FEDERAL COURT OF AUSTRALIA

Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1566

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth), that the estate in fee simple in the properties described as:

(a)    Lot 1 on Registered Plan 884320, Title Reference 50068906 (Millchester Property), vest in the Applicant for the purpose of the Applicant exercising its powers as mortgagee under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and registered mortgage number 714274970 (Millchester Mortgage); and

(b)    Lot 1 on Crown Plan MPH40794, Title Reference 17767159 (High Property), vest in the Applicant for the purpose of the Applicant exercising its powers as mortgagee under the Land title Act 1994 (Qld), the Property Law Act 1974 (Qld) and registered mortgage number 714274972 (High Mortgage).

2.    On the vesting of the Millchester Property in the Applicant pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth) the Applicant:

(a)    may, but is not bound to, deal with the Millchester Property as if it were exercising its powers as mortgagee in possession under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and the Millchester Mortgage, including exercising the right to sell the estate in fee simple of the Millchester Property in exercise of its power of sale and all its other rights under the Millchester Mortgage;

(b)    for the purpose of selling the estate in fee simple of the Millchester Property in exercise of its power of sale, is not required to serve:

(i)    a notice of default or demand under section 88 of Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth) or otherwise; and

(ii)    a notice pursuant to section 84 of the Property Law Act 1974 (Qld);

(c)    is entitled to calculate the entirety of the debt secured and owing pursuant to the Millchester Mortgage as including all monies that would have been secured by the Millchester Mortgage had the Trustees in Bankruptcy of Dameian John Hutley and Tammy Lee Hutley (also known as Tammy Lee Fenwick) (Mr and Mrs Hutley) not disclaimed the Millchester Property, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Millchester Property as if it were money secured by the Millchester Mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Millchester Property);

(d)    shall apply the proceeds of sale from the Millchester Property as follows:

(i)    first, in payment of any statutory charges affecting the Millchester Property, which the relevant statute provides are payable in priority to the Applicant;

(ii)    secondly, in payment of all costs, charges and expenses properly incurred by the Applicant as incidental to the sale, or any attempted sale, or otherwise;

(iii)    thirdly, in discharge of the debt owed to the Applicant secured by the Millchester Mortgage;

(iv)    fourthly, in payment of any subsequent mortgages (if any); and

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

(e)    must, after any sale of the Millchester Property, provide an account of its payments and receipts to:

(i)    Mr Michael Richard Peldan and Mr Morgan Gerard James Lane as joint and several trustees of the bankrupt estates of Mr and Mrs Hutley (Trustees);

(ii)    Mr and Mrs Hutley; and

(iii)    the Registrar of the Court;

3.    On the vesting of the High Property in the Applicant pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth) the Applicant:

(a)    may, but is not bound to, deal with the High Property as if it were exercising its powers as mortgagee in possession under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and the High Mortgage, including exercising the right to sell the estate in fee simple of the High Property in exercise of its power of sale and all its other rights under the High Mortgage;

(b)    for the purpose of selling the estate in fee simple of the High Property in exercise of its power of sale, is not required to serve:

(i)    a notice of default or demand under section 88 of Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) or otherwise; and

(ii)    a notice pursuant to section 84 of the Property Law Act 1974 (Qld);

(c)    is entitled to calculate the entirety of the debt secured and owing pursuant to the High Mortgage as including all monies that would have been secured by the High Mortgage had the Trustees not disclaimed the High Property, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the High Property as if it were money secured by the High Mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the High Property);

(d)    shall apply the proceeds of sale from the High Property as follows:

(i)    first, in payment of any statutory charges affecting the High Property, which the relevant statute provides are payable in priority to the Applicant;

(ii)    secondly, in payment of all costs, charges and expenses properly incurred by the Applicant as incidental to the sale, or any attempted sale, or otherwise;

(iii)    thirdly, in discharge of the debt owed to the Applicant secured by the High Mortgage;

(iv)    fourthly, in payment of any subsequent mortgages (if any); and

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

(e)    must, after any sale of the High Property, provide an account of its payments and receipts to:

(i)    the Trustees;

(ii)    Mr and Mrs Hutley; and

(iii)    the Registrar of the Court.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

LOGAN J:

1    In 1880, in Re Mercer and Moore (1880) 14 Ch D 287 at 292 (Re Mercer and Moore), the then Master of the Rolls, Sir George Jessel, observed of s 23 of the Bankruptcy Act 1869 (UK) (Bankruptcy Act 1869):

I must first consider what the section is intended to provide against. It is manifestly intended to provide against this, that neither trustee nor bankrupt should take against their wills property burdened with obligations of an onerous character. That is the main object of the section. If the property was not worth taking the trustee was entitled to get rid of it, and the bankrupt was not to have it. Of course the bankrupt would have no money, and the trustee was not to spend the money of the creditors for this purpose. That is the view of the section which presents itself to my mind on first reading it.

2    The present Australian equivalent of s 23 of the Bankruptcy Act 1869 is s 133 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), which materially provides:

(1AA)    Where any part of the property of the bankrupt consists of:

(a)    land of any tenure burdened with onerous covenants; or

(b)    property (including land) that is unsaleable or is not readily saleable;

subsection (1) applies.

…

(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.

(3)    If a trustee disclaims property whose transfer must be registered under a law of the Commonwealth or of a State or Territory of the Commonwealth, the trustee must give notice of the disclaimer as soon as practicable to the officer who has the function of registering the transfer.

…

(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.

3    As a general descriptive statement, Sir George Jessel’s description of s 23 is also apt, in respect of s 133 of the Bankruptcy Act.

4    Also in Re Mercer and Moore at 295, the Master of the Rolls observed in respect of a disclaimer by a bankruptcy trustee, in respect of land held in fee, that it reverted to the Crown.

5    The present case provides an Australian example of a like disclaimer, and raises a like question in respect of its effect, and the entitlements of the mortgagee of the subject land, being Australia and New Zealand Banking Group Limited, the present applicant (ANZ). It does so against the background that the land in question is held under the Torrens system of title by registration of land.

6    The two properties concerned are:

(a)    59b Millchester Road, Charters Towers, also known as Queenton, being land more particularly described as Lot 1 on Registered Plan 884320, Title Reference 50068906, (Millchester Property); and

(b)    71 High Street, Charters Towers, being land more particularly described as Lot 1, on Crown Plan MPH40794, Title Reference 17767159 (High Property).

7    The registered proprietors of the Millchester Property and the High Property are the bankrupts, Dameian John Hutley and Tammy Lee Fenwick (Mr and Mrs Hutley). The evidence establishes that Mrs Fenwick is one and the same as Mrs Hutley. She has signed the mortgage in question with the surname Hutley and disclosed the subject land in the statement of affairs, and her interest in it in her dealings with the bankruptcy trustees. I am satisfied, on the evidence, that Tammy Lee Hutley and Tammy Lee Fenwick are one and the same person.

8    That task would have been made more straightforward, both for the bankruptcy trustees, ANZ, and those acting for them, as well as the Court, had ANZ observed, what seems to me, a prudent lending practice where a surname has changed of requiring, at the time of lending, a statutory declaration and perhaps other proofs of identity so as to establish the person shown as registered proprietor is one and the same as the person to whom the loan secured by registered mortgage is being made.

9    Be that as it may, the bankruptcy trustees concerned, Mr Michael Richard Peldan, and Mr Morgan Gerard James Lane, have, in their considered value judgment in the discharge of their duties as Mr and Mrs Hutley’s trustees in bankruptcy, determined that a disclaimer ought to be made in respect of both the Millchester Property and the High Property, pursuant to s 133 of the Bankruptcy Act. The disclaimer concerned is in evidence.

10    Mr and Mrs Hutley are in default in respect of the payment to ANZ of the loans secured by registered mortgage over both the Millchester Property and the High Property. Notice of default has been given to them. ANZ wishes to realise its security and to sell the properties concerned. For that purpose, it has made an application under s 133(9) of the Bankruptcy Act for those properties to be vested in it for the purpose of its exercising its power of sale.

11    The interplay between the Torrens system of title by registration and the Bankruptcy Act in the context of a disclaimer has proved somewhat controversial in Australia, both during the period in which the Bankruptcy Act 1924 (Cth) (1924 Act) was in force and under the present Act (see as to the controversy which prevailed under the 1924 Act, Von Bertouch L, “Vesting orders under the Bankruptcy Act” (1936) 10 ALJ 218; Re Williams; Ex parte The Perpetual Trustees, Executors, and Agency Co of Tasmania Ltd (1931) 3 ABC 157 at 164; and Re Weiland (1945) 13 ABC 220).

12    Whether there is scope for an enduring controversy under s 133 of the Bankruptcy Act is moot, given that, unlike its predecessor in the 1924 Act, s 133(1) expressly includes:

… 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.

13    The nature of controversy, if any, which may endure is neatly described, with respect, by Edelman J in Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 at [14] - [16], where his Honour states:

14    One conception of s 133 is that the disclaimer operates to determine all the trustee’s title and interests in relation to the bankrupt’s property. However, if the trustee’s title has not been registered then the only title which is determined is the equitable title of the trustee (recognised by s 58(2)). This might mean that the bankrupt remained the holder of a notional legal title and no escheat to the Crown would occur.

15    There is a second, competing, conception of the operation of s 133 where the property is not registered which I considered in Westpac Banking Corporation v State of Queensland [2016] FCA 269 [31]. This is that although the trustee had only equitable title in relation to the disclaimed property, the effect of the disclaimer was to disclaim rights which the trustee did not have. Section 133(2) of the Bankruptcy Act determines all rights and interests of the bankrupt in respect of the property disclaimed (the trustee’s equitable title). This is also consistent with the provision in s 133(1) that the trustee may disclaim “the property” (which might mean all of the bankrupt’s rights in relation to the property) notwithstanding that the trustee is not the registered owner. The trustee therefore disclaims all of the bankrupt’s rights including those rights which arise from being the registered owner. This would seem to be what was meant in Sandhurst Trustees Ltd v 72 Seventh Street Nominees Pty Ltd (In Liq) (1998) 45 NSWLR 556, 565-566, where Bryson J explained that proof of legal ownership “has stepped outside or beyond the Torrens System; when the whole facts are seen they show that the person who, according to the register, is apparently the fee simple owner in truth is not”.

16    On the assumption that the second conception is correct, the dominant view in the authorities is that the disclaimer by the trustee immediately caused all title to each of the Airlie Beach Property and the Airlie Beach Unit to escheat to the Crown (contra National Australia Bank v New South Wales [2009] FCA 1066; (2009) 182 FCR 52, 59 [21]-[23] (Rares J)). However, on any view, in this process a pre-existing charge is not extinguished. A fee simple interest remains subject to a charge even after disclaimer and escheat: Rams Mortgage Corporation Ltd v Skipworth (No 2) [2007] WASC 75; (2007) 210 FLR 11, 15 [10] (E M Heenan J, citing Sandhurst Trustees, 564 (Bryson J)); National Australia Bank Ltd v State of New South Wales [2014] FCA 298 [8] (Perram J).

14    The effect of a “dominant view” to which his Honour refers in the passage quoted on the authorities is that in this instance, the disclaimer by Mr and Mrs Hutley’s bankruptcy trustees caused all title in each of the Millchester Property and the High Property to escheat to the Crown in right of Queensland. As it happens, that result accords with the position which prevailed in the United Kingdom at the time when Sir George Jessel made the remarks to which I have referred. I propose to adhere to this “dominant view”. In that regard, I note that the State appeared on the application, having quite properly been served by ANZ in respect of the application. The State was disposed to make a submitting appearance, in other words, to abide the order of the Court. In so doing, the State chose not to dispute the proposition advanced on behalf of ANZ as to the effect of the disclaimer.

15    The evidence establishes that ANZ as mortgagee has an interest in the title of each of the Millchester Property and the High Property, despite the disclaimer (see in this regard National Australia Bank v State of New South Wales [2014] FCA 298 at [10] per Perram J).

16    Mr and Mrs Hutley continue to be in default. As at today, the total of the debt owed by them to ANZ is $574,537.03, exclusive of legal costs incurred, which is comprised of:

(1)    $210,880.69 in respect of a residential investment loan made in 2011;

(2)    $301,115.25 in respect of a supplementary loan made in 2011; and

(3)    $62,541.09 in respect of a further supplementary loan, on this occasion made in 2013.

17    ANZ is thus a person claiming an interest in respect of disclaimed property, in other words, in respect of the title to the property, which has been the subject of a disclaimer. Its interest as registered mortgagee endures, notwithstanding the disclaimer. It has a right of sale. That being so, I am satisfied that it is just and equitable to make orders which will vest the title to each of the Millchester Property and the High Property in ANZ to enable it to realise the debt secured by the mortgages over those properties.

18    I am also satisfied that ANZ ought not to be required to serve a notice of default or demand under s 88 of Sch 1 to the National Consumer Credit Protection Act 2009 (Cth) or otherwise, or for that matter, a notice under s 84 of the Property Law Act 1974 (Qld). I am so satisfied because these notices would add nothing to notices already given by ANZ to Mr and Mrs Hutley.

19    For these reasons, there will be orders in terms of the draft provided by ANZ to the Court.

Associate:    

Dated:    21 December 2016