FEDERAL COURT OF AUSTRALIA

Westpac Banking Corporation v State of Queensland [2016] FCA 269

ORDERS

THE COURT DECLARES THAT:

1.    The Applicant is entitled to calculate the entirety of the debt secured and owing (the Debt) pursuant to registered mortgage numbers 711108694 and 711477087 (Mortgages) over the land described as Lot 29 on Registered Plan No. 107777 in the Local Government of the Gold Coast, being all of the land contained in title reference 13836129 and situated at 99 Monaco Street, Broadbeach Waters in the State of Queensland (Property) as and if there had there been no disclaimer of the Property by the Official Trustee in Bankruptcy (Trustee) as trustee of the bankrupt estate of Ms Denise Gay Pilley (also known as Denise Gay De Beer).

THE COURT ORDERS THAT:

2.    Upon payment of the sum of $570,000 in cleared funds by the Second Respondent, Brent John O’Neill to the Applicant on or before 6 April 2016, and in exchange for a registrable release of the Mortgages, the estate in fee simple in the land described as Lot 29 on Registered Plan No. 107777 in the Local Government of the Gold Coast, being all of the land contained in title reference 13836129 and situated at 99 Monaco Street, Broadbeach Waters in the State of Queensland (the Property) presently registered in the name of Denise Gay Pilley shall vest in the Second Respondent pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) and the Second Respondent will be liable for any statutory charges affecting the Property.

3.    In the event the Second Respondent fails to make the payment in accordance with paragraph 2 of this order:

(a)    Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) the estate in fee simple in the Property presently registered in the name of Denise Gay Pilley shall, from 7 April 2016, vest in the Applicant for the purpose of the Applicant exercising its powers as mortgagee under the Land Title Act 1994 (Qld), Property Law Act 1974 (Qld) and under the Mortgages and subject to the following conditions:

(i)    for the purposes of any dealings with the Property, the Applicant may, (but is not bound to) act as if it were exercising its powers as mortgagee under the Land Title Act 1994 (Qld), Property Law Act 1974 (Qld) and under the Mortgages except that the Applicant is not required to serve:

A.    a default notice under s 88 of the National Credit Code, being schedule 1 to the National Consumer Credit Protection Act 2009 (Cth);

B.    a notice of default under s 84 of the Property Law Act 1974 (Qld); and

C.    a notice to vacate under s 317 of the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) on the Second Respondent or any other occupant/s (if any) of the Property;

(ii)    the proceeds of sale from the Property shall be applied as follows:

A.    first, in payment of any statutory charges affecting the Property which the relevant statute provides are payable in priority to the mortgagee;

B.    secondly, in payment of all costs, charges and expenses properly incurred by the Applicant as incident to the sale, or any attempted sale, or otherwise;

C.    thirdly, in discharge of the Debt owed to the Applicant;

D.    fourthly, in payment of any subsequent mortgages (if any),

and the residue (if any) of the proceeds so received shall be paid into Court in this proceeding;

(iii)    after any sale of the Property by the Applicant, the Applicant must deliver to the Official Trustee in Bankruptcy (Trustee) as trustee of the bankrupt estate of Ms Denise Gay Pilley and the First and Second Respondents a notice in a form substantially similar to that prescribed in s 85(2) of the Property Law Act 1974 (Qld).

(b)    The Second Respondent, Brent John O'Neill must deliver the Property to the Applicant by:

(i)    on or before 15 April 2016 delivering up vacant possession of the Property to the Applicant; and

(ii)    on or before 15 April 2016 delivering to the Applicant’s solicitors a signed withdrawal in respect of any caveats lodged over the Property; and

(iii)    signing any other documents reasonably required by the Applicant to enable any transfer of the Property to a purchaser pursuant to a sale by the Applicant pursuant to the Mortgages and pursuant to any order made in this proceeding,

and shall not interfere with the Bank's exercise of its rights under this order and the Land Title Act 1994 (Qld), Property Law Act 1974 (Qld) and under the Mortgages;

(c)    The Applicant's costs of and incidental to this proceeding are to be treated as reasonable enforcement expenses under its Mortgages over the Property and are to be payable from the proceeds of sale of the Property on the indemnity basis pursuant to clause B1 (b) of registered mortgage number 711477087 over the Property.

4.    An affidavit by a solicitor for the Applicant filed in these proceedings, as to compliance or non-compliance by the Second Respondent with paragraph 2 of this order, shall be sufficient evidence of such compliance or non-compliance.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

EDELMAN J:

Introduction

1    On 12 February 2016, the applicant, Westpac, brought this application seeking orders vesting title in it to a property at 99 Monaco Street, Broadbeach Waters, Queensland (the Property). Westpac holds a first and second registered mortgage over the Property. The registered proprietor of the Property, and mortgagor, had become bankrupt. She was in default in her loan repayments secured by Westpac’s mortgage. The registered proprietor’s trustee in bankruptcy, the Official Trustee, disclaimed any title to the Property. So the title was said to have escheated to the State of Queensland, the first respondent. Westpac sought orders under s 133(9) vesting the title to the Property in it for the purpose of sale to recoup the loan secured by its registered mortgage.

2    On 8 and 9 March 2016, I held directions hearings in this matter. There were immediate complications. One complication was that the de facto partner of the registered proprietor, Mr O’Neill, claimed an equitable interest in relation to the Property. A second complication, which was not raised at the directions hearings but which I address below and which does not appear to present any obstacle, is that a third party claims to have a call option in relation to the Property. I expressed the preliminary view to the parties that if the evidence which was filed was as it had been described, then it may be that the person in whom title should be ordered to vest would be Mr O’Neill, not Westpac. However, Mr O’Neill’s title would remain subject to Westpac’s registered mortgage.

3    After the directions hearing on 9 March 2016, the District Registrar mediated the dispute between the parties. A settlement agreement was reached. The parties proposed orders by consent. The primary orders sought are effectively to vest title to the Property in Mr O’Neill upon discharge of Westpac’s mortgages. As I explained to the parties at the directions hearings, those orders cannot be made unless I am satisfied that the foreshadowed evidence, and the legal authority, supports my preliminary view.

4    The parties have now filed evidence and submissions. The State of Queensland filed a submitted appearance on 21 March 2016. Based on that evidence and those submissions I am satisfied on a preliminary basis that the orders sought should be made. The reservation is that although Westpac submitted that a potentially interested third party, Ms Catelides, was served with this application and that she did not respond, it is arguable that she was a necessary and proper party to be heard. In circumstances in which I have reached the conclusion sought by the parties, but by legal reasoning which is not identical to that submitted by Westpac, it is appropriate to defer making any orders for seven days to provide Ms Catelides any time within which to make any further submissions, or apply to be joined, before final orders are made. However, as I have explained, it is difficult to see any basis upon which she could resist these orders but she should be given an opportunity if she wishes, to address any of the matters in these reasons.

Westpac’s mortgage and loan

5    Westpac holds a first registered mortgage over the Property. The registered proprietor of the Property is Ms Pilley, who is also referred to in some of the material before the Court as Ms De Beer. Ms Pilley was given notice of this application. She did not file a notice of appearance. At the Court’s direction for reasons related to overlapping proceedings in a different court, she attended at a directions hearing concerning this application. At that directions hearing she confirmed, for reasons which will become apparent later in these reasons, that she has no interest in this application.

6    On 14 January 2008, Westpac advanced monies to Ms Pilley under a Loan Agreement. The debt owing pursuant to the Loan Agreement are secured by a first and second registered mortgage over the Property. As at 8 February 2016, Westpac certified the debt to be $576,696.70, excluding recent accrued interest and costs.

Mr O’Neill’s interest in relation to the Property

7    The second respondent, Mr O’Neill, is the current occupant of the Property. He is the former de facto partner of Ms Pilley. Some of his evidence on this application concerned his interest in relation to the Property. Mr O’Neill’s uncontradicted evidence is as follows.

8    The Property was purchased on 26 January 2006 for $512,000. Ms Pilley became the registered proprietor. She contributed $100,000 to the purchase price. Mr O’Neill contributed $15,000 to the purchase price. The remainder was funded by a bank loan to Ms Pilley.

9    Mr O’Neill says that he and Ms Pilley lived in the Property from the time of settlement on 17 March 2006. He paid approximately 80% of the mortgage repayments. He also made major improvements to the property including adding two bedrooms and two bathrooms, a lounge room, and ducted air conditioning. There is considerable work that remains to complete the renovations.

10    On 22 February 2013, Mr O’Neill lodged a caveat over the Property to protect his asserted interest as “an interest pursuant to constructive and/or resulting Trust by reason of the common intention of the Caveator and the Caveatee and by reason of the Caveator’s contribution to the conservation, preservation and improvement of the property”.

11    Ms Pilley’s loan was refinanced and after Westpac became the financier, the loan was increased. Westpac has varied the terms of the loan on a number of occasions.

12    In August 2014, Mr O’Neill separated from Ms Pilley. They entered an agreement on 16 August 2014. The terms of the agreement are not clear but it appears to have the following effects:

(1)    Mr O’Neill have possession of the Property subject to his payment of the loan secured by Westpac’s mortgage and payment of rates;

(2)    Mr O’Neill pay Ms Pilley $32,600 (although later referred to as $35,000);

(3)    Mr O’Neill complete the renovations to the Property by 30 November 2015;

(4)    The Property be sold by 30 November 2015;

(5)    Mr O’Neill repay any shortfall by which the loan exceeds the proceeds from the sale of the Property; and

(6)    Any surplus funds from sale are to be paid to Mr O’Neill.

13    It is unnecessary to descend into detail concerning the nature of Mr O’Neill’s interest in relation to the Property in circumstances in which there was no dispute that he had a beneficial interest. It is also undesirable to descend into detail of the precise legal position in circumstances in which I received no submissions on this point. It suffices to say that I am satisfied that Mr O’Neill’s payment of $15,000 of the purchase price gave him a beneficial interest in the proportion 15/512 under a resulting trust: see discussion of the nature of this interest in my decision in Anderson v McPherson (No 2) [2012] WASC 19 [88]-[103]. I am also satisfied that Mr O’Neill had an interest, which might attract the description of a constructive trust, by which Ms Pilley held her registered title subject to Mr O’Neill’s right of possession, and power of sale including rights to surplus proceeds from sale. As I explain below, for reasons of historical continuity that underlie the Bankruptcy Act 1966 I describe Mr O’Neill’s interest as an interest under a constructive trust. However, there is a strong argument that Mr O’Neill’s interest is better understood as an equitable right to performance commensurate with the terms of the contract, and not a trust: Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315, 332-333 [53] (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ); Swadling, W “The Fiction of the Constructive Trust” (2011) 64 Current Legal Problems 399. Contrast Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29, 59 [129] (McLure P).

14    Mr O’Neill’s rights under the agreement are subject to the antecedent rights of Westpac as registered mortgagee. There is also no evidence (or allegation) that Westpac had any notice of Mr O’Neill’s interest under a resulting trust at the time that Westpac registered its (now indefeasible) interests as mortgagee.

The interest in relation to the Property claimed by Ms Catelides

15    On 24 November 2015, Ms Catelides emailed Westpac to ask about the mortgage repayments that are owing. She asserted that the Property did not form part of Ms Pilley’s bankruptcy and that she (Ms Catelides) held a call option over the Property. She enclosed a Call Option Deed dated 1 May 2015. It appears to be signed by herself and Ms Pilley as the registered proprietor of the Property. The Call Option Deed purported to give Ms Catelides the option to purchase the Property for a price which was equal to or more than $560,000. Westpac did not consent to Ms Pilley entering the Call Option Deed with Ms Catelides. It also appears that Mr O’Neill did not consent to Ms Pilley entering the Call Option Deed. Any rights of Ms Catelides would be subject to rights of Westpac as registered mortgagee and the pre-existing rights of Mr O’Neill as a beneficiary of a constructive and resulting trust.

16    Correspondence ensued between Ms Catelides and Westpac. Ms Catelides asked Westpac if she could make the mortgage repayments, perform renovations to the Property, and subsequently settle with the bank for $560,000. Alternatively, she sought to purchase the Property from the bank, without the renovations, for $480,000. The solicitors for Westpac responded and explained that Westpac was not the registered proprietor and also was not prepared to release its mortgage until the debt of $576,794 (as it was then) was paid.

17    Ms Catelides was served by Westpac with this application. She did not enter an appearance. Her potential interest in these proceedings was not mentioned at any of the directions hearings where I explored the issues in this matter. However, her correspondence with Westpac suggests that she may have been an interested party. As I explain in my conclusion, orders should not be entered for seven days to permit her any opportunity to be heard.

Ms Pilley’s bankruptcy

18    On 14 July 2015, Ms Pilley became bankrupt by her debtor’s petition. She has not been discharged. Her trustee is the Official Trustee. The Official Trustee was served with this application but, for reasons concerning disclaimer (set out below), understandably did not seek to appear.

19    The effect of Ms Pilley’s bankruptcy under s 58(1)(a) of the Bankruptcy Act is that her title to the Property vested in the Official Trustee. However, s 58(2) has the effect that the title only “vests in equity” in the Official Trustee until there is a formal conveyance of title on the Register to the Official Trustee. It does not appear that the Official Trustee ever took a conveyance of the title from Ms Pilley.

20    Since 1604, the rights to property held by a trustee in bankruptcy, such as the Official Trustee, have been subject to any rights of a third party under a trust: see Duckworth v Water Corporation [2012] WASC 30; (2012) 261 FLR 185, 197 [66]-[69] referring to Winch v Keeley (1787) 1 Term Rep 619, 623; (1787) 99 ER 1284, 1286 (Buller J); Scott v Surman (1742) Willes 400, 402; (1742) 125 ER 1235, 1236 (Willes CJ); Boddington v Castelli (1853) 1 El & Bl 879, 885; (1853) 118 ER 665, 667 (Parke B).

21    The same preservation of trust rights of another was consistently preserved in English legislation over four centuries from An Act for the better relief of the creditors against such as shall become bankrupts (1604) 1 Jac 1 c 15 and, in Australia, it was included when the Bankruptcy Act 1924 (Cth) was enacted based upon the report of the Clyne Committee and the model of the Bankruptcy Act 1883 (46 & 47 Vict) c 52. It can also be observed that the term “constructive trust” was in strong currency at that time to describe specifically enforceable equitable rights arising from a contract in relation to land: Lysaght v Edwards (1876) 2 Ch 499, 506 (Jessel MR). The preservation of trust rights was also maintained in the 1966 Bankruptcy Act as is evident in ss 5 and 116(2) of the Bankruptcy Act. Section 5 provides that the “property of the bankrupt” (other than in ss 58(3) and 58(4)) means the property divisible among the bankrupt’s creditors and any rights and powers in relation to that property if he or she had not become a bankrupt. Section 116 provides as follows:

116    Property divisible among creditors

(1)    Subject to this Act:

(a)    all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and

(b)    the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge; and

(c)    property that is vested in the trustee of the bankrupt’s estate by or under an order under section 139D or 139DA; and

(d)    money that is paid to the trustee of the bankrupt’s estate under an order under section 139E or 139EA; and

(e)    money that is paid to the trustee of the bankrupt’s estate under an order under paragraph 128K(1)(b); and

(f)    money that is paid to the trustee of the bankrupt’s estate under a section 139ZQ notice that relates to a transaction that is void against the trustee under section 128C; and

(g)    money that is paid to the trustee of the bankrupt’s estate under an order under section 139ZU;

is property divisible amongst the creditors of the bankrupt.

(2)    Subsection (1) does not extend to the following property:

(a)    property held by the bankrupt in trust for another person;

...

22    However, Westpac submitted that a beneficial interest of a third party under a trust is lost upon bankruptcy if the bankrupt also happens to hold a beneficial interest under the same trust. Westpac’s submission is that if the word “another” is to have any work to do in s 116(2), it must confine the exclusion in s 116(2)(a) to cases where the bankrupt is not a beneficiary. That was said to be because:

(1)    a trustee cannot be the sole beneficiary of a trust; there must always be “another person” who is a beneficiary of a trust; and

(2)    if s 116(2) were read to apply the exclusion to every case where another person is a beneficiary, even if the bankrupt is one too, then the effect is that s 116(2) will apply to every trust a bankrupt holds. The word “another” would be redundant.

23    The error in this submission is its premiss. The word “another” is not redundant if s 116(2) applies to every case in which the bankrupt holds property on trust. If a bankrupt held property on trust for herself and another person then the effect of the word “another” is to exclude the bankrupt’s beneficial interest from the operation of s 116(2)(a). It can be accepted that there may be difficulties of theory with the notion of a person owing duties to himself or herself as both trustee and one of a number of beneficiaries. On one view, the person has an unencumbered part interest and holds the remainder on trust for others. But there are many cases where a person has been described as both trustee and beneficiary where other beneficiaries exist. And many statutes have been drafted on the premiss that this is possible.

24    Westpac relied upon the decision of Barrett J in Emilco Pty Limited v Jaa Jaa [2001] NSWSC 1035. In that case, his Honour referred to s 116(2)(a) and then said:

This reference to “another person” makes it necessary to consider whether, when the chose in action became vested in Mr Jaa Jaa upon completion under the agreement of 13 March 1992, that chose in action could properly be said to have been held in trust exclusively for persons who did not include Mr Jaa Jaa himself.

25    The reference by his Honour to “exclusively for [other] persons” was unlikely to have been intended to suggest that a person would lose equitable rights upon bankruptcy if the bankrupt also happened to have equitable rights under the same trust. The question being considered in that passage in Emilco was simply whether Mr Jaa Jaa’s right of reimbursement or indemnity from trust property was excluded from the property divisible amongst his creditors. His Honour held that it was excluded.

26    The effect of Ms Pilley’s bankruptcy was not to extinguish Mr O’Neill’s rights as a beneficiary under a resulting trust. Nor did it extinguish his rights as a beneficiary of a “constructive trust” who, not being a volunteer, was entitled to orders compelling performance of the 16 August 2014 Agreement: see Sonenco (No 77) Pty Ltd v Silva (1989) 24 FCR 105, 121 (Ryan and Gummow JJ).

Disclaimer by the Official Trustee

27    On 1 October 2015, the Official Trustee disclaimed the trustee’s interest in relation to the Property pursuant to s 133 of the Bankruptcy Act. That section provides as follows:

133    Disclaimer of onerous property

…

(1)    Subject to this section, the trustee may, notwithstanding that he or she has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation to it and notwithstanding, in the case of property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered, that he or she has not become the registered owner of that property, by writing signed by him or her, at any time disclaim the property.

(1A)    Subject to this section, the trustee may at any time, by writing signed by him or her, disclaim any contract that forms part of the property of the bankrupt whether or not the trustee has endeavoured to assign the property or exercised any rights in relation to it.

(2)    A disclaimer under subsection (1) or (1A) operates to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed, and discharges the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him or her, but does not, except so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability, affect the rights or liabilities of any other person.

28    Westpac submitted that the effect of the disclaimer by the Official Trustee is that the title to the Property reverted to the Crown in right of the State of Queensland by escheat. There is doubt about this conclusion.

29    The first difficulty is that the Official Trustee never obtained a formal conveyance of the title. The Register was not altered. As I have explained, this meant that the effect of the Bankruptcy Act was that the title to the Property only “vested in equity” in the Official Trustee. Section 58(2) of the Bankruptcy Act provides

Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with.

30    On one view, the Official Trustee’s disclaimer could only have been of the equitable interest in the Property created by the Bankruptcy Act. Equitable rights are not estates and cannot be equated with common law title: Maitland F, Equity - A Course of Lectures (2nd ed, Cambridge: Cambridge University Press, 1936) 17. As Scott recognised in s 2 of the first Restatement of the Law of Trusts, in a definition repeated by the American Law Institute ever since, the equitable right under a trust operates as an encumbrance on the legal title “subjecting the person by whom the property is held to equitable duties to deal with the property for the benefit of another person”: American Law Institute, Restatement of the Law of Trusts (American Law Institute Publishers, St Paul, 1935). On this view, the disclaimer of the equitable interest might simply remove an encumbrance from the legal title. But this does not mean that the legal title would be unaffected: see Commissioner of The Australian Federal Police v Courtenay Investments Ltd (No 4) [2015] WASC 101 [346].

31    However, the effect of s 133(1) of the Bankruptcy Act appears to permit the Official Trustee to “disclaim” a title which the Official Trustee never held. This seems to be the effect of the words permitting disclaimer “notwithstanding, in the case of property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered, that he or she has not become the registered owner of that property, by writing signed by him or her”. The “notwithstanding” clause would not be necessary if the Official Trustee were only disclaiming an equitable right. Further, if this were not the effect of s 133(1) then a possible alternative would be that the bankrupt would continue to hold title to property, either onerous or valuable, despite the bankruptcy and outside any of the limited exceptions in the Bankruptcy Act. That would be inconsistent with the scheme and purpose of the Bankruptcy Act and would give rise to further questions such as whether the registered proprietor held the title on an implied statutory trust for the Crown in right of the Commonwealth or, subject to the interaction with the Land Titles Act 1994 (Qld), the State.

32    On the assumption that the Official Trustee disclaimed the registered title, there are then very difficult questions concerning the effect of that disclaimer in the period prior to any court order under s 133(9) of the Bankruptcy Act. This issue was considered in National Australia Bank v New South Wales [2009] FCA 1066; (2009) 182 FCR 52 where, after a characteristically lucid discussion of the history of escheat of land, Rares J observed (60-61 [28]) that “the question of where the title goes after a disclaimer is as clear as mud”. The position has been confused and debated for two millennia since it was one of the marks of contrast between the Sabinian and Proculian schools. The Sabinians considered that an abandoned thing became res nullius at once, and capable of occupatio (ownership by first possession). The Proculians took a different view. They were possibly motivated by the distribution of largesse at election time where coins thrown to the crowd were intended to be delivered to uncertain persons rather than abandoned (see Inst II.1.46). The Proculian view was that the owner did not lose ownership until another person took control. The Sabinian view prevailed: D 41.7.2.1; D 47.2.43.5 (Watson, A The Digest of Justinian (University of Penn Press, Pennsylvania, 1998) Vol 4). The consequences have caused various difficulties in various pockets of the law for nearly two millennia.

33    In National Australia Bank, Rares J referred to three difficulties in a context similar to this case with the view that disclaimer caused an escheat to the State. The first difficulty, as Rares J observed, is that historically escheat did not occur automatically without an act of the superior tenant or Sovereign, or later by inquiry: see Blackstone W, Commentaries on the Laws of England (University Chicago, University of Chicago Press, 1979 reprint) Vol 2, 244-245; Escheat (Procedure) Act 1887 (50 & 51 Vict c 53).

34    The second difficulty is the system of Torrens title. In Sandhurst Trustees Ltd v 72 Seventh Street Nominees Pty Ltd (in liq) (1998) 45 NSWLR 556, 565 Bryson J held that the doctrine of disclaimer and escheat operated outside the Torrens system so that “the person who, according to the register, is apparently the fee simple owner in truth is not”. In National Australia Bank v New South Wales, Rares J suggested that the better view may be that after a disclaimer under the Bankruptcy Act the title to the fee simple does not escheat absolutely to the Crown in right of the State because the Court has power to make a vesting order (59 [23]). However, the difficult question still remains of the status of the title in the period prior to a vesting order.

35    The third difficulty is whether an escheat should be to the Crown in right of the State or to the Crown in right of the Commonwealth, particularly in circumstances in which disclaimers and vesting orders operate, as in this case, under a law of the Commonwealth, the Bankruptcy Act. There were no submissions made in this case concerning the relationship between the Land Title Act 1994 (Qld) and the Bankruptcy Act, particular s 133(9).

36    Ultimately, four matters mean that it is unnecessary to consider these fascinating issues. The first is my conclusion that the title to the fee simple had been disclaimed. The second is the lack of any event affecting the title between the date of disclaimer, 1 October 2015, and the date of this decision. The third is the lack of any opposition by the State of Queensland to the proposed orders. And the fourth matter is my conclusion that s 133(9) of the Bankruptcy Act empowers this Court to make the orders sought irrespective of where the title to the fee simple is currently vested, and my further conclusion that the orders sought are appropriate.

The discretion under s 133(9) of the Bankruptcy Act

37    Sections 133(9) to 133(13) of the Bankruptcy Act relevantly provides:

(9)    The Court may, on application by a person either claiming an interest in, or being under a liability not discharged by this Act in respect of, disclaimed property, and after hearing such persons as it thinks fit, make an order, on such terms as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person entitled to it or a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or a trustee for that person.

(10)    Subject to subsection (11), where an order vesting property in a person is made under subsection (9), the property to which it relates vests forthwith in the person named in the order for that purpose without any conveyance, transfer or assignment.

(11)    Where:

(a)    the property to which such an order relates is property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered; and

(b)    that law enables the registration of such an order;

the property, notwithstanding that it vests in equity in the person named in the order, does not vest in that person at law until the requirements of that law have been complied with.

(12)    A person aggrieved by the operation of a disclaimer under this section shall be deemed to be a creditor of the bankrupt to the extent of any loss he or she has suffered by reason of the disclaimer and may prove the loss as a debt in the bankruptcy.

(13)    In this section:

mortgage includes charge.

mortgagee includes the person entitled to the benefit of a charge.

38    Section 133 empowers this Court to make an order if “it seems to the Court to be just and equitable” that the fee simple to the Property should be vested in a person. In this case, the two possible persons in whom it may be just and equitable for the fee simple to the Property to be vested are Westpac or Mr O’Neill. The disclaimer did not affect Westpac’s rights as a registered mortgagee. Nor did it extinguish the equitable rights that Mr O’Neill had as the beneficiary of a constructive and a resulting trust: Rams Mortgage Corporation Ltd v Skipworth and Another (No 2) [2007] WASC 75; (2007) 210 FLR 11, 15 [11] (Heenan J).

39    At the time of disclaimer, Ms Pilley was in default under the loan agreement. The defaults included:

(a)    the Loan Account being arrears in the amount of $1,448.36;

(b)    failure to pay outgoings in respect of the Property (outstanding rates and water charges); and

(c)    various dealings with the Property without Westpac’s consent.

40    Westpac submitted that the consequence of the disclaimer is that Westpac is unable to take action to realise its security. Hence, as I have explained, Westpac filed this application initially seeking orders vesting the Property in Westpac so that it could exercise its rights as a registered mortgagee. Westpac also sought orders requiring Mr O’Neill to deliver possession of the Property to Westpac. Westpac’s application was served on Mr O’Neill, the State of Queensland, Ms Pilley, the Official Trustee, and Ms Candita Catelides. The State of Queensland has now filed a submitting appearance.

41    At a directions hearing on 18 February 2016, I expressed concern with the orders sought by Westpac given the effect that they may have on Mr O’Neill’s equitable rights. Immediately following the directions hearing, Westpac and Mr O’Neill participated in a court ordered mediation. At that mediation they entered a settlement agreement to which the State of Queensland consented. The Settlement Deed provided, in clause 2, as follows:

2.    Proceedings

(a)    By 4.30pm on 7 March 2016 Mr O’Neill will:

(i)    provide the solicitors for the Bank, Minter Ellison, care of Giuseppe Russo at email address giuseppe.russo@minterellison.com a copy of an unconditional written offer of finance for the amount of $570,000 which has been accepted and executed by Mr O’Neill; and

(ii)    pay any outstanding statutory charges concerning the Property.

(b)    In the event that Mr O’Neill does not comply with sub-paragraph (a) above then he agrees and hereby consents to an order being made in the Proceeding in the terms of paragraphs 1, 3(a), 3(b) and 3(c) of the order annexed to this Deed and marked ‘A’.

(c)    In the event that Mr O’Neill does comply with sub-paragraph (a) above, he agrees and hereby consents to an order being made in the Proceeding in the entirety of the form annexed to this Deed and marked ‘A’.

42    Westpac submits that Mr O’Neill failed to comply with paragraph 2(a) of the Settlement Deed because (i) he provided only a conditional offer of finance, and (ii) he failed to pay outstanding statutory charges concerning the Property. These matters can be put to one side because Westpac, in written submissions, waived its rights to rely on this non-compliance.

43    If the settlement goes ahead, the effect of the Settlement Deed would be either of two consequences. First, that the Property will vest in Mr O’Neill if he pays Westpac the sum of $570,000 by 6 April 2016 in exchange for the release of the mortgages held by Westpac. Alternatively, if Mr O’Neill does not pay $570,000 by 6 April 2016, the Property will vest in Westpac and Mr O’Neill will be required to deliver vacant possession to Westpac.

44    In reaching a conclusion as to the circumstances in which it is just and equitable to make a vesting order I place weight on the relative rights of Westpac as a mortgagee and Mr O’Neill as the person with current possession of the fee simple and rights under a constructive and a resulting trust. I also place weight on the agreement that they have reached for a proposed vesting order which will give effect to a fair mutual balancing of those rights. In Mr O’Neill’s submissions he explained that his “offer of $570,000” was made as part of a negotiation with Westpac based on “a figure that is above what [Westpac] may achieve should the property be sold in its present state”. If Mr O’Neill makes the required payment which will cause Westpac to discharge its mortgage, I am satisfied that it would be just and equitable for the title to the Property to vest in him. If he does not, then Westpac’s rights as mortgagee could be seriously prejudiced. It would then be appropriate for Westpac to be put in the position of a registered owner for the purposes of sale of the Property in order to recover its secured debt.

The declaration sought by Westpac

45    Westpac also sought a declaration as follows:

The Applicant is entitled to calculate the entirety of the debt secured and owing (the Debt) pursuant to registered mortgage numbers 711108694 and 711477087 (Mortgages) over the land described as Lot 29 on Registered Plan No. 107777 in the Local Government of the Gold Coast, being all of the land contained in title reference 13836129 and situated at 99 Monaco Street, Broadbeach Waters in the State of Queensland (Property) as and if there had there been no disclaimer of the Property by the Official Trustee in Bankruptcy (Trustee) as trustee of the bankrupt estate of Ms Denise Gay Pilley (also known as Denise Gay De Beer).

46    That declaration is appropriate in circumstances in which a contingency of my orders may be that Mr O’Neill fails to discharge Westpac’s mortgage and the Property needs to be sold by Westpac. In National Australia Bank v New South Wales (61 [29]) Rares J held that:

Here, by force of s 133(2) the effect of the trustee’s disclaimer on 29 October 2008 appears to have determined any ongoing charge on the land for subsequent liabilities that would otherwise have continued to accrue, such as future (unpaid) interest on the debt secured by the mortgage. I agree with Needham J’s conclusion that a mortgagee of Torrens title land is entitled to be granted a vesting order: Re Tulloch Ltd 3 ACLR at 814. I am of opinion that the land should be vested under s 133(9) in the bank for the purpose for which it originally was mortgaged, namely to secure payment to the bank of all principal, interest and other moneys due to it notwithstanding the effect of the disclaimer. If, after a sale, there is a shortfall the bank will be able to prove for it as an unsecured creditor in the bankrupts’ estate. (Italics added).

Conclusion

47    Orders should be made in the terms of the proposed order, with one qualification emphasised. The qualification is that the effect of s 133(11) of the Bankruptcy Act is that the vesting order made by this Court under s 133(9) does not take effect at law until registration. In order for the legal title to vest in Mr O’Neill or Westpac, steps must be taken to procure registration of the title that this Court has ordered to vest.

48    The parties agreed that no order as to costs should be made in the event that a vesting order is made in terms of the proposed orders, subject to Mr O’Neill making the payment of $570,000 by 6 April 2016. However, if that payment is not made, and if the title to the Property vests in Westpac, then the parties agreed, and it is appropriate, that Westpac’s costs of and incidental to this proceeding should be ordered to be treated as reasonable enforcement expenses under its Mortgages over the Property and are to be payable from the proceeds of sale of the Property on the indemnity basis pursuant to clause B1 (b) of registered mortgage number 711477087 over the Property.

49    The orders sought by Mr O’Neill and Westpac should be made. However, those orders should not be entered for 7 days. Although Westpac says that Ms Catelides was served with this application, and she did not respond, it is arguable that she was a necessary and proper party to be heard.

50    Finally, at the conclusion of Mr O’Neill’s submissions he sought “a court ruling” that $5693.62 that he paid to Westpac, pursuant to a letter of demand on 20 November 2015, was not validly paid. He asked that this amount be deducted from the “settlement amount” of $570,000. That is not a matter raised by this application. If Mr O’Neill seeks restitution of that amount then he will need to bring separate proceedings.

Associate:    

Dated:    24 March 2016