The Nemo Dat Rule
The Latin phrase ‘Nemo dat quod non habet’ means ‘no one can give what they do not have’. This rule is commonly referred to as the Nemo Dat Rule. Nemo Dat is the legal principle that a person who does not have adequate ownership of goods or property cannot transfer the ownership of those goods or that property to someone else.
The Nemo Dat rule in legislation
Section 27 of the Goods Act 1958 sets out the Nemo Dat Rule as follows:
Subject to the provisions of this Part and of any express enactment 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.
The courts have enshrined the key components and exceptions to the Nemo Dat Rule in various recent decisions. Notably, in the 2014 matter of Kino v Prestige Philately & Ors, Vickery J upheld the provisions of Nemo Dat and noted that the Rule is based on the concept that one is not able to give better title to something to another person than one holds. In this decision, the court also held that that ‘a true owner does not lose his or her title to goods simply because of the wrongful act of a thief who transfers possession of those goods to an innocent third party who acted in good faith in paying money to the thief’ for those goods.
Similarly in the matter of Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd, the court made it clear that a true owner of goods does not have the obligation to ‘protect’ their title to goods. Rather, they must not act in a manner that jeopardises that title to the extent that it gives rise to a valid exception.
Exceptions to the Nemo Dat Rule
There are exceptions to the Nemo Dat Rule. These exceptions protect the rights of a purchaser who has acquired goods in good faith within the meaning of section 3(2) of the Goods Act 1958), and without knowing of the rights of the original owner.
This includes where:
Sale has occurred under a voidable title
This is the situation where a seller has a voidable title that has not been voided at the time the buyer acquires the goods. Under section 29 of the Goods Act 1958, this exception enables a buyer to acquire good title over the goods, provided they were purchased in good faith and without notice of the seller’s defect in title. For this exception to the Nemo Dat Rule apply, the buyer must have taken all reasonable steps to ensure that there is no question as to the seller’s ‘good title’ of the goods.
The doctrine of estoppel applies
This situation exists where the owner of the goods has acted in a manner that their own conduct precludes the seller of the goods having authority to sell (in keeping with the matter of Kino).
In the matter of Johnson, Redlich J held that, in seeking to rely on the estoppel exception to the nemo dat rule, the person seeking to displace the Nemo Dat Rule has the burden of proving the existence of the estoppel.
For this exception to be found to apply, a party is required to satisfy the court that:
- The true owner owed a duty of care to the buyer;
- The true owner’s conduct was negligent; and
- The breach of the duty of care had a real cause impact on the buyer being induced into purchasing the goods.
Dispositions have been made by sellers in possession
An exception exists where goods (sold without questionable title) remain in the custody of seller beyond the sale under section 30 of the Goods Act 1958 and the 1965 decision of Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd.
Buyer has continued in possession of goods bought
In this instance, the goods may be ‘bought or agreed to be bought’ in keeping with sections 31 and 6(3) of the Goods Act 1958.
Dispositions have been made by mercantile agents
An exception to the Nemo Dat rule exists where dispositions were made by mercantile agents in possession or continuing possession pursuant to section 26A of the Goods Act 1958.
Purchase was made by a bona fide purchaser
A purchaser of goods that are subject to an argument involving the principles of the Nemo Dat rule may argue that they are a bona fide purchaser. An exception applies in this situation where:
- A seller represents to a purchaser that they are the owner of an item or goods, and
- The purchaser made all relevant investigations and had no cause to believe the seller is not the owner, and
- The purchaser makes payment for the item, and
- The purchaser has, at all times, acted in good faith and honestly
A person seeking to rely on the bona fide purchaser exception has the onus of proving that they have at all times acted in good faith and free of suspicion that there was an issue with the sale and that they did not know of the defective title from the seller.
If you require legal advice or representation in any legal matter please contact Armstrong Legal.