FEDERAL COURT OF AUSTRALIA

Commonwealth Bank of Australia v State of Queensland [2019] FCA 1362

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the estate in fee simple of the properties situated at 67 Staal Crescent, Emerald, in the State of Queensland (being Lot 158 on Registered Plan 855509, Title Reference 30645017) (the Staal Property) and at 7 Newman Drive, Emerald in the State of Queensland (being Lot 122 on Survey Plan 235845), Title Reference 50826544) (the Newman Property) (collectively, the Properties) vest in the applicant for the purposes of the applicant exercising its powers under the Land Title Act 1994 (Qld), the Property Law At 1974 (Qld) and registered mortgages numbered 713970797 (the Staal Mortgage) and 713984336 (the Newman Mortgage).

2.    On vesting of the Properties in the applicant pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the applicant:

(a)    is permitted to act as if exercising its powers as mortgagee in possession including its exercise of power of sale as mortgagee under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and the Staal Mortgage and the Newman Mortgage;

(b)    for the purposes of selling the estate in fee simple of the Properties in exercise of its power of sale, the applicant is not required to serve a notice of default or demand under s 84 of the Property Law Act 1974 (Qld) or a notice of default or demand under s 88 of Schedule I to the National Consumer Credit Protection Act 2009 (Cth), or otherwise;

(c)    is entitled to calculate the entirety of the debt secured and owing pursuant to its mortgages as including all monies that would have been secured by the Staal Mortgage and the Newman Mortgage had the trustee in bankruptcy of Kevin Terence Welford not disclaimed the Properties, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Properties as if it were money secured by the Staal Mortgage and Newman Mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Properties), and to thereafter account to the respondent;

(d)    will apply the proceeds of sale from the Properties as follows:

(i)    First, in payment of statutory charges affecting the Properties by which any relevant statute provides are payable in priority to the Staal Mortgage and the Newman Mortgage respectively;

(ii)    Secondly, in payment of costs, charges and expenses properly incurred as an incident to any sale or any attempted sale, or otherwise;

(iii)    Thirdly, in discharge of the debt owing to the applicant secured by the Staal Mortgage and the Newman Mortgage;

(iv)    Fourthly, in payment of any subsequent mortgages or encumbrances (if any); and

(v)    Fifthly, after the sale of the Properties, the applicant is to pay any surplus into this Court and to give written notice within seven (7) days to trustee in bankruptcy of the bankrupt estate of Kevin Terence Welford, to Mr Kevin Terence Welford, to the State of Queensland and to the Registrar of this Court.

3.    Save as provided for in order 2(c) above, no order as to costs.

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    Mr Kevin Terence Welford became a bankrupt as a result of his presentation of a debtor’s petition on 23 November 2018. At that time Mr Welford was the registered proprietor of properties at 67 Staal Crescent, Emerald, in the State of Queensland, being that land more particularly described as Lot 158 on Registered Plan No. 855509, Title Reference 30645017 (the Staal property); and other land, at 7 Newman Drive, Emerald, in the State of Queensland, being land more particularly described as Lot 122 on Survey Plan No. 235845, Title Reference 50826544 (the Newman property).

2    The applicant, the Commonwealth Bank of Australia (the Bank), had the benefit, as at the date of presentation of the debtor’s petition, of registered mortgage securities over both the Staal property and the Newman property, securing advances which it had made to Mr Welford.

3    In early January 2019, the Bank, then in ignorance of the existence of Mr Welford’s bankruptcy (and this is not a criticism of the Bank), determined that Mr Welford was in default in the amount of $6,045 in respect of the mortgage over the Staal property and $6,348 in respect of the mortgage over the Newman property. The respective loan balances owed to the Bank and secured by the mortgages mentioned were $335,060.60, as to monies secured by the mortgage over the Staal property, and $352,622.68, as to monies secured by the mortgage over the Newman property. The Bank issued, or at least purported to issue, to Mr Welford, default notices pursuant to the mortgages, on 8 January 2019.

4    It transpires that, on 20 December 2018, Mr Welford’s trustee in bankruptcy had, pursuant to s 133 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), disclaimed each of the Staal property and the Newman property. Those disclaimers were not registered on the Freehold Land Register until 24 January 2019. The effect, though, of s 133(2) of the Bankruptcy Act is that the disclaimers concerned operate “to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed”. So, registration was not necessary for the disclaimer to have effect under bankruptcy law.

5    It may be observed in passing that the power of sale which would otherwise but for bankruptcy have been open for exercise by the Bank had not yet vested in it, because, pursuant to s 84 of the Property Law Act 1974 (Qld) (Property Law Act), the default must continue for 30 days after service of the notice of default before the power of sale can be exercised.

6    The Court has power, under s 133(9) of the Bankruptcy Act, to make orders vesting disclaimed property in an interested party, the subsection providing:

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.

7    The Bank seeks such an order subject to conditions which are set out in a draft, the terms of which have, quite properly, been communicated in advance to the State. The State is the only named respondent. Again, quite properly, the Bank has, via its solicitors, given notice of the application and the orders proposed to Mr Welford’s trustee in bankruptcy. The evidence establishes that the trustee has signified that he does not oppose the application, and does not seek to be heard today.

8    The State’s position is also not to oppose the application, having regard to the orders which are sought. It is a feature of those orders that, whatever interest in the surplus the State may have, that interest, if any, is protected by the orders promoted by the Bank.

9    The root authority in relation to this branch of insolvency law is a corporations case, Re Tulloch Limited (in Liquidation) (1978) 3 ACLR 808, Needham J. That case concerned an analogous provision found in corporations law to s 133 of the Bankruptcy Act. That particular case has notably commended itself in its application by analogy to s 133 of the Bankruptcy Act to Rares J in National Australia Bank Limited v New South Wales (2009) 182 FCR 52.

10    Re Tulloch, and, in turn, National Australia Bank v New South Wales have also commended themselves to me in a number of cases unnecessary to detail for the purpose of resolving the present application. Suffice it to say, the view to which I adhere is that the disclaimer by the trustee in bankruptcy of, in this instance, the Staal property and the Newman property, did not cause there to be an escheat automatically of the properties to the Crown in right of Queensland, but rather, the escheat was subject to the jurisdiction conferred materially on this Court by the Bankruptcy Act to make a vesting order, vesting a title in some other person, pursuant to s 133(9) of the Bankruptcy Act, if persuaded it was just and equitable so to do.

11    The circumstances of the present case are not uncommon, but that does not detract from a conclusion that it is just as equitable to make an order, subject to terms which will be apparent, that the estate in fee simple of the Staal property and the Newman property vest in the Bank for the purpose of its exercising its powers under the Land Title Act 1994 (Qld), the Property Law Act and the registered mortgages, in effect, as if Mr Welford had not become a bankrupt.

12    For these reasons, there will be an order in terms of the draft, and I express my appreciation in respect of the succinct approach of each of the parties to the presentation of the application, and for the submissions which have been prepared.

Associate:

Dated:    26 August 2019