Dealers and Fair Trading Act. I commend the bill to the House.

The Hon. M. J. GALLACHER (Leader of the Opposition) [6.52 p.m.]: The Opposition is pleased to support the Registration of Interests in Goods Amendment Bill, which was introduced into the lower House last week and provides for the registration of interests in goods - currently limited to motor vehicles and boats - and for the
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extinguishment of interests when goods affected by such an interest are purchased by a private buyer in good faith and for value without notice from a private seller.

This is a good bill because it clarifies a number of discrepancies with respect to the registration of interests in goods. It is in accordance with a trend that is occurring in other jurisdictions throughout the country whereby all other jurisdictions - they are not opting out of this national proposal - are ensuring that there is consistency in interests in respect of property.

The bill is straightforward. It provides changes to the standard of proof and puts in place certain protections, particularly in respect of motor vehicle repairers who previously have fallen in the cracks of the system. This bill gives repairers, who have become victims of predators who have taken control of property, an opportunity to be compensated in a fair and proper way before the creditor disposes of the property, or its complete value.

The bill informs persons who have acted in good faith and purchased property how not to fall victim to predators. I am sure honourable members have heard about people, more often younger people, who purchase a motor vehicle in a private sale in the hope of getting a vehicle cheaper. They are not interested in a warranty; they are interested only in having a car that they can afford and is reliable.

Notwithstanding the existence of REVS, some people buy a car and find that within a short period of time a creditor has towed away their prized possession, leaving them with the difficulty of claiming compensation from the person from whom they bought the vehicle. It appears to be a complicated bill when one reads the overview but the objectives are straightforward. The Opposition is pleased to support this bill.

The Hon. E. M. OBEID (Minister for Mineral Resources, and Minister for Fisheries) [6.56 p.m.], in reply: I thank the Leader of the Opposition for his contribution and his most favourable comments. I commend the bill to the House.

Motion agreed to.

Bill read a second time and passed through remaining stages.

[The President left the chair at 6.58 p.m. The House resumed at 7.30 p.m.]