International Alpaca Management Pty Ltd & Ors v Ben K.E. Ensor & Ors [1995] FCA 1054

C A T C H W O R D S

CONTRACT - questions of ownership and right to possession of imported alpacas - proper construction of agreements - whether property passed prior to payment of the purchase price under the agreements - whether evidence that payments required under agreements were made - whether respondent entered into (secret) "reserved" contract in "good faith" and "without notice" of appellant's claim to title in the alpacas so as to obtain beneficial title to certain alpacas.

SALE OF GOODS - importation of alpacas - passing of property - title by estoppel by virtue of s.26(1) of the Sale of Goods Act - sale by seller in possession - whether respondent entered into "reserved" contract in "good faith" and "without notice" of appellant's claim to title in the alpacas so as to obtain beneficial title under s.28(1) of the Sale of Goods Act - whether actual, not constructive, notice of previous sale - whether the circumstances, looked at objectively, constitute notice is a question of fact and degree to be determined in the particular circumstances of the case - whether later buyer acted in "good faith" or, measured objectively, not honestly.

Sale of Goods Act 1923 (NSW), ss.5(2), 22, 23, 26(1), 28(1)

Cases Considered:

Appellate Court: proper inference to be drawn from facts

Warren v Coombes (1979) 142 CLR 531

Passing of property

The Colonial Insurance Co of New Zealand v. The Adelaide Marine Insurance Co [1886] 12 AC 128

McDougall v. Aeromarine of Emsworth Ltd [1958] 1 WLR 1126

R.V. Ward Ltd v Bignall [1967] 1 QB 534

Federal Commissioner of Taxation v. McConochie (1960) 102 CLR 561

Title by estoppel

Big Rock Pty. Ltd. v Esanda Finance Corp. Ltd. (1992) 10 WAR 259

"Good faith" and "without notice"

In re Gomersall [1875] 1 Ch D 137

The London Joint Stock Bank v Charles James Simmons [1892] AC 201

Jared v Clements [1902] 2 Ch. 399; [1903] 1 Ch. 428

Heap v Motorists' Advisory Agency Ltd [1923] 1 KB 577

Pacific Motor Auctions Pty. Ltd. v Motor Credits (Hire Finance) Ltd. [1965] AC 867

Worcester Works Finance v Cooden Engineering Co Ltd [1972]

1 QB 210

Feuer Leather Corporation v Frank Jonstone & Sons [1981] Com.LR 251

Robinson Motors Pty. Ltd. v Fowler (1982) Qd.R 374

Forsythe International (UK) Ltd. v Silver Shipping Co Ltd [1994] 1 WLR 1334

Royal Brunei Airlines v Tan (P.C.) [1995] 2 AC 378

Woodchester Equipment Leasing Company Ltd. v Capital Belts Ltd., Court of Appeal, 12 April 1995, unreported

INTERNATIONAL ALPACA MANAGEMENT PTY LTD & ORS v.

BEN K.E. ENSOR & ORS

No. G 490 of 1995

Davies, Beaumont & Carr JJ.

Sydney

24 November 1995

IN THE FEDERAL COURT )

OF AUSTRALIA )

NEW SOUTH WALES )

DISTRICT REGISTRY ) No. G 490 of 1995

GENERAL DIVISION )

B E T W E E N: INTERNATIONAL ALPACA

MANAGEMENT PTY LTD

First Appellant

TEXTILE FINANCE LIMITED

Second Appellant

COOLAROO ALPACA GENERAL

PARTNER PTY LIMITED

Third Appellant

and

BEN K.E. ENSOR

First Respondent

GARRYMERE FARMS LIMITED

Second Respondent

CORAM: Davies, Beaumont and Carr JJ.

PLACE: Sydney

DATE: 24 November 1995

MINUTE OF ORDERS

THE COURT ORDERS:

1. Appeal allowed, with costs.

2.Orders made at first instance set aside; in lieu thereof, order that it be declared that the first appellant was, until 30 June 1992, the beneficial owner of, and entitled to the immediate possession of, the 100 alpacas the subject of the application; that the second appellant is now the beneficial owner of those alpacas; and that the third appellant is now entitled to their immediate possession; and further order that liberty be reserved to the appellants to apply to a judge of the Court for further consequential relief in that connection, if necessary; that the respondents' cross-claim be dismissed; and that the respondents pay the appellants' costs of the proceedings at first instance.

NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

)

NEW SOUTH WALES DISTRICT REGISTRY ) No G 490 of 1995

)

GENERAL DIVISION )

)

On appeal from a single Judge of the

Federal Court of Australia

BETWEEN: INTERNATIONAL ALPACA MANAGEMENT PTY LIMITED

First Appellant

TEXTILE FINANCE LIMITED

Second Appellant

COOLAROO ALPACA GENERAL PARTNER PTY LIMITED

Third Appellant

AND: BEN K E ENSOR

First Respondent

GARRYMERE FARMS LIMITED

Second Respondent

Coram: Davies, Beaumont & Carr JJ

Date: 24 November 1995

Place: Sydney

REASONS FOR JUDGMENT

DAVIES J:

INTRODUCTION

I have had an opportunity to read the reasons for judgment of Beaumont & Carr JJ. I am in general agreement with them but wish to express some reasons of my own.

The evidence below was presented in great detail and credit was alleged to be a major issue. As the matter was presented in the appeal, however, the primary facts were no longer an issue, being found in the judgment of the learned trial Judge or in the correspondence which had been tendered in evidence. This is an appeal in which the principle enunciated in Warren v Coombes (1979) 142 CLR 531 has particular application. At 551, Gibbs ACJ, Jacobs & Murphy JJ said:-

"Shortly expressed, the established principles are, we think, that in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it. These principles, we venture to think, are not only sound in law, but beneficial in their operation."

The Contracts

Three hundred Alpaca were exported from Chile under an export licence held by Alpac Chile Limitada ("ACL") and after a period of quarantine in the Cocos Islands, they and their cria were imported into Australia under a licence held by Mr Ben K.E. Ensor, the first respondent. The alpaca were identified animals. It was not in dispute that 200 had been purchased by Mr Ensor from ACL. The proceedings before the trial Judge concerned the remaining identified 100 alpaca and their cria.

There were five agreements or alleged agreements for the purchase of alpaca which are relevant. They were:-

(i) An agreement entered into on 14 March 1991 for the purchase of 200 alpaca from ACL by Mr Ensor.

(ii) An agreement of 15 February 1992 for the purchase by Mr R.G. Inglis or his nominee from ACL for the purchase of 100 alpaca.

It is not in dispute that there is a doubt as to whether there was a valid written or oral agreement to this effect.

(iii) An agreement dated 20 February 1992 for the purchase by International Alpaca Management Pty Limited ("IAM") from Mr Inglis or his nominee of 100 alpaca.

(iv) An agreement entered into on 24 May 1992, but dated 20 February 1992, between IAM, Mr Inglis and ACL in which the terms of IAM's purchase of 100 alpaca were redefined.

(v) An agreement, (the "reserved contract") entered into in late August 1992 for the purchase by Mr Ensor from ACL of 45 alpaca.

Mr Ensor had at all material times wished to purchase or to obtain an interest in all 300 alpaca. However, although at the trial Mr Ensor claimed the 100 alpaca in dispute and an order was made by the trial Judge that the 100 alpaca be delivered up to Mr Ensor, the trial Judge did not find that Mr Ensor had any rights in relation to the 100 alpaca, save those arising under the reserved contract, which was a contract for the sale and purchase of 45 of the alpaca only. In the appeal, it was not alleged that Mr Ensor had any rights as against ACL save those arising under the reserved contract.

Clause 8.1 of Mr Ensor's Contract

The agreement of 14 March 1991, agreement (i), under which Mr Ensor agreed to purchase 200 alpaca from ACL, contained the following condition:-

"8. THE CONSIGNMENT

8.1 The parties agree that the animals which are the subject of the agreement will be part of a total consignment of approximately 300 Alpaca of similar quality and all animals will share the facilities at all times from initial selection until disembarkation at Cocos Island."

A submission put at the trial for Mr Ensor was that it was the intent of that provision and of the parties that the additional alpaca would, at the time of consignment, be owned by ACL. The trial Judge rejected that contention after considering evidence on which Mr Ensor relied as to negotiations which had taken place between himself, Mr R.G. Inglis and Mr Morales of ACL.

In my opinion, cl. 8.1 was unambiguous in the context in which it appeared and it is unnecessary to turn to the evidence relied upon. The clause had an understandable operation, for Mr Ensor had obtained or was to obtain a licence to import 300 alpaca into Australia and ACL had obtained or was to obtain a corresponding licence to export 300 alpaca from Chile. There was to be a consignment of 300 alpaca, taking advantage of these two permits. But of the 300 alpaca, Mr Ensor's interest was limited to 200 only. Ownership at the time of consignment, either of the 200 alpaca purchased by Mr Ensor or of the remaining 100 alpaca, was irrelevant.

PASSING OF PROPERTY TO IAM

Agreement (iv) was dated 20 February 1992, which reflected the fact that it was intended to replace the agreement into which IAM had entered on 20 February 1992. It was executed on 24 May 1992. The agreement provided inter alia:-

"AGREEMENT FOR SALE AND PURCHASE OF LIVESTOCK DATED 20 FEBRUARY 1992

PARTIES

1. The Vendors

a) Ron G. Inglis its nominee or agent (Vendor) of whose performance is guaranteed by Ron G Inglis.

b) Carlos Morales of Alpac Chile Ltda of Arica Chile.

2. The Purchaser

International Alpaca Management Pty Ltd of Paddington, New South Wales or its nominee or agent (Purchaser).

AGREEMENT

1. SALE AND PURCHASE

1.1 The Vendor shall sell and the Purchasers shall purchase the whole share of 100 adult alpacas plus all cria purchased under contract by the Vendor from Alpac Chile of Arica Chile, as expressed by AQIS Cameloid Import Permit, No. 5 Cam ("Cam no. 5").

...

2. WARRANTIES

...

2.2 The Vendor warrants that the Alpaca are his property immediately prior to the giving of Title to the Purchasers and that the property in the Alpaca shall pass to the Purchasers free of any liens and encumbrances.

2.3 The Vendor warrants that the Alpacas are part of a consignment of 300.

3. PRICE

3.1 The price paid by the Purchasers in total consideration for their purchase of the Alpacas as described herein shall be SEVEN HUNDRED AND FIFTY THOUSAND AUSTRALIAN DOLLARS ($750,000 Aus) minimum and EIGHT HUNDRED THOUSAND AUSTRALIAN DOLLARS ($800,000 Aus) maximum.

This is divided into two undivided and inseparable parts.

In the first part the Purchaser warrants that during and through to the end of the period of export and quarantine, the Purchaser will make available THREE HUNDRED THOUSAND AUSTRALIAN DOLLARS ($300,000 Aus), to meet the actual realised cost only of importing the Alpacas, into Australia.

An additional sum of FIFTY THOUSAND AUSTRALIAN DOLLARS ($50,000 Aus) will be made available to the Vendor by the Purchaser should the Vendor be unable to meet his own cost estimates of a total requirement of THREE HUNDRED THOUSAND AUSTRALIAN DOLLARS ($300,000 Aus). A total of THREE HUNDRED AND FIFTY THOUSAND AUSTRALIAN DOLLARS ($350,000 Aus) as
consideration of the first part is made available by the purchaser to the vendor for the importation of the Alpacas.

Should the cost exceed this total, then any additional cost overrun after THREE HUNDRED AND FIFTY THOUSAND AUSTRALIAN DOLLARS ($350,000 Aus) will be met by the Vendor.

In the second part a total of FOUR HUNDRED AND FIFTY THOUSAND AUSTRALIAN DOLLARS ($450,000 Aus) will be paid to the Vendor by the Purchaser on or before 30 June 1992 ("the Date").

Should the Alpacas not have arrived in Australia by the Date, then the amount of FOUR HUNDRED AND FIFTY THOUSAND AUSTRALIAN DOLLARS ($450,000 Aus) will be held in a legal trust account of a firm of solicitors to be agreed. This amount will be released to the Vendor once the Alpacas arrive safely in Australia, and in the interim period the interest earnt by this amount will be paid in its entirety to the Vendor. It is hereby agreed that this amount will be split between Mr Ron Inglis and Mr Carlos Morales in the following amounts. Mr Ron Inglis, the amount of $350,000 and Mr Carlos Morales the amount of $100,000. These amounts will be reduced if the Purchaser incurs any additional costs not originally represented to it by the vendor, such as costs of bank guarantees, and will be distributed prorata to the Purchasers, i.e. 16.67% to Carlos Morales and 83.33% to Ron Inglis.

4. PAYMENT

4.1 The sum of $15,000 Aus prepaid to entitle the purchaser to an unconditional option on the purchase of the animals as paid by the purchaser and received by the vendor

This sum has been paid by the Purchaser in fulfilment of this clause.

4.2 The sum of $50,000 (Aus) on or before the 29 February 1992 to convert the option.

This sum has been paid by the Purchaser in fulfilment of this clause giving the Purchaser unencumbered title to the Alpaca.

As a guide only and dependent upon the date of the actual receipt by the Purchaser, as provided by the Vendor of the actual accounts rendered to the Vendor as a direct result of the exportation and quarantining of the Alpacas from Chile to Australia, the following payments will be made on the following dates.

(a) The sum of $85,000 (Aus) on 20 March 1992.

(b) The sum of $25,000 (Aus) on 20 April 1992.

(d) The sum of $75,000 (Aus) on 20 May 1992.

(e) The sum of ($25,000) on 20 June 1992.

This creates total payments of THREE HUNDRED THOUSAND AUSTRALIAN DOLLARS ($300,000 Aus). The Purchaser hereby covenants and agrees that an additional FIFTY THOUSAND DOLLARS ($50,000 Aus) will be made available to the Vendor, if the Vendor is able to satisfy the Purchaser of legitimate costs overruns from the budget described above at the end of the quarantine and export process.

...

6. DELIVERY

6.1 The title to the property of the Alpacas shall pass to the Purchaser on completion of payment 4.2 above."

(emphasis added)

I need not discuss the issue whether, absent the words in clause 4.2, "This sum has been paid by the Purchaser in fulfilment of this clause giving the Purchaser unencumbered title to the Alpaca.", title would have passed only on the payment of all the instalments specified in that clause. The trial Judge considered that to be the case. I would draw the contrary conclusion but I need not discuss the point. There is no doubt that the agreement accepted that, on its execution, IAM had title to the alpaca. It so stated. The earlier agreements had all specifically provided that delivery of the animals was to be given at the point of purchase in Altiplano, Chile, that is to say, when they entered the pre-quarantine corrals in Putre in Altiplano. By 24 May 1992, that step had occurred. The sums which were to be paid by that point had been paid.

ACL was a party to the agreement and the agreement provided for the division of the purchase price between Mr Inglis and ACL. Thus the agreement bound ACL to the term that property had passed to IAM. I treat ACL as a party notwithstanding that the relevant party was described as "Carlos Morales of Alpac Chile Ltda of Arica Chile". Mr Morales and ACL were, for the purposes of those who dealt with them, one and the
same. It is unnecessary to debate the issue as to whether anything was left of agreement (iii). All terms relevant to this present case, such as the terms as to price, payment and passing of property, were set out in agreement (iv).

Title to the 100 alpaca having passed to IAM on or before the execution of the contract of 24 May 1992, it necessarily follows that IAM had title to the alpaca which prevailed over a mere possessory title. IAM is entitled, therefore, to at least an order in its favour in respect of the 55 alpaca which were not the subject of the reserved contract.

The trial Judge expressed concern, inter alia, as to the proof given of payment in full to ACL. However, the evidence discloses that there were payments made by Inglis and IAM to ACL which exceeded the purchase price. Of the payments, sums of $350,000 and $100,000 were paid into trust accounts in Australia, both in accordance with the provisions as to payment of the agreement of 24 May 1992, and a further sum of $210,000 was paid into a trust account in Chile in accordance with a facsimile signed by or on behalf of IAM, Inglis and ACL, there having been some dispute as to additional costs which ACL had claimed. Neither ACL nor Inglis sought to assert in the proceedings title to the 100 alpaca or any of them, or made any claim in the proceedings, and Mr Morales and Mr Inglis both gave evidence in the proceedings on behalf of IAM. For the purposes of the proceedings, therefore, it should be accepted that the payments made, which exceeded the consideration specified in the agreement of 24 May 1992, constituted and had been accepted as payment in full.

Section 28(1) of the Sale of Goods Act 1923 (NSW)

Mr Ensor's claim to the 45 alpaca was founded upon the reserved contract which was executed in late August 1992. It was entered into after Mr Ensor had placed pressure upon Mr Morales. Mr Ensor threatened, inter alia, not to allow his import licence to be used for the importation of the additional 100 alpaca. To placate Mr Ensor and to ensure that the shipment of all 300 alpaca occurred, Mr Morales appears to have agreed to the execution of the reserved contract.

The reserved contract was prepared in Chile in the Spanish language. The parties agreed to keep it secret absolutely. The contract provided that 45 of the 100 alpaca should be the property of Mr Ensor. The contract provided that "Mr Ben K E Ensor shall pay the price of 200 alpaca at the value of US$2140 each." As that was the price that Mr Ensor had already contracted to pay, no further price was payable. The agreement did, however, expressly provide that Mr Ensor's import permit would be used for the importation of the 300 alpaca. The agreement was signed by Mr Ensor and by Mr Harrison, who was called a representative of ACL, and by two solicitors as witnesses. The agreement was not executed by Mr Morales. In fact, Mr Harrison was the representative of the purchaser of 100 of the alpaca from Mr Ensor.

Counsel for Mr Ensor relied upon s 28(1) of the Sale of Goods Act 1923 (NSW) which provided:-

"28(1) Where a person having sold goods continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or documents of title under any sale pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same."

It is accepted that ACL continued in possession of the goods until they were placed on 7 & 8 September 1992 on board aircraft for export from Chile. See Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 857.

In my opinion, Mr Ensor did not enter into the reserved contract in good faith and without notice of the previous sale to IAM.

I turn first to the question of notice. The relevant point for present purposes is that enunciated in paragraph 3(b) of the principles set out by Neill J in Feuer Leather Corporation v Frank Johnstone & Sons [1981] Com LR 251 at 253, cited with approval by Clarke J in Forsythe International (UK) Limited v Silver Shipping Co Limited ("The Saetta") [1994] 1 WLR 1334 at 1349-1350. The principle is that, "if by an objective test clear notice was given, liability cannot be avoided by proof merely of the absence of actual knowledge." The principle is queried in Benjamin's Sale of Goods 4th ed. para 7-049 but it appears to me to accord with the section and with the authorities.

Mr Inglis had been the agent for ACL in Australia and had, inter alia, negotiated the sale to Mr Ensor. On about 11 March 1992, Mr Inglis gave notice to Mr Ensor of the sale to IAM. His facsimile dated 11 March 1992 read, inter alia:

"Firstly Ben you should know that Carlos [Morales] and I have completed formalities which began in Chile last November with a company known as International Alpaca Management Pty Ltd of Paddington NSW .... Longstone Alpaca no longer has any interest in the animals and has not had since late last year and our 100 animals have been contracted to this Company."

That was express notice of a sale by Inglis and ACL to IAM of the 100 alpaca.

Mr Ensor saw a copy of agreement (iii) which was faxed to him by Mr Harrison from Chile. Mr Ensor deposed to the following telephone conversation which he had with Mr Forrest, the managing director of IAM, after hearing from Mr Harrison:-

"36. After receiving this telephone call [from Harrison] I telephoned Forrest. This was the first time I had spoken to him. I introduced myself and we then had a conversation to the following effect:

I: `I understand you have a contract to purchase alpacas from Inglis?'

Forrest: `I have forwarded funds for a deposit to New Zealand.'

I: `Inglis does not have a contract with Morales and has not forwarded any money to Chile.'"

Mr Ensor immediately took steps to bring the sale to an end. On 24 March 1992, Mr Ensor wrote to Mr Forrest, inter alia:-

"As such he [Inglis] will not have space upon my permit or space upon Cocos Islands quarantine station."

On 16 April, Mr Ensor's solicitor wrote to Mr Inglis complaining that the sale constituted a breach of faith by him. Mr Ensor wrote later to Mr Forrest saying, "I guess by now you may finally belief (sic) me that R G Inglis or Associates will not be supplying you with Alpaca ... My position is quite plain - Ron is finished!"

On 4 May 1992, Mr Ensor wrote to ACL:-

"I am not prepared to have any further discussion with Mr. R.G. Inglis, Longstone Holdings or Longstone Alpacas in regard to possible cost sharing or use of Permit 5 CAM to export camelids to Australia.

To conclude, Mr. Inglis and his group can not share part of my Permit 5 CAM in any way."

I need not set out the remainder of the correspondence at that time, or the evidence as to other conversations.

Any problem that there may have been as to the validity of IAM's contractual arrangements was resolved by the further agreement executed on 24 May 1992, to which IAM, Inglis and ACL were all parties. Mr Ensor did not see this agreement until much later.

In late May 1992, there was a meeting at a restaurant in Melbourne of the persons who were interested in the importation of the 300 alpaca. Mr Forrest was one of the participants. Mr Forrest deposed to the following conversation with Mr Ensor, his evidence on this point being accepted by the trial Judge:-

I said: "Why did you attempt to sell me the animals when you didn't have title to them? Don't you know that is very dishonest?"

He said: "I was just trying to find out what your position was."

I said: "My position is none of your business. They are my animals. I have paid for them."

After the dinner, Mr Ensor, who was sharing a room with Mr Morales, saw a letter from Mr Forrest to Mr Morales of 12 May 1992, which read, inter alia:-

"I confirm that the contract between Ron Ingles (sic) and my company remains totally `on foot' and enforceable and that his contract with you, on which my contract relies, also remains totally `on foot' and enforceable."

Mr Ensor believed that the letter had been left open for him to read it and he did so. The letter had been written before agreement (iv) was executed on 24 May 1992.

Mr Ensor gave evidence of a conversation with Mr Forrest early in July. Mr Ensor's affidavit said:-

"I came back to Australia in early July. Again, I stayed at Harrison's property outside Melbourne. I called Forrest from Harrison's house. Forrest did not take the call. However, he returned the call half an hour later. We had a conversation to the following effect:

I: `Would you be prepared to sign a cost-sharing agreement whereby you give me 5 alpacas in return for the use of my import permit?'

Forrest: `Under the terms of my contract with Inglis I can't do that.'

I: `If you can't do that what about I take the cria and leave the adults intact?'

Forrest: `Under the terms of my contract I can't do that.'

I: `What would you say if I charged you a fee of $150,000 for the use of my permit?'

Forrest: `It is Morales' problem. He has to get the alpacas out of Chile. Why don't you talk to him?'

I: `I don't think Morales would pay me any fee at all.'

Forrest: `Well, it's his problem. I'd be surprised if he was prepared to pay you more than $20,000.'"

On 28 July 1992, Mr Forrest wrote by facsimile to Mr Chris Wren, who had an interest in the alpaca as a purchaser from Mr Ensor. The letter said, inter alia:-

"I spoke to your partner, Laurence [Harrison], over the weekend as you may be aware, in order to lay our own cards on the table. Carlos, as Exporter co-operating with the importer, has made exactly the same obligations to the Alpaca Partnership as I understand Ben has made to yourself and Laurence. This brings to light several facts.

(1) In an equally formal environment, our agreement with Carlos has been made enforceable in the Commercial Division of the Supreme Court of NSW. This, of course, includes undertakings as to damages, if he fails to perform on any part of his contract. Carlos acknowledges in that agreement that several other contracts of significant proportions will be entered into (and now have), on the basis of the representations in his agreement.

(2) This agreement specifically provides the undertaking of all matters, and the attainment of all licences and permits, relating to Exporting the 100 Alpaca to Australia.

(3) We now have title under our sale agreement with him to those Alpaca. This agreement also covers all costs in relation to the Export to Australia, and it is precisely for that reason which I am writing to you."

and:-

"Ben is clearly guilty of tortious interference in the contractual relationship I have with Carlos. If he continues to do so as the date of departure of our Alpaca nears, I would be obliged to seek immediate redress, including injunctive relief, through the Federal Court of Australia. A similar action may be available in New Zealand as he is in fact a New Zealander, who masqueraded as becoming an Australian citizen in order to acquire the Australian permit."

This letter was seen by Mr Ensor by 5 August 1992. He then wrote to both Mr Harrison and Mr Wren commencing his letter, "I write in answer to the Forrest fax to Wren 28/7/92". In the course of that letter, he said inter alia:-

"The contract I saw that Laurie sent me was between Inglis and Morales - Nothing between Morales and Forest"

On 20 August 1992, Mr Wren wrote to Mr Ensor and Mr Harrison stating inter alia:-

"If Ben succeeds in getting the 100, why won't Forrest sue him for damages for inducing Carlos to breach his contract with Forrest? The damages would be Forrest's loss. It seems to me he has a pretty clear cut case - Ben be warned."

Thus, Mr Ensor had actual notice of the sale of the 100 alpaca to IAM. He was informed of it by both Mr Forrest and Mr Inglis. Mr Ensor did not, however, believe that the purchase was legally binding. His state of mind may be inferred from a letter to him from Philips Fox of 5 August 1992. Philips Fox had been asked by Mr Ensor to advise on possible liability on various assumptions. Two of the assumptions noted were:

"RG Inglis, a New Zealand entity, also has an agreement with ACL under which ACL is to supply RG Inglis with 100 alpacas (`Arrangement X'). We note your instructions that you believe the agreement between ACL and RG Inglis is not a formal one, but rather a `loose arrangement.'

RG Inglis has entered into a binding contract with an Australian company (`Aust Co') under which it has agreed to supply 100 alpacas to Aust Co (`Contract X'). We note your belief that Aust Co may have paid some money to RG Inglis in New Zealand in anticipation of Inglis's supply of these 100 alpacas and pursuant to Contract X." (emphasis added)

Having received from Phillips Fox what he may have thought to be favourable advice, Mr Ensor went to Chile to negotiate directly with Mr Morales. Mr Morales was put into a difficult position for he was awaiting payment of the moneys due under the contract with Mr Ensor and under the contract with IAM. Succumbing to pressure, Mr Morales agreed to the execution of that strange agreement, the reserved contract. Mr Ensor was shocked when he later found out that IAM had had a contract to which ACL was a party.

When s.28 refers to notice, it refers not to actual knowledge of all the relevant facts concerning the prior sale but to notice of the sale. Mr Ensor plainly had notice of the sale for he had been informed of it by an agent of the vendor and by the purchaser. It is sufficient to repeat that, inter alia, Mr Inglis had, on 11 March 1992, informed Mr Ensor by fax that "Carlos and I have completed formalities ... with a company known as (IAM) ... and our 100 animals have been contracted to this Company." and, on 28 July 1992, Mr Forrest wrote to Mr Wren, in a letter which was seen by Mr Ensor, that "... our agreement with Carlos has been made enforceable in the Commercial Division of the Supreme Court of NSW" and "We now have title under our sale agreement with him (Carlos) to those Alpaca".

Notwithstanding what he had been informed and notwithstanding that he believed that IAM had entered into a contract with Inglis and that there was at least a loose arrangement with ACL, Mr Ensor acted to acquire the alpaca for himself and to supplant IAM. In doing so, he acted with notice.

Shortly before the reserved contract was drawn up, Mr Morales informed Mr Harrison and Mr Harrison informed Mr Ensor that the contract with IAM had been terminated. Presumably, this was a step which Mr Morales took to bring about the reserved contract and to have Mr Harrison execute it. The conversation is of little significance. Mr Ensor was already in Chile seeking to purchase the 100 alpaca for himself. The information did not alter his course of action. Mr Ensor proceeded as he did because he did not believe that IAM had an enforceable contract.

Notwithstanding that the point was not raised in the appeal, I should add that Mr Ensor did not act in good faith, as that term is used in s.28. There are two aspects to this. The first is that, while s.5(2) of the Sale of Goods Act provides that an act is deemed to be done in good faith if it is done honestly, whether or not it be done negligently, the Act uses the term "honestly" in the sense of "innocently". Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd at 886. Like the test of notice, the test of "in good faith" is to be judged on all the facts of the case. Carelessness does not preclude a finding of "in good faith"; but the wilful disregard of the rights of others or the turning of a "blind eye" to the interests of others may lead to a finding that the second purchaser was not acting "in good faith", whether or not he believed that he was entitled to act as he did. As was said by Lord Hershell in an analogous context in The London Joint Stock Bank v Charles James Simmons [1892] AC 201 at 221:-

"But regard to the facts of which the taker of such (negotiable) instruments had notice is most material in considering whether he took in good faith. If there be anything which excites the suspicion that there is something wrong in the transaction, the taker of the instrument is not acting in good faith if he shuts his eyes to the facts presented to him and puts the suspicions aside without further inquiry."

Mr Ensor was not innocent. He believed that IAM's purchase, of which he had been informed, was not secure and so he sought to frustrate the purchase and to acquire the alpaca for himself. It is an irresistible inference from the sequence of events that Mr Ensor not only turned a "blind eye" to IAM's interests but acted positively to obstruct IAM's purchase. Lord Pearce said, in delivering the judgments of their Lordships in Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd at 886:-

"The object of the section is to protect an innocent purchaser who is deceived by the vendor's physical possession of goods or documents and who is inevitably unaware of legal rights which fetter the apparent power to dispose."

Mr Ensor was not so deceived.

Secondly, a guide to good faith is whether the arrangement entered into by the second purchaser was such as to have the hallmark of an ordinary, genuine, commercial transaction. In re Gomersall [1875] 1 Ch D 137 at 146; Heap v Motorists' Advisory Agency Ltd [1923] 1 KB 577 at 590-1. The reserved contract did not answer that description. It was an extraordinary document. It was to be kept secret. It was executed on behalf of ACL not by Mr Morales but by Mr Harrison, who was a purchaser from Mr Ensor, not an agent of ACL. And Mr Ensor did not agree to pay any additional price for the 45 alpaca. In cross-examination, Mr Ensor's evidence as to the price was as follows:-

"Apart from the adjustment which was with respect to what was to happen after the animals left Cocos, there was no payment by you, was there, to Mr Morales, even of $1 for the additional animals you say you were to acquire by this arrangement?---Hang on, that wasn't quite - necessarily quite the case, or it wasn't quite determined, all right, that's the bit I wasn't clear on.

I see, that was still up in the air, was it?---Well, I didn't have that quite clear in my mind what was actually happening there and the legal way that was happening."

Those facts are strong indications the reserved contract was not one to which the expression "in good faith", in the sense in which it is used in s.28, should be attached.

Basically the same points can be made under the rubric of "notice". In Feuer at 253, Neill J included among his precepts the well-accepted principle:-

"(c) a person will be deemed to have had notice of any fact to which it can be shown that he deliberately turned a `blind eye' ..."

Having been informed by Mr Forrest of the sale to IAM, and being aware of the strange elements of the reserved contract, including its secrecy and the fact that he was not required to pay an additional price for the 45 alpaca, Mr Ensor entered into the contract. In doing so, he was concerned solely with his own interests and turned a "blind eye" to IAM's interests. See Heap v Motorists' Advisory Agency Ltd at 591; Worcester Works Finance v Cooden Engineering Co Ltd [1972] 1 QB 210 at 218.

Thus, Mr Ensor did not act "in good faith and without notice" as that phrase is used in s.28(1) of the Sale of Goods Act. This conclusion flows from the established facts of the case and does not require the taking of a view different from that of the trial Judge as to credit.

For these reasons, I would allow the appeal. I agree with the orders proposed by Beaumont & Carr JJ.

I certify that this and the 18 preceding pages

are a true copy of the reasons for judgment herein of

the Honourable Justice Davies.

Associate:

Date: 24 November 1995

IN THE FEDERAL COURT )

OF AUSTRALIA )

NEW SOUTH WALES )

DISTRICT REGISTRY ) No. G 490 of 1995

GENERAL DIVISION )

B E T W E E N: INTERNATIONAL ALPACA

MANAGEMENT PTY LTD

First Appellant

TEXTILE FINANCE LIMITED

Second Appellant

COOLAROO ALPACA GENERAL

PARTNER PTY LIMITED

Third Appellant

and

BEN K.E. ENSOR

First Respondent

GARRYMERE FARMS LIMITED

Second Respondent

CORAM: Davies, Beaumont & Carr JJ.

PLACE: Sydney

DATE: 24 November 1995

REASONS FOR JUDGMENT

BEAUMONT AND CARR JJ.

INTRODUCTION

This is an appeal from declaratory and other orders made by a Judge of the Court on several disputed claims made by the parties in respect of the ownership, and the right to possession, of one hundred South American cameloids of the alpaca species. Alpacas, it appears, are valuable animals in this country. They are sold here for substantial amounts, in some instances, for approximately $20,000 per animal. The case arose out of trading in alpacas exported from the Republic of Chile to Australia by a Chilean company, Alpac Chile Limitada ("ACL"), in 1992. The trial Judge held that the first respondent, Mr Ben K.E. Ensor, was the owner of 45 of those animals and was entitled to possession, as against the appellants, of the remaining 55 alpacas. Consequently, declaratory orders were made to that effect, together with an order for delivery up of possession of the animals.

It was common ground before us, as the primary Judge held, that the disputes were to be decided in accordance with Australian law.

BACKGROUND

The principal of ACL was Mr Carlos Morales Belmar. In early 1990 Mr Morales, on behalf of ACL, appointed Mr Ron Inglis, a New Zealand resident, as its selling agent with a view to sale of the alpacas by export.

The export trade in alpacas between Chile and Australia was strictly controlled. An export permit was required from a Chilean governmental authority, the Servicio Agricola Y Ganadero ("SAG") and an import permit was required from the Australian Quarantine Inspection Service ("AQIS"). A protocol for the export of alpacas from Chile to Australia had been arranged between AQIS and SAG. It involved:

. a "pre-quarantine period" for the alpacas in the Chilean highlands ("the Altiplano"), where the animals were kept isolated from other farm animals;

. tests and inspections to ascertain whether the animals
were diseased;

. a quarantine period in Chile (in this case, at a town called Arica);

. inspection by an Australian government veterinarian prior to export;

. a further period of quarantine at the AQIS facility on Cocos Island prior to entry into mainland Australia; and

. further tests and inspections which were carried out after arrival in Australia during a one year on-farm period of isolation.

In 1990 Mr Ensor, also resident in New Zealand, applied for, and on 14 June 1990 AQIS issued, an import permit ("CAM5") for the importation of 300 alpacas. In mid-1990 Mr Ensor commenced negotiations with Mr Inglis, who was then acting as ACL's agent, for the purchase of alpacas from ACL. During the course of those negotiations, Mr Ensor agreed with Mr Inglis that ACL could use CAM5 to import the balance of 300 alpacas not purchased by Mr Ensor. Mr Inglis was interested in retaining for himself as many as possible out of the consignment of 300 alpacas, although he told Mr Ensor that any so retained would be for ACL. Mr Inglis further told Mr Ensor that ACL would enter into a joint venture whereby the alpacas it retained would be agisted on Mr Ensor's property. (Although the primary Judge found that Mr Inglis had misled Mr Ensor in that regard, nothing turns on this for our purposes.)

In late 1990, Mr Inglis and Mr Morales reached an arrangement whereby Mr Inglis could secure for himself, or his nominee company, as many alpacas intended to be covered by a potential importer's permit as he was able to negotiate, provided that Mr Inglis paid the same price as was payable by such importer. Mr Inglis acquired a New Zealand shelf company, Longstone Alpacas Ltd ("Longstone"), to be the vehicle for the purchase of alpacas from ACL.

In December 1990, SAG issued a Chilean export permit, corresponding with the Australian import permit CAM5, for 300 alpacas.

On 14 March 1991 ACL and Mr Ensor entered into a written agreement whereby Mr Ensor agreed to purchase from ACL 200 alpacas (including five male llamas) at a price of $US2140 per head ("the Ensor Purchase Agreement").

The Ensor Purchase Agreement dealt with "delivery", and other related matters, as follows:

"4. DELIVERY

4.1 Delivery of the animals shall be given at the point of purchase in the Altiplano Chile.

4.2. Upon delivery the property in the animals shall pass unencumbered to the Purchaser subject to the terms and payments as detailed in section 7 below being affected [sic].

4.3. The Vendor warrants that the animals are his property immediately prior to his giving delivery to the Purchaser. The Vendor further warrants that he shall use every reasonable endeavour to ensure that title to the duly selected and properly identified animals is effected."

Price and payment were dealt with by clauses 6 and 7 as follows:

"6. PRICE

6.1 The price payable by the Purchaser to the Vendor is agreed $2140 US per head. In addition the Purchaser will pay all costs of shipping and animal maintenance costs, Arica to Australia and related animal health testing as charged by A.Q.I.S. Such payment to be made on receipt of documentation of expenditure.

[Arica is, as has been said, the quarantine location in Chile and the place where the alpacas were loaded onto the aircraft for transportation to the Australian Quarantine Station at Cocos Island.]

6.2 The Vendor warrants that he will place the animals free on board an aircraft at Arica Airport, Chile. All quarantine costs, transport veterinary and fodder costs to the point of FOB will be met [by] the Vendor.

7. PAYMENT

The Purchaser agrees to make the payment to the Vendor under the following timetable of events:

i. Deposit payable on signing of this

Agreement. $10,000

ii. The Purchaser agrees to make payment of 15%

as soon as the Purchasing programme of FOB

commences in the Altiplano in Chile price

iii. The Purchaser agrees to make payment of 10%

immediately after SAG Commences official of FOB

supervision of animals in pre-quarantine. price

iv. The Purchaser agrees to make payment of 15% of

within two working days of receiving FOB

notice in writing or by facsimile from price

the Vendor that the animals have entered

quarantine in Chile.

v. The Purchaser agrees to make payment of 10% of

one calendar month following the date FOB price

the animals entered quarantine.

vi. The Purchaser agrees to make payment of l0% of

two calendar months following the date FOB price

the animals entered quarantine.

vii. The Purchaser agrees to make payment of 40% of

to the Vendor on embarkation of the FOB price

animals for shipment to Australia.

Should the Purchaser fail to comply with the above schedule of payments then penalty interest at the rate of 18% shall be payable to the Vendor on the outstanding amount in default for the period of such default."

Clause 8 of the Agreement dealt with "the Consignment" as follows:

"8. THE CONSIGNMENT

(The Ensor Purchase Agreement was later, in July 1991, re-executed before a Chilean Notary Public, but nothing turns on this for our purposes.)

Mr Ensor had two agreements for the on-sale of those alpacas, with Mr Christopher Joseph Wren and Mr Laurence Francis Harrison, both resident in Victoria. Under the terms of their contracts with Mr Ensor, Messrs Wren and Harrison agreed to purchase 100 of the alpacas each; each undertook to meet 50% of Mr Ensor's financial obligations under the Ensor Purchase Agreement; and each agreed to meet one-third of transport, quarantine and associated costs until delivery of the alpacas at Melbourne; and to pay $333,000 to Mr Ensor.

On 16 April 1991 ACL entered an agreement with Mr. Inglis' company, Longstone, for the sale to Longstone of 150 alpacas, also at a price of $US2140 per head, ("the Longstone Agreement"). Clause 4 of the Longstone Agreement dealt with "Delivery" in the same terms as the Ensor Purchase Agreement. Clause 6 of the Longstone Agreement dealt with "Price" and with F.O.B. aspects in the same terms as cl.6 of the Ensor Purchase Agreement.

"Payment" was dealt with by cl.7 of the Longstone Agreement as follows:

"7. PAYMENT

The Purchaser agrees to make the payment to

the Vendor under the following timetable

of events:

i.Deposit payable on signing of this

agreement. $75,000

ii. The Purchaser agrees to make payment of NIL

as soon as the Purchasing programme

commences in the Altiplano in Chile.

iii.The Purchaser agrees to make payment of $30,000

immediately after SAG commences official

supervision of animals in pre-quarantine.

iv.The Purchaser agrees to make payment of $20,000

within two working days of receiving notice

in writing or by facsimile from the Vendor

that the animals have entered quarantine

in Chile.

v.The Purchaser agrees to make payment of $10,000

one calendar month following the date the

animals entered quarantine.

vi.The Purchaser agrees to make payment of $10,000

two calendar months following the date

the animals entered quarantine.

vii. The Purchaser agrees to make payment of $176,000

to the Vendor on embarkation of the less $77,000

animals for shipment to Australia. paid in

advance

The "consignment" was dealt with in cl.8 of the Longstone Agreement in the same terms as in the Ensor Purchase Agreement.

Provision was then made in the Longstone Agreement for the obtaining of licences in these terms:

"9. LICENSES

9.1 The Parties to this agreement agree that the Vendor shall be responsible for obtaining all relevant permits, licenses, documents and authorities required of him to enable the animals to be placed FOB [at] Arica.

9.2 The parties further agree that the Vendor shall also obtain all necessary permits, licenses, documents and authorities required of him to enable the animals to be imported into Australia as required by A.Q.I.S."

(This provision was in the same terms as its counterpart in the Ensor Purchase Agreement.)

It follows that, at this stage, ACL had agreed to sell 350 alpacas, whereas only 300 were provided for in import permit CAM5. In July 1991, during a conversation between Messrs Ensor, Inglis and Morales, Mr Ensor became aware that Longstone was the purchaser of 150 alpacas from ACL. As a result of that conversation, Mr Inglis conceded that Longstone could acquire only 100 alpacas. In July and August 1991 these three men travelled, with others, to the Chilean Altiplano to select the alpacas pursuant to the terms of the Ensor Purchase Agreement. All but 30 alpacas were selected at this time; the remaining 30 were selected by Mr Ensor in about January 1992. Once selected, the animals were tagged with unique identification numbers and an electronic coding implant was inserted into each animal's rump. Prior to the July 1991 trip, Mr Morales had selected alpacas for Mr Inglis in accordance with the provisions of the Longstone Agreement using the same identification process.

By 26 January 1992 all 300 alpacas had been placed in pre-quarantine in the Altiplano.

In late 1991 it became apparent that Longstone would not be able to fulfil its financial obligations under the Longstone Agreement. In January 1992 Mr Morales wrote to Mr Inglis warning that if there were default in payment under the Longstone Agreement, that contract would be cancelled. On 13 February 1992, following an invitation from Mr Inglis to do so, ACL wrote to Longstone informing it that the Longstone Agreement "is now at an end due to non-performance on your part". Mr Inglis suggested that he and Mr Morales enter into a new agreement for the purchase of the 100 alpacas along the same lines as the Longstone Agreement. Mr Morales agreed.

By this time, Mr Inglis had commenced negotiations with Mr Andrew Forrest, executive chairman of the first appellant, International Alpaca Management Pty Ltd ("IAM"), for the on-sale of the 100 alpacas. In mid-February 1992 Mr Inglis asked Mr Morales for a written contract to enable him to satisfy Mr
Forrest that he had title to the 100 alpacas. Mr Morales agreed to this.

Mr Inglis told Mr Morales that he would use the format of the Longstone Agreement, changing the figures, to reflect a sale of 100 animals. The parties, that is ACL and Mr Inglis, also agreed that payments made under the Longstone Agreement would be credited to the new agreement. Mr Inglis had an agreement ("the ACL/Inglis Agreement") typed up in the basic format of the Longstone Agreement, (but with significant variations, in terms of the number of animals sold and the schedule of payments), dated the document 15 February 1992 and attached to it a copy of a page from another contract bearing Mr Morales' signature.

The trial Judge held that the terms of the oral agreement made between Mr Morales on behalf of ACL and Mr Inglis were reflected in the ACL/Inglis Agreement and that the terms of that document were relevant for the purposes of determining the passing of property in the 100 alpacas pursuant to the contractual arrangements between Mr Morales and Mr Inglis. We were not asked to disturb these findings.

Clauses 4 and 6 of the ACL/Inglis Agreement, entitled "Delivery" and "Price" respectively, were in the same terms as the previous contracts.

Clause 7 of the ACL/Inglis Agreement dealt with "Payment" as follows:

"7. PAYMENT

The Purchaser agrees to make the payment to the Vendor under the following timetable of events:

(i) Deposit payable on signing of this

Agreement $75,000 U.S.

(ii)The Purchaser agrees to make payment of Nil

as soon as the Purchasing programme

commences in the Altiplano in Chile.

(iii)The Purchaser agrees to make payment of Nil

immediately after S.A.G. commences

official supervision of animals in

pre-quarantine

(iv)The Purchaser agrees to make payment of $10,000 U.S.

within two working days of receiving

notice in writing or by facsimile from the

Vendor that the animals have entered

quarantine in Chile

(v) The Purchaser agrees to make payment of $5,000 U.S.

one calendar month following the date

the animals entered quarantine

(vi)The Purchaser agrees to make payment of $5,000 U.S.

two calendar months following the date

the animals entered quarantine

(vii)The Purchaser agrees to make payment of $119,000 U.S.

to the Vendor on embarkation of the less

animals for shipment to Australia $77,000 U.S.

paid in

advance

7.1 Should the purchaser fail to comply with the above schedule of payments then penalty interest at the rate of 18% shall be payable to the Vendor on the outstanding amount in default for the period of such default."

By the time the ACL/Inglis Agreement had been entered into, there had been a delivery of the animals under the Longstone Agreement, the terms of which, for the most part, had been adopted for the purposes of the ACL/Inglis Agreement. The trial Judge held, and we respectfully agree, that there was thus a notional delivery of the alpacas at the time when the ACL/Inglis Agreement was entered into.

On 20 February 1992 Mr Inglis and IAM entered into an agreement, to be replaced later by another agreement to be mentioned below, whereby Mr Inglis agreed to sell, and IAM agreed to purchase, the 100 alpacas (this agreement was referred to in the pleadings in these proceedings as "the First Purchase Agreement").

Between January 1992 and March 1992 negotiations took place between Mr Ensor and Mr Inglis in relation to the sharing of the costs of importation of the 300 alpacas. In early March 1992 Mr Ensor forwarded to Mr Inglis a draft cost sharing agreement prepared by Mr Wren. It recited that Mr Inglis and Longstone had entered into an agreement to purchase 100 alpacas from ACL. However, in fact, no agreement was reached for such cost sharing. On 24 March 1992 Mr Ensor wrote to Mr Forrest advising him that as the cost sharing agreement had not been signed, Mr Inglis would "not have space upon my permit". Mr Ensor made similar statements in further letters to Mr Forrest dated 31 March 1992 and 26 April 1992. On 28 April 1992 Mr Forrest wrote to Mr Inglis reminding him of his
obligation to settle an agreement with Mr Ensor.

In the meantime, on 25 March 1992, Mr Ensor wrote to Mr Morales. In that letter Mr Ensor referred to an arrangement with Mr Inglis to share CAM5 and stated that he (Ensor) would only be involved with transporting to Australia the 200 alpacas which he had contracted to purchase. The letter also contained an offer from Mr Ensor to Mr Morales to purchase the balance of 100 alpacas if Mr Inglis defaulted under his contract.

On 28 March 1992 Mr Ensor wrote again to Mr Morales, stating that he was interested in purchasing "the other 100 alpaca upon this permit 5CAM". On 5 May 1992 Mr Ensor wrote to Mr Forrest. The first paragraph of that letter read as follows:

"I guess by now you may finally belief (sic) me that R.G. Inglis or Associates will not be supplying you with Alpaca. I enclose further correspondence. My position is quite plain - Ron is finished!"

In that letter Mr Ensor asked Mr Forrest whether his group would be interested in purchasing the 100 alpacas for cash at a price which was described as "less than retail 18-25,000 each". (It should be noted that the letter was sent by fax, as appears to have been the case with most correspondence between the parties.)

On 6 May 1992 Mr Forrest telephoned Mr Morales and sought confirmation that Mr Inglis had purchased the 100 alpacas. There appears to be no direct evidence as to Mr Morales' response to this inquiry, but the trial Judge inferred that Mr Morales did confirm that Mr Inglis had purchased the 100 alpacas, in the light of statements made in Mr Forrest's fax of the same date to Mr Morales.

On about 10 May 1992 Mr Forrest told Mr Inglis that he considered that Mr Morales should be made a party to their contract as this was (in Forrest's view) the only way fully to protect his position and to ensure that IAM would get its animals. Mr Forrest suggested that a form of consideration be provided to Mr Morales in return.

On 24 May 1992 Mr Inglis, Mr Morales and IAM executed an agreement, (referred to in the pleadings as "the Second Purchase Agreement"), which was back-dated to 20 February 1992, being the date of the First Purchase Agreement. The relevant provisions of the Second Purchase Agreement were as follows:

"AGREEMENT FOR SALE AND PURCHASE OF LIVESTOCK DATED 20 FEBRUARY 1992

PARTIES

1.The Vendors

a) Ron G. Inglis its nominee or agent (Vendor) of whose performance is guaranteed by Ron G Inglis.

b) Carlos Morales of Alpac Chile Ltda of Arica Chile.

2. The Purchaser

International Alpaca Management Pty Ltd of Paddington, New South Wales or its nominee or agent (Purchaser).

AGREEMENT

1.SALE AND PURCHASE

1.1 The Vendor shall sell and the Purchasers shall purchase the whole share of 100 adult alpacas plus all cria [i.e. the alpacas' offspring] purchased under contract by the Vendor from Alpac Chile of Arica Chile, as expressed by AQIS Camelid Import Permit, No. 5 Cam ("Cam no. 5").

...

2. WARRANTIES

...

2.3 The Vendor warrants that the Alpacas are part of a consignment of 300.

3.PRICE

This is divided into two undivided and inseparable parts.

An additional sum of FIFTY THOUSAND AUSTRALIAN DOLLARS
($50,000 Aus) will be made available to the Vendor by the Purchaser should the Vendor be unable to meet his own cost estimates of a total requirement of THREE HUNDRED THOUSAND AUSTRALIAN DOLLARS ($300,000 Aus). A total of THREE HUNDRED AND FIFTY THOUSAND AUSTRALIAN DOLLARS ($350,000 Aus) as consideration of the first part is made available by the purchaser to the vendor for the importation of the Alpacas.

Should the cost exceed this total, then any additional cost overrun after THREE HUNDRED AND FIFTY THOUSAND AUSTRALIAN DOLLARS ($350,000 Aus) will be met by the Vendor.

In the second part a total of FOUR HUNDRED AND FIFTY THOUSAND AUSTRALIAN DOLLARS ($450,000 Aus) will be paid to the Vendor by the Purchaser on or before 30 June 1992 ("the Date").

Should the Alpacas not have arrived in Australia by the Date, then the amount of FOUR HUNDRED AND FIFTY THOUSAND AUSTRALIAN DOLLARS ($450,000 Aus) will be held in a legal trust account of a firm of solicitors to be agreed. This amount will be released to the Vendor once the Alpacas arrive safely in Australia, and in the interim period the interest earnt by this amount will be paid in its entirety to the Vendor. It is hereby agreed that this amount will be split between Mr Ron Inglis and Mr Carlos Morales in the following amounts. Mr Ron Inglis, the amount of $375,000 [This was amended to $350,000] and Mr Carlos Morales the amount of $75,000. [This was amended to $100,000.] These amounts will be reduced if the Purchaser incurs any additional costs not originally represented to it by the vendor, such as costs of bank guarantees, and will be distributed prorata to the Purchasers, i.e. 16.67% to Carlos Morales and 83.33% to Ron Inglis.

4.PAYMENT

4.1 The sum of $15,000 Aus prepaid to entitle the purchaser to an unconditional option on the purchase of the animals as paid by the purchaser and received by the vendor

This sum has been paid by the Purchaser in fulfilment of this clause.

4.2 The sum of $50,000 (Aus) on or before the 29 February 1992 to convert the option.

This sum has been paid by the Purchaser in fulfilment of this clause giving the Purchaser unencumbered title to the Alpaca.

(a)The sum of $85,000 (Aus) on 20 March 1992.

(b)The sum of $25,000 (Aus) on 20 April 1992.

(c)The sum of $25,000 (Aus) on 15 May 1992.

(d)The sum of $75,000 (Aus) on 20 May 1992.

(e)The sum of ($25,000) on 20 June 1992.

This creates total payments of THREE HUNDRED THOUSAND AUSTRALIAN DOLLARS ($300,000 Aus). The Purchaser hereby covenants and agrees that an additional FIFTY THOUSAND DOLLARS ($50,000 Aus) will be made available to the Vendor,
if the Vendor is able to satisfy the Purchaser of legitimate costs overruns from the budget described above at the end of the quarantine and export process.

...

6. DELIVERY

6.1 The title to the property of the Alpacas shall pass to the Purchaser on completion of payment 4.2 above."

(It will be noted that this contract was written in Australian dollars; U.S. currency was, of course, used in the ACL-Inglis agreement.)

Between late May 1992 and late August 1992 there was a considerable exchange of correspondence between the parties to the several contracts, together with meetings and numerous telephone calls. During that period substantial sums of money changed hands. At this stage it is not necessary to refer to the detail of those matters. Some of the circumstances are relevant to the questions of the buyer's "good faith" and "notice" of the previous sale for the purposes of s.28(1) of the Sale of Goods Act 1923 (NSW) in the case of a sale by a seller in possession, to which we will need to return. By August 1992 Mr Ensor had made aircraft charter arrangements to carry 200, or in the alternative 300, alpaca animals from Arica in Chile to Cocos Island and from Cocos Island to Melbourne. By that time Mr Ensor had told Mr Morales that if Mr Morales did not sell the 100 alpacas to him he would leave them behind and take only the 200 which were the subject of the Ensor Purchase Agreement. Mr Ensor's evidence was that Mr Morales had told him that there was no contract existing between ACL and Mr Inglis or IAM and that he (Mr Morales) was free to deal with the 100 alpacas. Mr Morales' evidence was to the opposite effect but, as will be seen, the primary Judge was of the view that generally the evidence of Mr Ensor should be preferred to that of Mr Morales. Again, we will need to return to this in dealing with the possible application of s.28(1) of the Sale of Goods Act.

On 15 August 1992 Mr Inglis wrote to Mr Forrest requesting funds to pay for the cost of shipment of the 100 alpacas and associated expenses. The amount sought was (a) US$110,000, being one-third of the aircraft charter fee from Chile to Melbourne; and (b) AUD$56,000 for associated costs - a total equivalent to AUD$210,000. In this letter Mr Inglis stated that Mr Morales had asked him to inform Mr Forrest that should he (Mr Morales) not be in a position to effect payment by the following Monday, Mr Morales would not be able to continue with the contract with IAM "... as at this moment it is in default". On 17 August 1992 there was an exchange of faxes between Mr Forrest in Australia and Messrs Inglis and Morales (and the latter's Chilean lawyer) in respect of the payment of this sum of AUD$210,000. As a result of that exchange of faxes, Mr Forrest telegraphed that amount to Chile on an agreed condition that the funds would be held in trust by Mr Morales' lawyer and used only for payment to Mr Ensor of the cost of transporting the 100 alpacas from Chile to Australia and for associated costs, including their quarantine on Cocos
Island. (Although the primary Judge found that the amount of $210,000 was not received until 31 August, it appears from all the documentary material in evidence that the amount was, in fact, received in Chile on 18 August.)

On 26 and 27 August 1992 a series of meetings took place in Arica. Those present were Mr Morales and Mr Ensor and their respective lawyers, together with Mr Harrison. Mr Inglis was also present for at least part of the time. During those negotiations Mr Ensor maintained his stance that, unless ACL sold him the 100 alpacas, he would take to Australia only the 200 alpacas which were the subject of the Ensor Purchase Agreement. On 27 August 1992 a document was drawn up in Spanish and signed by Mr Harrison, Mr Ensor and the respective lawyers for Mr Ensor and Mr Morales ("the Reserved Contract"). It will be remembered that Mr Harrison was a purchaser from Mr Ensor of 100 of the alpacas purchased by the latter under the Ensor Purchase Agreement. Mr Harrison was also the owner of the property in Australia where the alpacas were to be agisted. However, in the Reserved (or secret) Contract, Mr Harrison was purportedly described, without foundation, as a representative of the firm ACL and Mr Ensor was described as "importer and/or purchaser". The Reserved Contract (which had not been translated for Mr. Harrison's benefit and which was not executed by Mr. Morales) stated that the parties had reached an agreement. There then followed two recitals which, as translated, read as follows:

"FIRST: A contract was entered into between Mr

CARLOS MORALES BELMAR and BEN K.E. ENSOR for the purchase and sale of three hundred alpacas which were to be exported and imported, respectively.

SECOND: The vendor, ALPAC CHILE Pty Ltd, represented by Mr Laurence Francis Harrison, has stated that he understood from that contract that 100 animals belonged to him.

On his part, Mr BEN K.E. ENSOR has stated that he understood that he had entered into the contract in order to purchase three hundred alpacas for himself."

Relevant other portions of the Reserved Contract read as follows:

"THIRD: By means of this instrument, and the parties appearing have agreed to give it a reserved category, they clarify the situation arising between them regarding the enforcement of the above-mentioned contract. They agree on the following: 1) Of the total number of three hundred alpacas, two hundred and forty five are the property of Mr BEN K.E. ENSOR and fifty five are the property of Mr LAURENCE FRANCIS HARRISON. 2) Mr BEN K.E. ENSOR shall pay the price of two hundred alpacas at the value of US$2140 (American dollars) each.

FOURTH: The total quantity of these animals, that is to say, the three hundred animals, must be shipped, invoiced, documented or whatever relevant documentation must be issued in order that they can be brought to Australia under the name of Garrimere [sic] Farm, in accordance with the SCAM [sic] import permit.

...

SEVENTH: The following animals, numbers: [No numbers appear in the translations]

shall be the property of Mr LAURENCE FRANCIS HARRISON.

All remaining animals shall be the property of Mr BEN K.E. ENSOR.

...

TENTH: Mr BEN K.E. ENSOR agrees to provide all the necessary legal assistance that may be required to CARLOS MORALES BELMAR personally or ALPAC CHILE Pty Ltd as a company, bearing the cost of solicitors, in the event that CARLOS MORALES BELMAR or ALPAC CHILE Pty Ltd, should encounter legal difficulties in Australia, New Zealand or Chile arising from the original contract.

ELEVENTH: The parties appearing agree that for all the legal, Customs, documentation, health or other purposes, the only existing contract shall be the one which is set forth in this act. That is to say, Mr BEN K.E. ENSOR shall utilise the original contract entered into for all legal purposes, and ALPAC CHILE Pty Ltd shall utilise exclusively the same contract and, between them, they agree that it shall apply in relation to all the other aspects including Clause 8-1, subject of this discussion.

TWELFTH: The parties agree that Mr BEN K.E. ENSOR shall keep this contract reserved [i.e. secret or confidential] absolutely and ALPAC CHILE Pty Ltd shall do the same. Mr LAURENCE FRANCIS HARRISON shall offer as a reason to other suppliers, that he was forced to comply with the original contract, sending all the animals under the name of GARRIMERE [sic] FARM.

THIRTEENTH: The parties agree that this contract shall be issued without any copies, and that this single document shall remain in the custody and possession of Mr LAURENCE FRANCIS HARRISON, and only he may issue a copy to any party concerned with prior consent of Mr CARLOS MORALES BELMAR and Mr BEN K.E. ENSOR.

FOURTEENTH: The parties agree that if it were necessary, the legislation applicable to this contract shall be the one in force in Australia and New Zealand."

(It was common ground before us that the reference to the Reserved Contract being "reservado" in Spanish meant that it was to be kept secret.)

On 28 August 1992 Mr Ensor obtained clearance from SAG to export 300 alpacas. On 2 September 1992 ACL purported to render an invoice to Mr Ensor's company, Garrymere Farms Ltd, in respect of 300 alpacas for the sum of $US315,000. (It should be noted that the trial Judge found that this invoice was "too unreliable" to draw any inference from it.) On 7 September 1992 Mr Morales signed a document acknowledging receipt from Mr Ensor of the sum of US$166,920 which was described as the final payment. Three hundred alpacas were loaded onto the aircraft at Arica on 7 and 8 September 1992. Messrs Ensor and Harrison, together with others, accompanied the animals on the flight which arrived at Cocos Island on 10 September 1992. While Mr Ensor was at Cocos Island, he made arrangements for the transport of the alpacas to mainland Australia. At that time Mr Forrest travelled to Cocos Island and met Mr Ensor on 24 September 1992. They had a conversation in which they discussed the contentious question of the ownership of the 100 alpacas. At the conclusion of that conversation, Mr Forrest served Mr Ensor with the application which commenced these proceedings, in which the appellants sought declarations of entitlement to the legal and beneficial ownership of the 100 alpacas and other consequential relief.

THE APPELLANTS' CLAIMS

In order to understand the issues that arise on the appeal, it will be necessary to refer to the substance of the parties' cases as pleaded at first instance.

By their amended statement of claim dated 19 November 1993 the appellants alleged, relevantly, the following -

. In mid-February 1992, Mr Inglis agreed, orally, with Mr Morales to purchase 100 adult alpacas ("the alpacas")
from ACL ("the ACL/Inglis Agreement") at a price of US$2,140 per head upon the terms: (a) that the alpacas would be drawn from the herd of 110 alpacas pre-quarantined at Putre, Chile, as and from 26 January 1992, and which were the subject of a previous contract dated 16 April 1991 between ACL and Longstone; (b) that the payments made by Longstone pursuant to its contract would be credited in reduction of the price; and (c) that title would pass to Mr Inglis forthwith or, alternatively, upon appropriation.

. Title passed to Mr Inglis in mid February 1992, or alternatively, upon inspection by the parties and allocation in March 1992; or upon the animals entering quarantine at Arica, Chile, on 30 May 1992; or upon inspection and allocation in August 1992.

. Mr Inglis made the following payments to ACL:

3 January 1992 - US$5,400; 3 February 1992 - US$4,500;

3 March 1992 - US$5,000; 12 March 1992 - US$6,000;

15 May 1992 - US$10,000.

. On 20 February 1992, IAM entered into a written agreement with Mr Inglis to purchase the alpacas ("the First Purchase Agreement") upon the terms (a) that IAM would pay Mr Inglis several amounts including two initial payments of AUD$15,000 and AUD$50,000; and (b) that title would pass upon payment of the second of the
initial payments.

. The two initial payments were made on 20 and 29 February 1992 respectively, so that title passed to IAM on 29 February; alternatively, title passed in March 1992 or on 30 May 1992, or in early August 1992, as aforesaid.

. In the event that it be held that the First Purchase Agreement did not pass title to IAM, the appellants relied upon an agreement between Mr Inglis, ACL and IAM for the purchase of the alpacas made on 24 May 1992 between Mr Inglis, Mr Morales (on behalf of ACL) and Mr Forrest (on behalf of IAM) ("the Second Purchase Agreement"). Terms of that agreement were: (a) that IAM would buy upon the terms of the First Purchase Agreement, save as in (b); (b) that, in lieu of the issue to Mr Inglis of 10 units in the Coolaroo Alpaca Limited Partnership (associated with IAM), IAM would pay ACL the sum of AUD$100,000; and (c) the title passed forthwith, or alternatively, upon appropriation.

. Pursuant to the First or the Second Purchase Agreement, on 12 June 1992, IAM paid ACL AUD$42,520 at the direction of Mr Inglis; and on 17 June 1992, IAM paid Mr Inglis AUD$42,520.

. On 17 August 1992, by a written agreement, the First or the Second Purchase Agreement was varied so as to provide for payment of part of the purchase price, being AUD$210,000, forthwith.

. If it be held that title did not pass to IAM under the First Purchase Agreement, it did so under the Second Purchase Agreement on 24 May, or on 30 May or early August 1992, as aforesaid.

. On 30 June 1992, IAM was entitled to the legal and beneficial ownership of the alpacas. On that date, IAM assigned its title to the second appellant ("TFL"). Thereafter TFL leased the alpacas to the third appellant ("CAGP").

. Contrary to the true position, in September 1992, the respondents asserted that they were entitled to the ownership of the alpacas pursuant to a purported agreement for their sale made with ACL in August 1992 ("the Reserved Contract").

By their amended application, dated 19 November 1993, the appellants sought declaratory orders that IAM was, and that TFL is, entitled to the legal and beneficial ownership of the alpacas; and that CAGP is entitled to their possession; and orders that the alpacas be delivered into their custody.

THE RESPONDENTS' CROSS-CLAIMS

By their amended defence (dated 22 November 1993) the respondents denied, for several reasons, that any of the agreements alleged by the appellants were effective to pass title.

The respondents also pleaded a cross-claim, relevantly as follows:

. In August 1992, the second respondent ("Garrymere") agreed to purchase 300 alpacas from ACL (including "the alpacas"). Particulars of the sale were stated in the invoice from ACL to Garrymere dated 2 September 1992.

. Under the agreement, property in the 300 alpacas was to pass on payment of the price of US$315,000 or alternatively, on their loading on board the aircraft.

. Garrymere paid the price by instalments; the last payment was made on 8 September 1992; and property then passed to Garrymere. Alternatively, it passed on 7-8 September when the alpacas were loaded on board the aircraft.

. Prior to this, possession of the alpacas was delivered by ACL to Mr Ensor or Garrymere, or both.

. Alternatively, on 27 August 1992, Mr Ensor agreed in writing to purchase 245 alpacas (including 45 of the 100 alpacas) under the "Contracto Reservada de Transaccion" ("Reserved Contract"). It was a term of this agreement that property in the 45 alpacas was in Mr Ensor.

. On 7 September 1992, the 100 alpacas were delivered by ACL to Mr Ensor at the airport at Arica, Chile.

Alternatively, the respondents pleaded a claim for unjust enrichment as follows:

. The 100 alpacas could not have been lawfully exported from Chile and imported into Australia (including the Cocos Islands) otherwise than by virtue of the Import Permit CAM5 issued on 14 June 1990 in favour of Garrymere.

. Further, the respondents incurred expense in connection with the quarantining of the alpacas in Chile and on the Cocos Islands, and in connection with their safe-keeping, health and transportation. If it be held that the appellants have title, they would become unconscionably and unjustly enriched at the expense of the respondents, unless any such title to the alpacas is charged in equity in favour of the respondents in an amount equivalent to the value of 45, or alternatively at least five, alpacas.

The respondents sought a declaration that they owned the alpacas; and an order that the alpacas and their cria be delivered up to the respondents. Alternatively, the respondents sought an order that 45, or at least five, of the alpacas be delivered up to the respondents, along with a declaration that the respondents were entitled to the equitable charge previously mentioned.

THE FINDINGS AND CONCLUSIONS OF THE PRIMARY JUDGE

The essential findings and conclusions of the learned primary Judge may be summarised, for our purposes, as follows:

(a) General findings

(i) Credit of the witnesses

The Judge made the following general observations concerning the relative credibility of the witnesses:

. Mr Inglis was "ruthless and dishonest".

. Mr Forrest "would conduct his business in a way to achieve his commercial ends, even if it involved threats and falsehoods"; but he "attempted to answer the questions asked [in evidence] honestly", although "there was little of his evidence which was contentious from a

credit point of view".

. Mr Morales "presented as an unsatisfactory witness" and some of his evidence should not be accepted.

. Mr Ensor's way of giving evidence was "convoluted". Although some of his answers were inconsistent, he had to deal with a very long cross-examination, some of which was confusing. The "overall impression" was that Mr Ensor was "an honest witness".

. Mr. Harrison, "[u]nlike any other witness, ... had no financial interest in the outcome of the proceedings" and attempted to remain unbiased. Subject to the difficulty he had in recalling some matters, given the passage of time and the many conversations that occurred, he was "a most credible witness".

(ii) Proper law of the contracts

As has been noted, the primary Judge held that Australian law was the proper law of each of the agreements, including the Reserved Contract. This conclusion was not challenged on the appeal.

(b) Specific findings

(i) Did cl.8.1 of the Ensor Purchase Agreement oblige Mr Ensor to permit CAM5 to be used for the importation of the 100 Alpacas?

The Judge found that any ambiguity in the language of this provision, and, in particular, the meaning of the
term "facilities", should be resolved by recourse to statements made in the course of negotiations. The Judge concluded that the reference to "facilities" was intended to mean that "the parties were to share all that was necessary for the importation of the alpaca, including the use of CAM5". However, the Judge went on to hold that Mr Morales accepted Mr Ensor's stance in relation to the use of CAM5, and in doing so, waived his rights in that regard, and that by never insisting that CAM5 be available for use by Mr Inglis or IAM and entering into negotiations with Mr Ensor for the sale of the 100 alpacas, the effect of the waiver remained up to the time of entry into the Reserved Contract.

(ii)Did the written agreement dated 15 February 1992 constitute the contract between ACL and Mr Inglis?

As has been said, the Judge held that, notwithstanding the antecedent oral negotiations, the parties intended to reduce the terms of their agreement to writing in the form of the instrument dated 15 February.

(iii) The passing of property under the ACL/Inglis Agreement

The Judge held that this was a sale of ascertained goods and that the passage of property was dealt with by cl.4.2 of this agreement, which made that passage dependent upon the event of delivery as provided in cl.4.1. There was a notional delivery at the time of entry into the
agreement. The Judge held that, notwithstanding the reference to "free on board" in cl.6.2, cl.4.2, properly construed, governed the question when property passed. The Judge further held that, on its true interpretation, cl.4.2 meant that property was not to pass until all payments were made under the contract.

(iv) Payments made under the ACL/Inglis Agreement

The Judge accepted that the initial payment of US$75,000 due under the Longstone Agreement was paid on 16 April 1991. As to the payment of US$77,000, there was documentary evidence of payments of US$66,000 to Mr Morales prior to entry into the Longstone Agreement. The inference should be drawn that it was agreed that a credit of US$75,000 be applied to the ACL/Inglis contract. As to the US$77,000, the trial Judge accepted that this amount should also be credited, thus giving a total of US$152,000.

Although there was evidence of a payment made directly by IAM of US$32,278 on 12 June 1992, the Judge was not satisfied of the nature of the consideration for the payment; and was likewise not satisfied of the purpose for which Mr Inglis made a payment of US$10,000 on 15 May 1992. The Judge was thus not satisfied that all the payments required by cl.7 had been made. (As has been mentioned, the Judge had previously referred to, but
rejected, evidence of Mr Morales that, on 18 August 1992, he had received AUD$210,000 from IAM. The Judge found that it was not received until the end of August, but this finding is vigorously challenged by the appellants.) Accordingly, it was held that property had not passed under the ACL/Inglis Agreement.

(v) The First and Second Purchase Agreements

The Judge held that the Second Purchase Agreement "was intended to be a complete replacement for the [First] ... with the consequence that the [First] was rescinded upon entry into the Second ...".

As to the Second Purchase Agreement, it was held that this agreement, particularly cl.1.1, did not interfere with the ACL/Inglis contract; so that, for the purposes of the Second Purchase Agreement, the vendor was Mr Inglis alone; that is to say, Mr Morales was not a selling party under the Second Purchase Agreement.

Clause 7.2 of the Second Purchase Agreement provided as follows:

"7.2 The Vendor warrants that the permit holders of Cam No. 5 under which these animals are to be imported into Australia will obtain all necessary permits, licences, documents and authorities required of him to enable the animals to be imported into Australia as required by AQIS."

The Judge held that the effect of this provision was that Mr Morales (and Mr Inglis) warranted that Mr Ensor would do everything necessary to obtain permits for the import of the 100 alpacas. That is, Mr Morales "needed to have in place" an agreement with Mr Ensor in respect of the use of CAM5 at the time the alpacas were ready for exportation. As has been noted however, the Judge found that by the time Mr Morales became a party to the Second Purchase Agreement, he had waived his rights in regard to the use of CAM5.

(vi)Passing of title under the Second Purchase Agreement

The primary Judge held that this, also, was a sale of ascertained goods, and that the passing of property was governed by ss.22 and 23 of the Sale of Goods Act. It was held that the terms of cl.4.2 demonstrated that the parties had turned their minds to the question of passage of title and that this clause prevailed over other possible indications to the contrary in the agreement. The Judge concluded that property in the alpacas passed to IAM as from the time of payment of the sum of $50,000.

(vii) The Reserved Contract

As has been noted, Mr Harrison purported to execute the Reserved Contract as the representative of ACL. The primary Judge held that, by virtue of the conduct of Mr
Morales in permitting the negotiations to proceed "without disabusing" Mr Ensor of the contention that ACL was not to be bound by the Reserved Contract, Mr Harrison had "ostensible authority" to enter into that contract. The learned Judge further held that, in any event, since Mr Morales had "personally performed" the contract by drawing lots for the alpacas the next day, he had ratified it.

The Judge held that although there were two false statements in the contract (that is to say, (1) the purported appointment of Mr Harrison as ACL's agent; and (2) the reference in cl.1 to a prior contract for the sale by Mr Morales to Mr Ensor of 300 alpacas), it did not follow that the agreement was "unworkable". Nor was it void for uncertainty. The Judge further found that, whatever the subjective intentions of Mr Morales, he was bound by his objective conduct in personally performing the agreement.

The primary Judge also held that the use of CAM5 for the importation of ACL's 55 alpacas provided consideration for the agreement.

(viii) Priority as between the ACL/Inglis Agreement and the Reserved Contract

It was contended, on behalf of Mr Ensor, that he was entitled to the protection of s.28(1) of the Sale of Goods Act, having acquired the alpacas under the Reserved Contract from a seller in possession, as a buyer acting "in good faith and without notice of the previous sale". The Judge held that, even if a person does not have actual notice, there will be a want of good faith if "a reasonable person would have been put on inquiry. A deliberate `turning a blind eye' would not attract the [statutory] protection...".

In identifying what was the relevant "previous sale", the Judge held that only the ACL/Inglis Agreement should be considered, and not the Second Purchase Agreement, since Mr Morales "was only a seller under the former". It was concluded that the evidence did not demonstrate that Mr Ensor had notice of the ACL/Inglis Agreement.

The Judge further held that, even if at mid-August (when the negotiations began for the Reserved Contract), Mr Ensor had some information of a sale from ACL to Mr Inglis sufficient to put him on inquiry, that position changed on about 17 August when Mr Morales told Mr Harrison that "the Forrest contract was at an end". It was thus concluded that Mr Ensor did not have actual notice of the ACL/Inglis Agreement; that his failure to make any inquiry did not affect his good faith; and that Mr Ensor was entitled to the protection of s.28 and obtained a good title to 45 alpacas under the Reserved
Contract.

(ix) Ensor's possessory title

Mr. Ensor further claimed a possessory title to the 100 alpacas. For this purpose, Mr Morales' beneficial title to either the 100, or the 55, alpacas was acknowledged. In order to establish the claim, it was necessary for Mr Ensor to demonstrate that IAM was not their true owner at the time Mr Ensor acquired possession, that is, 7/8 September 1992. The primary Judge held that, at this date, notwithstanding the denials of Mr Morales, the "Inglis/IAM agreement" (i.e. the Second Purchase Agreement) was still on foot. Although, according to its terms, property in the alpacas had passed to IAM, the passing of property under that contract was dependent upon the passing of property under the ACL/Inglis Agreement. Accordingly, the Judge concluded that IAM was not in a position to set up its title to the animals against Mr Ensor's possessory title.

THE ORDERS MADE AT FIRST INSTANCE

The primary Judge declared that legal title to each of the 45 alpacas passed to Mr Ensor pursuant to the Reserved Contract; and further declared that, without derogating in any way from the previous declaration, Mr Ensor held possessory title over each of the remaining 55 alpacas "subject to the title of" ACL to those alpacas. Consequential orders, including injunctions
and orders for delivery up, were also made.

THE GROUNDS OF APPEAL

The appellants now challenge the trial Judge's conclusions that IAM was not the owner of the alpacas; and that Mr Ensor owned 45 of the alpacas. The appellants further contend that the primary Judge should have held that IAM had a better legal right than Mr Ensor to possession of all of the alpacas, or at least to 55 of them.

The grounds of appeal are comprehensive, but some should be specifically noted as follows:

. With respect to the ACL/Inglis Agreement, the appellants contend that the primary Judge should have held that, under this agreement, property in the alpacas passed to Mr Inglis before they were loaded on the aircraft in Chile (i.e. the possession alleged by Mr Ensor) or before 25 August 1992 (the suggested date of the Reserved Contract); and that the circumstance that it was an express term of this agreement that title pass to Mr Inglis on payment of the second of the initial payments, should have been taken into account. The appellants also say that a finding should have been made that Mr Ensor knew of the existence of the ACL/Inglis Agreement at the time of entry into the Reserved Contract.

. With respect to the purchase by IAM, the appellants say
that the primary Judge erred in holding that property had not passed from ACL to IAM before 25 August 1992 by virtue of the First or the Second Purchase Agreements; and by holding that, at the time of institution of these proceedings, IAM did not have property in, or an immediate right to possession of, the 55 alpacas; and, as has been mentioned, in finding that the sum of AUD$210,000 was not received by ACL from IAM until 31 August 1992.

. With respect to the Reserved Contract, the appellants contend that it should have been held to have failed for want of consideration, to be wholly uncommercial, and not to have been intended to have any legal effect.

. Then it is said that it should have been held that Mr Ensor was not a buyer in "good faith" for value "without notice" of a prior sale of the 100 alpacas, or at least of 45 of them.

THE RESPONDENTS' NOTICE OF CONTENTIONS ON THE APPEAL

By their notice of contentions, the respondents challenge the following findings of the primary Judge:

. That, on the true construction of cl.8.1 of the Ensor Purchase Agreement, Mr Ensor was obliged to provide CAM5 for use by persons other than ACL.

. That, pursuant to cl.4.2 of the Second Purchase Agreement, title passed to IAM.

THE ISSUES ON APPEAL

Mr Hely QC, senior counsel for the appellants, summarised the issues in the appeal as follows:

1. Whether property in the 100 alpacas passed prior to payment of the purchase price under the ACL/Inglis Agreement or under the Second Purchase Agreement, or, alternatively, by Mr Morales' participation in those agreements?

2. If property did not then pass, whether payment was in fact subsequently made?

[Mr Hely submitted that if the answer to either of the above questions was "yes", then the appellants would have title to 55 of the 100 alpacas.]

3. Whether property in the remaining 45 alpacas passed to Mr Ensor under the Reserved Contract?

4. If "yes" to Q.3, did Mr Ensor receive those animals "in good faith" and "without notice" of any previous sale?

5. Even if Mr Ensor was entitled to the property in the 45 alpacas, is he nonetheless liable to the appellants for inducing a breach of contract?

In view of the conclusions which we have reached, it is only necessary for us to deal with the first and the fourth issues. We propose to decide the fourth issue by making the assumption
in favour of the respondents (but without deciding the point) that, as between Mr Morales and Mr Ensor, property in the 45 alpacas passed to Mr Ensor under the Reserved Contract.

DID PROPERTY PASS PRIOR TO PAYMENT UNDER THE ACL/INGLIS AGREEMENT OR THE SECOND PURCHASE AGREEMENT?

(1) The ACL/Inglis Agreement

It was common ground before us that the proper law to be applied here was that of the State of New South Wales. Moreover, there was no dispute with the trial Judge's finding that the ACL/Inglis Agreement was a sale of ascertained goods. In those circumstances, as the trial Judge held, the passing of property in the 100 alpacas which were the subject of that agreement is to be determined in accordance with s.22 of the Sale of Goods Act 1923 (NSW). It provides:

"22(1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case."

Section 23 of the Sale of Goods Act then provides:

"23. Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.

Rule 1. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.

Rule 2. Where there is a contract for the sale of specific goods, and the seller is bound to do something to the goods for the purpose of putting them in a deliverable state, the property does not pass until such thing be done and the buyer has notice thereof. ..."

The learned primary Judge held that the agreement, on its proper construction, provided for delivery unassociated with payment and that accordingly s.31 of the Sale of Goods Act (which relevantly provides that, unless otherwise agreed, delivery of goods and payment of the price are concurrent conditions) did not apply. We respectfully agree.

The Judge then turned to consider the proper construction of cl.4.2, that is, whether property was to pass immediately, subject to defeasance if payments under the schedule were not made, on the one hand, or whether it was not to pass unless and until all payments were made under the contract, on the other. The Judge said:

"In my opinion, clause 4.2 has the latter effect. Notwithstanding that its opening words are clear and unambiguous - property passes at the time of delivery, the qualification introduced by the words "subject to the terms of payment ... being [effected]" has the effect of delaying the time for the passing of property until all payments had been made."

With respect, we cannot agree.

It has been said that "in modern times very little is needed to give rise to the inference that the property in specific
goods is to pass only on delivery or payment" (R.V. Ward Ltd. v. Bignall [1967] 1 QB 534 at 545). It is submitted, on behalf of the appellants, that, in accordance with cl.4.1, constructive delivery, and the passing of property, took place at the point of purchase in the Altiplano.

Reliance is placed by the appellants upon the reasoning in Federal Commissioner of Taxation v. McConochie (1960) 102 CLR 561 (at 572-573) where Menzies J. decided the question of when property passed in sheep under a contract of sale, by weighing the competing considerations. We agree that this approach is appropriate here.

In favour of a conclusion that property in the 100 alpacas was not to pass under the ACL/Inglis Agreement until full payment of the purchase price, there are these circumstances:

. The terms of cl.6.2 of the agreement as follows:

"6.2 The Vendor warrants that he will place the animals free on board an aircraft at Arica Airport, Chile. All quarantine costs, transport veterinary and fodder costs to the point of FOB will be met by the Vendor."

(The trial Judge held that cl.6.2 had "... all the indicia of a traditional FOB clause" (and see now Sutton, Sales and Consumer Law, 4th ed. (1995) at 402 on the question of the time of appropriation under an F.O.B. contract); but that the express provisions of cl.4.2 as to the passing of property would prevail. The Judge's construction of cl.4.2 was that it
had the same effect as cl.6.2., bearing in mind also the circumstances set out below.)

. Clause 9.1 by which ACL was made responsible for obtaining all relevant permits, licences, documents and authorities required "... to enable the animals to be placed FOB [at] Arica";

. The vendor, ACL, was a Chilean resident company, its signatory Mr Morales was a Chilean resident and the alpacas were at the time of the agreement in pre-quarantine in the Chilean Highlands; and

. The purchaser was a New Zealand resident.

In our view, the factors set out above, and the other matters put forward by the respondents in written and oral submissions, are outweighed by the competing considerations (which we list below) in favour of (and which encapsulate) our conclusion that property in the 100 alpacas passed to Mr Inglis upon execution of the ACL/Inglis Agreement:

. The Agreement had come into existence, as the trial Judge found, because Mr Inglis had asked Mr Morales for a written contract to enable him to satisfy Mr Forrest that he had title to the 100 alpacas and Mr Morales had agreed to this;

(It should be noted that in McConochie above, Menzies J. (at 573) expressed the view that property would have passed if the sheep had been resold before delivery.)

. The manner in which cl. 4.2 is expressed. It will be recalled that the first part of that clause provided that upon delivery the property in the animals should pass unencumbered to the purchaser. Prima facie, the qualification upon that stipulation takes the form of a condition in the nature of a proviso. Cases such as The Colonial Insurance Co of New Zealand v. The Adelaide Marine Insurance Co [1886] 12 AC 128 (at 140)and McDougall v. Aeromarine of Emsworth Ltd [1958] 1 WLR 1126
(at 1130) (which were cited by the trial Judge) recognise that property in goods may pass defeasibly. As Diplock J. said in McDougall (at 1130):

"It is not an unfamiliar conception in contracts for the sale of goods that the property should pass defeasibly."

In each of those cases defeasibility was at the option of the buyer but there seems no reason in principle why defeasibility should not be at the option of the vendor in the event of failure to pay the purchase price. The condition should operate as a true proviso or condition subsequent.

(See also EMI (Aust.) Ltd. v Commissioner of Taxn (1971) 45 ALJR 349 per Windeyer J. at 353.)

. The contract was entered into at a time when $US152,000 had already been paid, a sum which amounted to approximately three-quarters of the total anticipated purchase price.

These factors, taken cumulatively, makes it more reasonable to infer that the parties intended property to pass immediately, subject to the vendor's rights of defeasance and other rights, whether conferred by the contract, or by the Sale of Goods Act, on an unpaid vendor.

(2) The First Purchase Agreement and the Second Purchase Agreement

The Judge held that the Second Purchase Agreement was intended to be a complete replacement of the First Purchase Agreement and that consequently the First Purchase Agreement was rescinded upon entry into the Second. The basis for this conclusion was that the terms of the Second Purchase Agreement were identical to the First Purchase Agreement save for the additions made by Mr Forrest, together with the fact that the
parties to the Second Purchase Agreement had agreed that the date of the agreement should remain stated as "20 February 1992", being the date of the First Purchase Agreement. The Judge concluded that, in those circumstances, the parties intended the Second Purchase Agreement to govern their relationship from 20 February 1992, and not from the date upon which it was signed, namely 24 May 1992. We respectfully agree.

The primary Judge also held that, under cl.4.2 of the Second Purchase Agreement, property in the 100 alpacas passed to IAM as from the time of payment of the $50,000 referred to in that clause. Again, we respectfully agree. There is no dispute that the payment was made. The second sentence of the clause reads:

"This sum has been paid by the Purchaser in fulfilment of this clause giving the Purchaser unencumbered title to the Apaca."

In view of our above conclusion concerning the passing of property under the ACL/Inglis Agreement, there appear to be two separate, but related, means by which property in the 100 alpacas passed from ACL to IAM: one a primary title; the other a derivative title, as follows:

. The first is by the operation of the ACL/Inglis Agreement, whereby property passed to Mr Inglis, and then passed under the Second Purchase Agreement from Mr Inglis to IAM.

. Secondly, Mr Morales and ACL were named as parties within the definition of "the Vendors" in the Second Purchase Agreement. Singular and plural references to the Vendor/Vendors and Purchaser/Purchasers occur on a random basis throughout that document. However, cl.1.1 of that contract, can be construed as expressing the parties' agreement that the animals which Mr Inglis had purchased from ACL would be sold by Mr Inglis and ACL to IAM; that is to say, whatever rights in those animals held by either of those parties were to pass by way of sale to IAM.

As a further alternative, if property did not pass to Mr Inglis under the ACL/Inglis Agreement by the time of the execution of the Second Purchase Agreement, then the position is, in our view, governed by the statutory title by estoppel provided by s.26(1) of the Sale of Goods Act. That provision is as follows:

"26(1) Subject to the provisions of this Act, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell."

It is now settled that the effect of s.26(1), where an estoppel is found, is that the buyer acquires a title to the goods against all the world, and not merely a right to plead an estoppel against those privy to the representation or
conduct of the owner (see Big Rock Pty Ltd v Esanda Finance Corporation Limited (1992) 10 WAR 259 at 270-271; Sutton, op. cit. at 434-436).

Mr Morales, by executing the Second Purchase Agreement in which he and ACL were named under the heading "The Vendors" (see above), clearly demonstrated an intention that title to the 100 alpacas was, so far as he and ACL were concerned, to pass, on an unencumbered basis, to IAM.

For the above reasons, our conclusion is that property in the alpacas passed to IAM either on 20 February 1992 when the First Purchase Agreement was executed or, at the latest, on 24 May 1992 when the Second Purchase Agreement was executed.

THE RESERVED CONTRACT

The next question is whether IAM's title was lost, as the respondents argue, by reason of Mr Ensor's purchase of the 100 alpacas under the terms of the Reserved Contract.

The primary Judge found that it was. On behalf of the appellants, it was submitted that the parties to the Reserved Contract did not intend to create legal relations and further that there was no consideration for that contract. It is not necessary for us to decide those issues because of the conclusions which we have reached in relation to the question of "good faith" and "notice" for the purposes of s.28(1) of
the Sale of Goods Act. Accordingly, on the assumption, in favour of the respondents that the Reserved Contract operated in accordance with its terms, (but without deciding that issue), we proceed to consider the questions of "good faith" and "notice".

Did Mr Ensor receive the alpacas in "good faith" and "without notice" of the previous sale?

Section 28(1) of the Sale of Goods Act provides as follows:

By s.5(2) of the Act, a definition provision, it is provided that a thing is deemed to be done in "good faith" within the meaning of the Act, when it is in fact done "honestly, whether it be done negligently or not".

The Judge approached the application of s.28(1) by first seeking to identify the relevant "previous sale". The Judge held that the operative contracts were the ACL/Inglis Agreement and the Second Purchase Agreement; and that Mr Morales was only a seller under the former agreement. Accordingly it was concluded that the ACL/Inglis Agreement
was the relevant "previous sale". The Judge then considered the state of Mr Ensor's knowledge of the ACL/Inglis Agreement as at August 1992 when the Reserved Contract was executed.

It was common ground that the burden of proving "good faith" and absence of "notice" rested upon Mr Ensor as the person receiving the alpacas: see Chitty on Contracts (27th ed) Vol. II p.1193 and the cases there cited. The appellants accepted the principles set out by Neill J. in Feuer Leather Corporation v. Frank Jonstone & Sons [1981] Com. LR 251 at 253 and cited with approval by Clarke J. in Forsythe International (UK) Ltd v. Silver Shipping Co Ltd ("the Saetta") [1994] 1 WLR 1334 at 1349-1350 as follows:

"2.... the Court is concerned with actual notice and not with constructive notice.

3.In deciding whether a person ... had actual notice:

(a)the Court will apply an objective test and look at all the circumstances;

(b)if by an objective test clear notice was given, liability cannot be avoided by proof merely of the absence of actual knowledge;

(c)a person will be deemed to have had notice of any fact to which it can be shown that he deliberately turned a `blind eye'...;

(d)on the other hand the Court will not expect the recipient of goods to scrutinize commercial documents such as delivery notes with great care;

(e)there is no general duty on a buyer of goods in an ordinary commercial transaction to make inquiries as to the right of the seller to dispose of the goods;

(f)[whether the circumstances, looked at objectively, constitute notice] must be a matter of fact and degree to be determined in the particular circumstances of the case ... .

4.The burden of proving a bona fide purchase for value without notice rests on the person who asserts it. ..."

The appellants also contended that once the recipient of goods has notice of a prior sale, a mistaken belief, even if that belief be reasonable, that such prior sale has gone off does not negate notice. For that proposition the appellants relied on Jared v. Clements [1902] 2 Ch. 399 (at 402) affirmed by the Court of Appeal [1903] 1 Ch 428. The appellants submitted that in the context of a second sale by a vendor in possession it will almost always be the fraudulent vendor, rather than the innocent prior purchaser, who represents, expressly or impliedly, that he is free to sell. In those circumstances where a purchaser knows of a prior sale, he could not rely on an implied representation from the vendor flowing from the second sale as the basis for concluding that the first sale had gone off. Here, where Mr Morales is alleged to have stated expressly that the first sale had gone off there was, so it was put, no reason in principle why the position should be any different.

In Jared v. Clements, a purchaser of land discovered, prior to completion, the existence of an equitable mortgage of the land which had not been referred to in the vendor's abstract of title. When the purchaser raised this matter with the vendor the latter produced a receipt and discharge for the moneys
owing under the equitable mortgage. That receipt was a forgery. It was held that in those circumstances the purchaser still took the land with notice of the equitable mortgage and was liable to make payment to the equitable mortgagee.

The appellants argued that similar principles applied in the present context of the sale of goods. Once fixed with notice of a prior sale a recipient of goods might well make inquiries of the parties to that prior sale. If those parties informed him that the sale had been cancelled and that information was correct, then all would be well. However, the proposed recipient of the goods, once fixed with notice of the prior sale, was at risk if he relied on information which subsequently proved to be false. On the other hand, the respondents contended that whilst those principles might be applicable to a conveyancing transaction, they were not appropriate in the mercantile context of the sale of goods.

In our view there is considerable force in the argument that, for the purposes of s.28(1), ACL should be regarded as a person having sold the alpacas under the Second Purchase Agreement and that this agreement was "the previous sale" for the purposes of deciding the question of notice. However, it is not necessary to finally determine that question because we have come to the conclusion that Mr Ensor had sufficient "notice" of both agreements.

We now turn to the evidence which, in our opinion, leads to that conclusion.

First, as the trial Judge found, Mr Ensor knew of the Longstone Agreement. That agreement was referred to in recital E of the draft Cost Sharing Agreement which Mr Ensor caused to be sent to Mr Inglis in March 1992. At about the same time Mr Ensor was sent a copy of the First Purchase Agreement. The Judge further found that Mr Ensor was also aware of some arrangement between Mr Morales and Mr Inglis for the sale of 100 alpacas. But the Judge rejected the contention that Mr Ensor had actual notice of the ACL/Inglis Agreement for reasons expressed as follows:

"However, to the extent that at one time he [Mr Ensor] had some knowledge of a sale by Morales to Inglis, that knowledge was dispelled when Morales told him on about 5 May 1992 that he did not have any agreement with Inglis. This information was confirmed by Morales letter to Ensor of 12 May 1992 rejecting Ensor's offer to purchase the 100 alpaca."

On this aspect of the matter, the appellants pointed to the following passage in a letter dated 7 May 1992 from Mr Ensor to Mr Morales in which, after referring to Mr Morales proposed departure from Chile, Mr Ensor wrote the following:

"I appreciate that your travel plans related to Ron Inglis' doubtful contract for alpaca but if Ron has regard for this export he would not expect the captain to leave his ship in Chile and would indeed come to Chile himself. Andrew Forest (sic) I am sure would have respect for you staying in Chile to facilitate your current commitments and would not expect you to travel to Australia when you are in the middle of a vital export process."

A few days later, on 10 May 1992, Mr Ensor wrote to ACL as follows:

"I write with regard to the remaining 100 Alpaca upon permit 5 C.A.M. -

1. I have made an offer of $2600 US per head F.O.B. for these Alpaca subject to satisfactory proof of clear title. As I have two parties ready with money for this there would be minimal delay.

You could have money deposited in Banco Santander Sydney in the week of 18-22 May 1992 - 60% balance F.O.B. ..."

At the trial, IAM submitted that a letter dated 12 May 1992 from Mr Forrest to Mr Morales (which Mr Ensor admitted he read after attending a dinner in Melbourne with Messrs Morales Forrest and Harrison in late May 1992) put Mr Ensor on notice of the ACL/Inglis Agreement. The opening paragraph of that letter read:

"I confirm that the contract between Ron Ingles [sic] and my company remains totally `on foot' and enforceable and that his contract with you, on which my contract relies, also remains totally `on foot' and enforceable."

The Judge was of the view that there was nothing in this letter to indicate that Mr Morales had agreed to sell the alpacas to IAM. Rather, the Judge read it as referring to a sale from ACL to Inglis and from Inglis to IAM. But, in our view, the letter of 12 May 1992 was sufficient in itself to constitute "notice" to Mr Ensor of the fact that there had been a previous sale from ACL to Mr Inglis. Failing that, it was sufficient, at the very least, to require Mr Ensor to make
further inquiry of the three principals involved in order that it could be said that, in all the circumstances, Mr Ensor, who bore the onus in this regard, acted in "good faith", that is, honestly.

The primary Judge concluded that it was reasonable, in the circumstances, for Mr Ensor to treat Mr Forrest's letter as a mere assertion of a contract between ACL and Mr Inglis and that there was no cause for Mr Ensor to make any inquiry at that time, that is, when he read the letter after the dinner in Melbourne in late May 1992. (The circumstances in which Mr Ensor came to read the letter were themselves unusual. He and Mr Morales were sharing a bedroom and Mr Morales left the letter on his bed. Mr Ensor noticed it, picked it up and read it.) The Judge said that, so far as inquiries to Mr Inglis were concerned, Mr Inglis had demonstrated himself to be ruthless and, on his own admission, dishonest in his dealings with Mr Ensor. Accordingly, it was held, this was hardly the type of relationship in which a person could be confident of receiving accurate information from a commercial opponent. For similar reasons, the Judge did not think it was unreasonable on Mr Ensor's part to mistrust Mr Forrest and thus not make further inquiries of him. Accordingly, a statement by Mr Forrest at the dinner in late May 1992 to the effect that he had paid for the animals was characterised by the Judge as not being accurate. Just days prior to that statement, Mr Forrest had executed the
Second Purchase Agreement which confirmed IAM's title to the 100 alpacas. In those circumstances, particularly given the presence of Mr Morales at the time, the conversation was, we think, further notice to Mr Ensor that title in the 100 alpacas had passed to Mr Forrest. As Mr Hely submitted, whether title had passed by one, or more than one contract, is, in our view, irrelevant.

On 28 July 1992 Mr Forrest wrote to Mr Wren, and Mr Ensor received a copy of the letter on 5 August. That letter referred to IAM's interest as purchaser of the alpacas, drew attention to the fact that Mr Morales no longer owned them (as had been recorded at a previous meeting), recounted the reciprocity of obligations of Mr Ensor and Mr Morales with respect to the permits, identified a contractual relationship between Mr Forrest and Mr Morales, warned against interference with it and recorded a "sale agreement" between Mr Morales and Mr Forrest under which the latter had title. The Judge accepted the foregoing as a correct summation of the contents of that letter, but could not see how that evidence was of any assistance to the appellants, "... given that the letter alleged a contract between ACL and IAM, for the sale of the alpaca which Forrest admitted was false ...". In the course of oral submissions, the appellants challenged the existence of any evidence of Mr Forrest admitting that his allegation in the letter concerning a contract between ACL and IAM was false. In this connection, Mr Conti QC, senior counsel for
the respondents, referred us to certain passages in the transcript of evidence; but we are unable to accept that evidence as an admission of the falsity suggested.

In a letter dated 19 July 1992 sent by Mr Ensor to Mr Harrison, Mr Ensor referred to "... the Inglis/Morales lack of ground upon my permit ...". This is another, albeit small, piece of evidence which is consistent only with the recognition on Mr Ensor's part of Mr Inglis' interest in some alpacas.

Another relevant factor in our opinion was the requirement that the Reserved Contract be kept so secret. Mr Harrison was to be its custodian and he was not to release a copy even to Mr Morales or Mr Ensor without the consent of the other. In the Reserved Contract there is provision for indemnity to Mr Morales and ACL in the event that either of them should encounter legal difficulties in Australia arising from the original contract. When read with the reference, in the eleventh clause of the Reserved Contract, to cl.8.1 of the original contract, it is clear that the parties were concerned about the commitment in cl.8.1 of the Ensor Purchase Agreement to allow another 100 alpacas share "the facilities". It was common ground that the Reserved Contract was drawn up by Mr Tapia, Mr Ensor's lawyer.

The Reserved Contract was the result of two days of intense,
indeed pressurised, negotiations in which Mr Ensor was threatening to load his 200 alpacas onto the aircraft and leave the remaining 100 alpacas in Chile.

In our opinion all of the above circumstances warrant the inference that Mr Ensor had notice not only of the sale from ACL to Mr Inglis, but also of the sale by Mr Inglis to IAM. Even if he did not have full and explicit notice, he was certainly in a position where it was reasonable to expect him to make further inquiry of Messrs Inglis and Forrest in order to ascertain the true position. To borrow the language of Nourse L.J. in Woodchester Equipment Leasing Company Limited v Capital Belts Limited (Court of Appeal, 12 April 1995, unreported), we are satisfied that "it was, objectively judged, obvious to the [respondents] that something had gone seriously wrong and that the [respondents], having closed [their] eyes to the obvious, [are] unable to enforce [their] rights against the [appellants]." The "something ... gone seriously wrong" in the present matter was a situation in which ACL were endeavouring to sell 45 of the 100 alpacas twice.

It should, in our view, be borne in mind, as Lord Pearce pointed out in Pacific Motor Auctions Pty. Ltd. v Motor Credits (Hire Finance) Ltd. [1965] AC 867 (at 886) that:

"The object of [s.28] is to protect an innocent purchaser who is deceived by the vendor's physical possession of goods or documents and who is
inevitably unaware of legal rights which fetter the apparent power to dispose."

In our view, the respondents did not fall within the ambit of the protection sought to be provided by s.28. They were by no means "innocent purchasers". To the contrary, they actively sought to reverse the status quo over a sustained period. Although the trial Judge made findings as to the relative credibility of the witnesses, to which we have referred, we believe that, in the ultimate analysis, this is not of substantial significance in the determination of the proceedings, since the resolution of the dispute depends, in large part, upon the documentation brought into existence by the parties. That documentation, particularly the written contracts and the records evidencing the substantial payments made by IAM prior to the respondents' entry into the Reserved Contract, could not be seriously challenged.

It is true that there is no doctrine of constructive notice in this area. Authorities such as Jared, dealing with the conveyancing position, need, as Mr Conti pointed out, to be treated with caution for our purposes (and see, generally, on the question of constructive notice in the Australian context Robinson Motors Pty. Ltd. v Fowler (1982) Qd.R. 374 at 378-9; Sutton, op. cit. at pp.505-6; as to the English position, see the discussion in Benjamin's Sale of Goods, 4th ed. (1992) at 316-318, but see now Royal Brunei, below).

It is also to be borne in mind, as previously noted, that a thing is deemed to be done "in good faith" within the meaning of the Sale of Goods Act when it is in fact done honestly.

At the same time, as Lord Nicholls observed recently in Royal Brunei Airlines v Tan (P.C.) [1995] 2 AC 378, there is, in a civil context, an objective standard by which a person is judged to have acted dishonestly or not. His Lordship said (at 389):

"Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour. (Emphasis added)

In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others' property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless."

His Lordship went on to say (at 389):

"Imprudence is not dishonesty, although imprudence

may be carried recklessly to lengths which call into question the honesty of the person making the

decision. This is especially so if the transaction serves another purpose in which that person has an

interest of his own."

Lord Nicholls continued (at 390-1):

"Acting in reckless disregard of others' rights or possible rights can be a tell-tale sign of dishonesty. An honest person would have regard to the circumsances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct.

Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did."

It is true that Royal Brunei was not a sale of goods case, but in our view, these observations are capable of general application in civil matters where "good faith" or "honesty" is in issue.

Where, as here, the respondents were aware of the existence of the previous sale to IAM, it was, in our opinion, reckless conduct to the point of dishonesty to seek to negotiate the "Reserved Contract". The suggestion, or self-serving assertion, by an interested party that IAM had somehow lost its contractual rights was never sought to be verified by inquiry of IAM. Failure to take such an obvious step, simple as it was, is consistent with the absence of honest conduct. The very terms of the Reserved Contract (especially its secrecy provisions) and the circumstances of its execution, also point to an absence of "good faith". Mr Ensor did more than turn a blind eye. With the help of his lawyer, he brought into existence an extraordinary document riddled with inconsistencies.

Accordingly, we are not satisfied that the respondents were able to demonstrate that they acted "without notice" and in "good faith" so as to be entitled to the protection of s.28(1). To pick up the language used in Pacific Motor Auctions, Mr Ensor has not shown that he was "an innocent purchaser ... deceived by [ACL's] physical possession of [the alpacas] ... and ... inevitably unaware of [IAM's] legal rights ...".

RESULT OF THE APPEAL

It follows that we would allow the appeal, with costs, and accordingly make appropriate declarations of ownership and possession in favour of the appellants respectively, together with the costs of the trial.

THE RESPONDENTS' CROSS-CLAIMS AND NOTICE OF CONTENTION ON THE APPEAL

At first instance, the respondents claimed that they were entitled to compensation for the appellants' unjust enrichment in having had use of CAM5 without having paid Mr Ensor for its use. In this regard, the trial Judge found that during the course of the negotiations for the Ensor Purchase Agreement, Mr Ensor agreed with Mr Inglis, as agent for ACL, that ACL could use CAM5 for the importation of the 100 alpacas not purchased by him. We concur with this finding. It is true that the history of the subsequent dealings between the parties recited here shows that Mr Ensor endeavoured, by threats and otherwise, to resile from this agreement; however, there exists no basis for permitting him to do so.

The trial Judge dismissed the respondents' claim on the basis that there was no evidence adduced as to the amount of just restitution. This finding was not really the subject of dispute on appeal. Certainly, no satisfactory basis emerged for making claim to five of the alpacas; that appeared to be no more than an arbitrary figure. Accordingly, the respondents could have no cause of action on this score.

It will also follow from our earlier conclusions that the respondents' claims to possessory title to the animals cannot be sustained.

The cross-claims should be dismissed, with costs.

I certify that this and the preceding sixty-three (63) pages are a true copy of the Reasons for Judgment herein of their Honours Justice Beaumont and Justice Carr.

Associate

Dated: 24 November 1995

Counsel and Solicitors for Mr Peter Hely Q.C. with

First, Second and Third Mr N. Cotman instructed

Appellants: by Webeck Farland Pender

Counsel and Solicitors for Mr R. Conti Q.C. with First and Second Ms Rena Sofroniou

Respondents: instructed by Mallesons

Stephen Jaques

Dates of hearing: 25, 26, 27 September 1995

Date Judgment delivered: 24 November 1995

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