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    06:16 PM Lim Joo Toon (Managing Director, Joo Toon LLC) and Keith Jieren Thirumaran (Undergraduate, NUS Law)

    Implications for Sale of Second-Hand Cars in Singapore: Kau Joo Guan v Kwek Seow Hui t/a Car Dynasty and ors [2015] SGDC 279

        

    In recent years, there have been a number of local press articles expressing concern that a purchaser who buys a second-hand car from a dealer in Singapore runs the risk that a rogue dealer may abscond with the purchase price or the deposit paid, leaving the purchaser without the title to the car, as against the original owner. (See for example: Olivia Ho and Amir Hussain, “More buyers make reports against used-car dealer”, The Straits Times (18 February 2015)). In most of these cases, of the two victims, namely the seller and the purchaser, the seller would invariably retain ownership of the car and the purchaser would be left without the title to the car and with no prospect of recovery for the monies paid. This case note highlights the important implications as a result of the decision of Kau Joo Guan v Kwek Seow Hui t/a Car Dynasty and ors [2015] SGDC 279 (“Kau Joo Guan”).

    Introduction

    In a rare victory for the purchaser, the District Court in Kau Joo Guan held in favour of the purchaser, as against the original owner who had entrusted possession of the second-hand car for sale to a dealer, who absconded with the purchase price paid by the purchaser. The Court granted the declaration that the purchaser was the legal and beneficial owner of the car and ordered the car to be registered in the purchaser’s name.

    The issue before the Court was whether the plaintiff, as purchaser of the car, had acquired title to the car, as against the original owner, either by virtue of s2 and s9 of the Factors Act (Cap 386, 1994 Rev Ed Sing) (“FA”) or s25 of the Sale of Goods Act (Cap 393, 1999 Rev Ed Sing) (“SGA”) which are exceptions to the nemo dat quod non habet principle under common law (“nemo dat principle”).

    The Court answered this issue in the affirmative on the facts of this case, in the course of which the Court departed from the traditional view established by the English authorities. These authorities placed primacy on the production of the physical log card as an essential element in the sales transaction before the purchaser can succeed in establishing the exceptions to the nemo dat principle. The Court preferred the position of the Canadian courts in the Novia Scotia Court of Appeal case of Durham v Asser et al [1968] 67 DLR (2d) 574 (“Durham”). The Court also had strong words for car dealers and the way it should organise its business affairs so that the unwary consumer will not fall victim to the fraud of the dealer.

    The facts

    Stripped of the details, the essential facts are that the plaintiff had purchased a car from a car dealer, who had advertised a car for sale on sgCarMart. The car, which was registered to OneMotor, was in the possession of the dealer. The plaintiff signed the sales agreement with the dealer, and paid various sums, amounting in all to the full purchase price, the insurance premium, the car transfer fee and the processing fee. The plaintiff took possession of the car and the dealer arranged the insurance and the road tax for the car. The dealer reneged on his promise to register the transfer of the ownership of the car and eventually absconded with the money. The plaintiff brought proceedings against OneMotor for declaration that he was the legal and beneficial owner of the car and that the car be registered in his name. As aforementioned, the plaintiff succeeded in the District Court and there is no appeal against that decision.

    The decision

    The District Court held that the dealer was a buyer in possession under s25 of the SGA, and alternatively, was a mercantile agent under s2 and s9 of the FA. The sales agreement between the dealer and OneMotor did not preclude the finding that their relationship was in substance a mercantile agent relationship. (See: Weiner v Harris [1910] 1 KB 285; Lloyds Bank Ltd v Bank of America National Trust and Savings Association [1938] 2 KB 147; Re David Allester Ltd [1922] 2 Ch 211). The District Court also held that the purchaser had acted in good faith, and was an honest buyer of a used car, citing s61 of the SGA.

    The main stumbling block, however, was that the purchaser did not ask to see the log card of the car which posed a major hurdle for the purchaser. This is due to the well-established English cases of Pearson v Rose and Young Ltd [1951] 1 KB 275 (“Pearson”) and Stadium Finance v Robbins [1962] 2 QB 664 (“Stadium Finance”) which have held that a sale without a log card cannot be regarded as a sale in the ordinary course of business, within the meaning of the SGA and the FA. This was endorsed in the Singapore case of Kenso Leasing Pte Ltd v Pang Kek alias Chang Siew Ching t/a New Lai Lai Motors [2005] SGDC 199 (“Kenso Leasing”) at [23].

    The learned District Judge, however, preferred the reasoning found in the Canadian case of Durham where, on facts almost similar to the present case, the Canadian Court of Appeal held that the sale of a registered motor car by a mercantile agent, having been given possession of it, was effective to transfer a good title to a bona fide purchaser, even though the true owner had retained the certificate of registration in his possession. In other words, even though the sale was without the certificate of registration, and even though the registered owner had not received the proceeds of sale, the title to the car should nonetheless be transferred to the end purchaser.

    The implications

    The non-production of the log card

    The approach relating to non-production of log card is to be welcomed, especially since under the current system of registration there is no longer any physical log card. Prior to Kau Joo Guan, the Singapore position with regard to log card requirements in second-hand car sales was the same as the English position as embodied in the case of Kenso Leasing at [23].

    In the UK, the presence of the log book together with the car is essential for the sale of a car. In Pearson and Stadium Finance, the final purchaser of the car did not obtain title to the car because the lack of the registration book took the transaction out of the ordinary course of business and therefore the FA could not operate. (Requirement under s2 of the FA). In Bishopsgate Motor Finance v Transport Brakes [1949] 1 KB 322, the final purchaser of the car did not obtain title to the car because the Court found that the lack of the registration book should have put the purchaser on inquiry. The suspicious nature of a sale of a car without the registration book would lead to a finding of lack of good faith. (Requirement under s9 of the FA).

    In Canada, Chief Justice Currie in Durham refused to adopt the English position and held that:

    “[T]here is no authority in Canada binding on me to hold that the possession of a certificate of registration by a mercantile agent is one of the marks of acting in the ordinary course of business and I am of the opinion that the decisions in England in the so-called log-book cases are an unwarranted restriction on the operation of the Factors Act and have the effect of curtailing the protection that it was intended to give to innocent purchasers from mercantile agents… [It] is in no way conclusive that an agent must be in possession of [the registration certificate] to satisfy the requirement of acting in the ordinary course of business.”

    In Kau Joo Guan, the learned District Judge expressed his preference for the reasoning in Durham and adopted them. The learned District Judge also distinguished the current position in Singapore from that of the English log book cases. The reasoning for this holding was that in Singapore, vehicle registration details are electronically stored on the LTA website. Although it is possible to print out a log card from the electronic copy, it does not possess the uniqueness or formality of the English log books. Unlike the English log books, it is susceptible to tampering by anyone. Even if printed in front of the buyer, the fact that the car was registered with another dealer could easily be explained away.

    It is submitted that the position adopted in Kenso Leasing at [23] is distinguishable as that case was before the era of electronic storage of vehicle registration details.

    Therefore, it would seem that the failure on the part of the purchaser to request for the log card in a sale and purchase of a second-hand car is not fatal; it does not take the transaction out of the ordinary course of business nor impute any lack of good faith. The significance of the log card has been considerably reduced in Singapore.

    The position of car dealers

    Car owners and dealers who entrust possession of second-hand cars to agents for sale need to be more circumspect to ensure that the agents do not abscond with the purchase price. This is especially the case when the car owners are business dealers as opposed to individual sellers.

    The learned District Judge in Kau Joo Guan stated at [21]-[22] that:

    “When a second hand car buyer walks into a dealer’s shop to view cars, the last thing he expects is that the dealer has no right to sell the cars on display. Otherwise, why would these cars be in his shop in the first place? ... [It] is for men of commerce such as the 2nd defendant, and others who provide finance for car dealers, in the same trade, knowing their co-dealers and alive to its pitfalls, to organise their ways of doing business so that they do not become traps for the unwary car buyer.”

    It is clear from the dicta that the risk of second-hand car sales lies with car dealers, especially when the transactions involve handing over the possession of the car to other car dealers in the course of business as these dealers may abscond after receiving payment from the end purchaser. This inclination towards protecting the innocent purchaser over the car dealer is to be welcomed since the end consumer is usually the innocent party who should be afforded a greater degree of protection. If a car dealer gives possession of a car to his agent to sell, and if that agent were to abscond with the money, the car dealer will have to bear the risk. This protects innocent purchasers from the traps and pitfalls that tend to bedevil such transactions.

    However, despite the dicta, one caveat should be made here. Although it appears that the purchaser can assume that the dealer has the authority to sell the car on display, the purchaser still ought to exercise due diligence and good faith in making all necessary enquiries to satisfy himself that the agent or dealer, having possession of the car for sale, is either the true owner or authorised to sell the car and further that there is nothing in the circumstances of the sales transaction to arouse the purchaser’s suspicion. These factors would go towards proving good faith on the purchaser’s part.

    Conclusion

    While the law has tilted the balance in favour of the innocent purchaser in the light of this decision, it nonetheless remains a rule of prudence that a purchaser should request for the production of the log card and satisfy himself as to the agent’s ownership and authority to sell before parting with the deposit or the purchase price. His conduct, in the event that the matter is litigated, will not be found wanting when placed under scrutiny.

    * This blog entry may be cited as Lim Joo Toon and Keith Jieren Thirumaran, “Implications for Sale of Second-Hand Cars in Singapore”, Singapore Law Blog (13 December 2015) (http://www.singaporelawblog.sg/blog/article/146)

    ** A PDF version of this entry may be downloaded here

    *** Mr Lim Joo Toon acted for the successful plaintiff

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