I. COMMON LAW
2.1 Two areas of the common law are relevant to the disposal of uncollected goods: the law of bailment and the law relating to liens. In both areas the common law has been supplemented by specific legislation, notably the Disposal of Uncollected Goods Act 1966. The common law is discussed first.
A. Bailment
2.2 Bailment is a common transaction in every day life and covers a wide range of commercial and other dealings.1 Typically, a bailment arises when the owner or possessor of goods (the bailor) transfers possession of such goods to another person (the bailee) in order that the bailee may perform some act in relation to the goods. For example, a bailment will arise when goods are taken for repair or storage.
2.3 While possession,2 the mere fact of possession does not automatically give rise to a bailment. Generally, a conscious and willing assumption of possession of the goods3 is required before bailment can exist. The requirements and obligations of bailment are more easily defined by reference to the subcategories of bailments.
1. Bailment for Reward
2.4 A bailment for reward arises where goods are taken into custody for purposes of storage, treatment or repair, in return for valuable consideration. The bailment is for the mutual benefit of the parties and the bailee is under a duty to deal with the goods with the due care and diligence which a careful person would exercise over their own chattels of similar circumstances.4 A bailee for reward has no right to sell the goods of the bailor. To do so would constitute an act of conversion, making the bailee liable in an action for damages.5
2. Gratuitous Bailment
2. 5 A gratuitous bailment is one from which only one party to the agreement benefits.6 Generally it involves the keeping of goods without reward, to be returned to the bailor on demand. While the duty of care owed by a gratuitous bailee is of a lower standard than required of a bailee for reward, neither the bailee for reward nor the gratuitous bailee can dispose of or sell the goods in their possession.
3. Involuntary Bailment
2.6 This is often characterised as a form of gratuitous of the goods by, or any benefit accruing to, the bailee. For example, an involuntary bailment occurs where goods are found by someone or taken into possession through a process of inertia selling (but note the Unsolicited Goods and Services Act 1974, discussed below at 3.11); or where a departing tenant leaves goods on the landlord’s premises.7 The duty arising here is much lower than in either bailment for reward or gratuitous bailment, amounting only to a duty to abstain from wilful or reckless damage.8 The prohibition against the sale or disposal of the goods remains.
2.7 The scope of the duty of the involuntary bailee to abstain from wilfully damaging the goods varies widely according to the circumstances of the bailment. There is some authority for the proposition that there can be no legitimate complaint against a bailee who acts in a manner which is considered “reasonable and proper” in all the circumstances,9 including the destruction of the goods if they have become a nuisance.10 Similarly, a bailee who acts with the object of either returning the goods or mitigating responsibility for them (whether by delivering them to the police or a bank, or by returning an unsolicited letter to the post office) incurs no liability to their owner.
2.8 However, the precise duties of an involuntary bailee, and the nature of the safeguards to be taken in disposing of the goods, remain ill-defined and unsatisfactory due to the wide variety of goods and circumstances in which the involuntary bailee can acquire possession.
2.9 Logically the whole concept of involuntary bailment is a contradiction in terms. The term “bailment” implies both possession of another person’s goods and agreement to or acceptance of such possession. Involuntary bailment does not require a voluntary election by the bailee to hold the goods. It has been argued11 that without this voluntary element there may not be a true relationship of bailor and bailee.
2.10 These problems are of particular importance in the present inquiry for they form the only part of the common law relating to unclaimed goods not superseded by the Disposal of Uncollected Goods Act. Involuntary bailees are thus the only bailees left without an effective remedy.
B. Liens
2.11 A lien is a right, arising by implication of law, of one person to retain possession of the goods of another until a liability is satisfied.12 Except in the case of an equitable lien, the right depends on actual possession of the goods. A lien can be general, allowing the lienee to hold all chattels until a general account owing is settled, or particular, attaching to specific goods which will be held until charges owing on them are paid. A lien can also be implied by statute: see, for example, Warehousemen’s Liens Act 1935 and Pawnbrokers Act 1902.
2.2 A lienee is under a duty to take reasonable care of the goods, but has no claim for the cost of keeping them. The right is passive, to detain the articles until the debt is paid. There is no right to sell the goods, and to do so leaves the lienee liable to an action for wrongful interference with the goods. In special circumstances, a statutory lien is accompanied by a right of sale, subject to compliance with certain conditions: see Warehousemen’s Liens Act 1935 s6(1) and Pawnbrokers Act 1902 s19.
C. Liens and Bailment Compared
2.13 Bailment arises on acceptance of possession of goods by a bailee. By contrast a lien generally requires more than the mere custody of goods, for example, some work to improve or repair them, or a debt owed in relation to them. A lien may arise in favour of repairers and common carriers, and is implied by statute in favour of warehousemen and pawnbrokers. Except where there is an agreement granting it, a landlord has no lien over the goods of a tenant, even where that tenant has vacated the premises leaving rent unpaid.
D. Rights of Disposal
2.14 In summary it can be said that the law of bailment or lien will apply when people are in possession of goods that remain uncollected. However, the remedies available to a bailee or lienee are limited. At common law they do not extend to the sale or disposal of the goods.13 Any relief offered by the common law is therefore very limited. There are two narrow exceptions:
1. Agency of Necessity
2.15 In some, very limited, circumstances a bailee may be relieved from liability for disposing of goods without authority. The principle of agency of necessity excuses the bailee from liability when there is an actual commercial necessity to dispose of the goods. Traditionally, the defence is confined to:
(a) those who accept bills of exchange to be honoured by the drawer, that is, the bailee who is entitled to be reimbursed by the person for whom the payment is made; and
(b) masters of ships in foreign ports, unable to obtain immediate instructions from the owners of the ship or cargo and in need of money for unforeseen expenses.14
The defence developed to cover carriers by land, but is still limited to cases of emergency or real business necessity,15 is for example, where the goods are perishable and it is impracticable to obtain instructions from the owner.16 The principle also applies where goods are deteriorating or otherwise losing value, but only if the loss is serious enough to constitute an emergency.
2.16 The courts have been reluctant to extend the classes of agents of necessity. This is well illustrated by the decision in Sachs v Miklos.17 In that case gratuitous bailees sold Items of furniture which they had stored for three years after several attempts to reach the bailor by letter and telephone had failed. The Court of Kings Bench found the bailees guilty of conversion, and refused to accept that they had acted as agents of necessity, stating that the sale was made for the convenient running of their business (a boarding house), and not in response to any real emergency. In the course of his judgment Lord Goddard CJ said: “in peace-time such a course would probably have landed them in no real liability for if the market value of the furniture had been obtained and had remained constant they would have had an adequate sum to hand to the plaintiff”.18
2.17 It is not hard to see why the courts have been reluctant to widen the defence of agency of necessity. The defence developed as part of the specialised law of common carriers, to facilitate the smooth carriage or shipment of goods, and to deal with the unforeseen circumstances which can occur during the performance of such contracts. In cases dealing necessity there is rarely, if ever, any suggestion that the goods will remain uncollected by the owner. It is the intervention of factors beyond the control of the carrier and owner, such as delays, strikes and unforeseen expenses which gives rise to the agency. The concept is, therefore, of limited value when dealing with uncollected goods. By contrast, the possibility that the goods will never be claimed is the major concern of the bailee in possession of uncollected goods.
2. Abandonment
2.18 It is sometimes suggested that an involuntary bailee can argue that the bailor has abandoned all title and interest in the goods, thus permitting the bailee to dispose of the goods at will. While the common law recognises abandonment, the concept is of very Iimited application.In order to rely on it the bailee must prove that the true owner has intentionally abandoned the goods.19 Mere accidental or negligent loss of goods does not amount to abandonment. The concept has very little application to the problem of uncollected goods, since in most cases it would be difficult or impossible to prove the requisite intent in the bailors at the time the goods left their possession. Uncollected goods are, by their very nature, merely uncollected; they are not abandoned as that term is legally defined.
II. STATUTORY PROVISIONS: DISPOSAL OF UNCOLLECTED GOODS ACT
2.19 The Disposal of Uncollected Goods Act 1966 provides a bailee with a statutory right to sell uncollected goods. it was introduced in order to remove the anomalies that existed in the common law, while providing safeguards to protect the owners of goods.20 The Act was based on Victorian and English legislation and was intended to cover wider ground than the remedies provided for specific groups in other Acts.21 Victoria, Queensland and Tasmania all have specific legislation dealing with uncollected goods.22 While there is some variation in the classes of bailees covered by the legislation in these States, the legislation generally provides remedies similar to those available under the NSW Act.
2.20 The NSW Act sets out two methods of exercising the right of sale: by way of notice (Part II) and by way of court order (Part III). Section 16 of the Act makes it clear that the rights given by the Act are in addition to other remedies available to the bailee. Thus, where there is a contract of bailment between the parties, they may use the contract to regulate the relationship rather than rely on the Act. As the Report of the Statute Law Revision Committee (Victoria)23 noted, many difficulties arising under the Victorian legislation could be alleviated by the parties contracting out of the Act and imposing their own conditions. This is a simple and inexpensive solution to many difficulties experienced with the legislation.
A. Disposal of Goods without a Court Order
2.21 Part II of the Act is limited in operation to bailments created in the course of businesses for repair or other treatment.24 The procedures of Part II cannot therefore be applied to goods bailed for carriage or storage. Section 5 creates in the bailee a right to sell goods where they have not been collected by a bailor but are ready for redelivery. The right is limited and is withdrawn if the bailee has notice that the goods are subject to a hire purchase agreement or a mortgage under the Credit Act 1984.25
2.22 Before exercising the right of sale under Part 11, the bailee must comply with the notice requirements set out in s6:
1. Notice on premises
At the time the bailment agreement is entered into, there must be a notice “conspicuously placed” in the bailee’s premises indicating that acceptance of the goods was subject to the Disposal of Uncollected Goods Act 1966, and that the Act confers on the bailee a right to sell goods that remain uncollected after 6 months.26
2. First notice to bailor
This must be given when the goods are ready for redelivery and should include:
(a) a description of the goods;
(b) a list of the charges due; and
(c) a warning that failure to pay the charges and collect the goods within 6 months will give the bailee the right to sell them.27
3. Second notice to bailor
Six months after the goods are ready for redelivery, the bailee must give a further notice to the bailor, in the same terms as the first. This second notice must state in addition that if the charges are not paid and the goods not collected within 14 days, the bailee intends to sell them.28
4. Persons to whom notice should be sent
The second notice should be forwarded to the bailor, and every other person, known to have an interest in the goods. It must also be published in a newspaper circulating in Sydney and NSW.29 Where the bailee is holding a motor vehicle on behalf of the bailor, the notice must also be published in the Government Gazette.
5. Mode of Sale
Once these requirements are satisfied the goods must be sold by public auction in separate lots.30 When there is a dispute between the bailee and bailor over the payment of charges, or adequacy of treatment or repair, the right of sale is suspended.31 Sections 6(3),( 4) and 6) set out special provisions for the resolution of such disputes.
2.23 Where the right of sale is to be exercised the bailee is required to keep records of the sale32 and a copy of the notice of intent to sell for a period of six years. These records must be made available to the bailor for inspection.
B. Disposal of Goods with a Court Order
2.24 Many bailments (including contracts for hire, carriage of goods and warehousing) are not covered by Part II. Part III covers a wider field by including all bailments for reward. It also provides an alternative remedy for bailments already covered by Part II. Part III differs from Part II in four respects. It allows for:
(a) a bailee to proceed by way of court order;
(b) a reduction of the period during which the goods must be held;
(c) the disposal of goods by means other than public auction;
(d) the inclusion of other forms of bailment beyond the strict bailments for repair or treatment dealt with in Part II.
1. Application of Part Ill to other Forms of Bailment
2.25 Sections 10(1)(a) and (b) give the right to apply for a court order to all bailees for reward. This includes all bailments under Part II, as well as those for storage or carriage. Section 10(1)(c) purports to extend this coverage. It provides:
the bailee of goods that have been accepted by him ... pursuant to a bailment not for reward has, by notice in writing given to the bailor, required the bailor to take delivery of the goods at a time specified in or determined in accordance with the contract of bailment or, if the contract of bailment does not specify or make provision for determination of the time when the goods are to be redelivered to the bailor, within such reasonable time as may be specified in the notice, and the bailor fails, at the time so specified or determined or within such reasonable time, to take delivery of the goods or, if the terms of the bailment so provide, to give directions as to their delivery.
The intention of this section is to extend the operation of Part III to gratuitous bailees. Its effect is questionable, however, because of the use of the phrase “contract of bailment”.
2.26 In New South Wales, the courts have held that gratuitous bailments cannot be characterised as contracts, nor the law of contract applied to them.33 As a gratuitous bailment exists without reward, a basic element of a contract, namely consideration, is absent.34 The effect of the use of the words “contract” and “bailment” in s10(1)(c) is therefore to render the section meaningless.
2.27 It has been suggested that, in keeping with the intention of the Act, the reference to “contract” should be read down:
... It must be assumed that the word will in future be construed loosely, to include any agreement which may or may not be binding principles other than contract.35
Because consideration is an essential element of a contract, this does seem likely to happen. While the intention of s10(1)(c) is clear, its language is so convoluted as to place obstacles in the way of its interpretation. The only way to overcome the problem would be to delete any reference to “contract” from the sub-section and to substitute more suitable language such as “the terms of the bailment agreement”.
2. Procedure by way of Court Order
2.28 in those cases to which Part III does apply the bailee is able to apply for an order of sale from the Local Court of the district in which the goods were accepted.36 If it chooses to make an order the Court should:37
(a) specify an amount which reasonable estimate of th charges;38 and
(b) prohibit the sale of the goods until the expiration of a period of 6 months, or such lesser period as may be specified, after the date of the order.39
The order may also specify a rate to be paid for charges associated with storage and removal of the goods prior to the sale.40
2.29 Section 12 allows the bailee to use some other means than public auction to dispose of goods to which Part III applies. The bailee is then liable to the bailor for any difference between the bailee’s charges and the gross proceeds of the sale. Conversely, the bailor is shortfall if the proceeds of the sale do not cover such charges.41
C. Other Provisions of the Act
2.30 A number of other provisions in the Act should be noted.
1. Tow Truck Operators
Section 11 extends the operation (with specific provisions) of the Act to tow truck operators.
2. Disposal of Goods by Agreement
As already noted above, s16 provides that all powers conferred by the Act are granted in addition to, and not in derogation from, any powers exercisable independently of the Act. The parties to a bailment may therefore regulate the terms of any right of sale through a bailment agreement.
3. Rights of Purchasers
Section 18 deals with the rights of purchasers of goods sold pursuant to the Act. Good title will be acquired provided the purchaser buys in good faith and without notice of any defect in the title of the bailor, or any failure of the seller to comply with the provisions of the Act.
4. Proceeds of Sale
Section 20 sets out the procedure for the disposal of the proceeds of the sale. Any surplus moneys are to be paid by the seller into Consolidated Revenue.
FOOTNOTES
1. N E Palmer Bailment (Law Book Co, 1979) at 1.
2. Ibid.
3. Note 1 at 30; see also Graham Johnson “Disposal of Goods” (Unpublished) Paper No 3 Chamber Magistrates’ Conference (1981).
4. Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 per Holt CJ at 916; 111.
5. See generally Sachs v Miklos [1948] 2 KB 23; Munro v Willmott [1949] 1 KB 295.
6. Note 1 at 89.
7. Note 1 at 379.
8. Note 1 at 383; see also Elvin & Powell Ltd v Plummer Roddis Ltd (1933) 50 TLR 158.
9. Hiort v Bott (1874) LR 9 Ex 86 at 91 per Cleasby B.
10. Winfield and Jolowicz Torts (12th ed Sweet and Maxwell, 1984) at 481.
11. Note 1 at 379. The approach of the English courts at least has been to deny that the involuntary recipient of goods is a bailee; see Lethbridge v Phillips (1819) 2 Stark 478. Australian authority is limited in this area, but see Alice Erh-Soon Tay, “The Essence of a Bailment: Contract Agreement or Possession?” (1966) 5 Sydney LR 239, especially 248-257.
12. Halsbury’s Laws of England (4th ed Butterworths, 1979) Vol 28 at para 501.
13. Outside of those statutory exceptions already noted.
14. Hawtayne v Bourne (1841) 7 M & W 595, 600, 151 ER 905, 907; Bowstead on Agency (14th ed Sweet and Maxwell, 1976) 63-64.
I5. Note 1 at 684, Sims & Co v Midland Railway [1913] 1 KB 103.
16. Or in some similar category, such as livestock which must be tended, fed and watered. See Sachs v Miklos [1948] 2 KB 23, per Lord Goddard, CJ at 35.
17. [1948] 2 KB 23, followed in Munro v Willmott [1948] 2 AII ER 983; and see also Jebara v Ottoman [1927] 2 KB 254 at 270 per Scrutton LJ.
18. Id at 35.
19. See Halsbury’s Laws of England (4th ed Butterworths, 1973) Vol 2-at para 1510.
20. See the second reading speech, the Honourable J Maddison, then Minister for Justice, on 1 December 1966 in the Legislative Assembly, New South Wales Parliament, Parliamentary Debates (NSW Hansard) Vol 65 at 3068.
21. Id at 3069.
22. Disposal of Goods Act 1961 (Vic); Disposal of Uncollected Goods Act 1967 (Qld); Disposal of Uncollected Goods Act 1968 (Tas); see also Torts (Interference with Goods) Act 1977 (UK).
23. Statute Law Revision Committee (Victoria) Report on the Disposal of Uncollected Goods Act 1960 (1971), 3.
24. Disposal of Uncollected Goods Act, s4.
25. Ss13(3)(g) and 90 of the Credit Act prevent the creation of a lien on the goods by a hirer or mortgagor.
26. S6(1)(a).
27. Ss6(1)(b), 6(7).
28. S6(1)(c).
29. S6(1)(c)(iii).
30. S6(1)(d).
31. S6(2).
32. S7(2) .
33. Thomas v High [1960] SR (NSW) 401, decided six years before the Disposal of Uncollected Goods Act came into force.
34. Some transactions way occur between bailee and bailor which, in other circumstances, could be construed as consideration. The crucial difference is that in gratuitous bailment there is no intention by the parties that their actions have that effect.
35. N E Palmer, note 1 at 405.
36. S12(1)(a).
37. S12(2).
38. S12(3)(a),(e).
39. 512(3)(9).
40. S12(3)(f).
41. S13(1).
