FEDERAL COURT OF AUSTRALIA

Westpac Banking Corporation v State of Victoria [2019] FCA 1549

File number:

VID 579 of 2019

Judge:

KERR J

Date of judgment:

19 September 2019

Catchwords:

BANKRUPTCY AND INSOLVENCY all moneys mortgage applicant bank seeking an order vesting an interest in land held as tenant in common discharged by a bankrupt’s trustee in bankruptcy – vesting order made

BANKRUPTCY AND INSOLVENCY – where declarations sought affect the interests of a non-bankrupt tenant in common

PRACTICE AND PROCEDURE orders in default of appearance where documents served to establish basis of claim are incomplete – declarations not made

Legislation:

Bankruptcy Act 1966 (Cth) s 133

Judiciary Act 1903 (Cth) s 39B(1A)(c)

Cases cited:

Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (In Liq) [2007] FCAFC 146; 161 FCR 513

Commonwealth of Australia v Harrison [2019] FCA 937

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

Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337

National Australia Bank v New South Wales [2009] FCA 1066; 182 FCR 53

National Australia Bank v State of New South Wales [2014] FCA 298

Date of hearing:

2 August 2019 and 30 August 2019

Date of last submissions:

30 August 2019

Registry:

Victoria

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

General and Personal Insolvency

Category:

Catchwords

Number of paragraphs:

47

Counsel for the Applicant:

Ms V Bell

Solicitor for the Applicant:

Minter Ellison

Counsel for the First Respondent:

The First Respondent did not appear

Counsel for the Second Respondent:

The Second Respondent did not appear

ORDERS

VID 579 of 2019

BETWEEN:

WESTPAC BANKING CORPORATION ABN 33 007 457 141

Applicant

AND:

STATE OF VICTORIA

First Respondent

TONI MARIA GORLICK

Second Respondent

JUDGE:

KERR J

DATE OF ORDER:

19 SEPTEMBER 2019

THE COURT ORDERS THAT:

1.    Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the interest held by the First Respondent in the property described as Lot 27 on Plan of Subdivision 216784x of Certificate of Title Volume 09896 Folio 508 being the land situated at 8 Lakeside Drive, Cabarita in the State of Victoria vest in the Applicant as tenant in common in equal shares with the Second Respondent for the purpose of the Applicant exercising its powers as mortgagee under the Property Law Act 1958 (Vic), the Transfer of Land Act 1958 (Vic) and registered mortgage number AH821414L.

2.    The Applicant have leave to apply for any order for it might seek within 14 days of the date of these orders.

3.    If no application is made pursuant to Order 2, there be 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

KERR J:

1    This matter arises in consequence of the bankruptcy of Mr Ross Francis Gorlick. Mr Gorlick was declared bankrupt on 27 April 2017 following the presentation of a creditor’s petition. Prior to his bankruptcy, Mr Gorlick had been a joint proprietor with his wife Ms Toni Maria Gorlick (the Second Respondent) of a property situated at 8 Lakeside Drive, Cabarita, Victoria (the Property).

2    Upon the sequestration of Mr Gorlick’s estate, his interest in the Property, by operation of law, automatically vested in his trustee in bankruptcy. Upon that vesting, the former interest Mr Gorlick had held jointly with Ms Gorlick with respect to the Property was severed such that his trustee acquired Mr Gorlick’s former interest in it as a tenant in common in equal shares with Ms Gorlick.

3    It is uncontentious that prior to Mr Gorlick’s bankruptcy the Applicant (the Bank) held a registered mortgage over the Property. I will return later to that circumstance having regard to the orders sought by the Bank, but it is sufficient at this point to note that on 27 May 2017 Mr Gorlick’s trustee, following “an analysis of the available equity” in the Property, disclaimed his interest in it pursuant to s 133 of the Bankruptcy Act 1966 (Cth) (the Act).

4    The Bank submits that upon that circumstance arising:

a)     Ross Gorlick’s rights, interests and liabilities in respect of the Property terminated, notwithstanding that the Trustee was not possessed of legal title to the Property at the time of the disclaimer: ING Bank (Australia) Ltd v State of Queensland [2017] FCA 411 at [17]-[20];

b)     his fee simple estate escheated, but not absolutely, to the Crown in the right of the State, subject to any mortgages or charges: Re Tulloch Ltd (in liq) and the Companies Act (1978) 3 ACLR 808 at 813 (Re Tulloch); and

c)     the Crown holds the Property in fee simple and only the interest of Ross Gorlick, as the bankrupt, goes out of existence in the escheat: National Australian Bank Ltd v New South Wales (2009) 260 ALR 115 at [223], [27]-[28].

5    Whether that is a strictly accurate summary of the relevant law may be contestable having regard to the reasoning of Rares J in National Australia Bank v New South Wales [2009] FCA 1066; 182 FCR 53 at [21]-[23], that of Perram J in National Australia Bank v State of New South Wales [2014] FCA 298, and the reservations expressed by Edelman J in Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 at [13]-[16] (Ginn). However, for the same reasons as Edelman J gave in Ginn it is unnecessary for me to reach a conclusion as to those difficult underlying questions.

6    As Edelman J reasoned, whatever may be the correct forensic analysis, an interest that escheats to the Crown in right of a State after a trustee’s disclaimer remains subject to any valid charges over the interest in question. Such a circumstance will entitle the Court to make orders pursuant to s 133(10) of the Act on terms as it considers just and equitable for the vesting of the disclaimed property in a person in whom it seems to the Court to be just and equitable for it to be vested.

7    It was on that uncontentious premise that the Bank commenced proceedings against the State of Victoria as the First Respondent. The orders sought by the Bank as commenced were in the following terms:

On the grounds stated in the accompanying affidavit, the Applicant seeks the following orders pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth):

1.    The interest held by the First Respondent in the property described as Lot 27 on Plan of Subdivision 216784x of Certificate of Title Volume 09896 Folio 508 being the land situated at 8 Lakeside Drive, Cabarita in the State of Victoria (Property) vest in the Applicant as tenant in common in equal shares with the Second Respondent for the purpose of the Applicant exercising its powers as mortgagee under the Property Law Act 1958 (Vic), the Transfer of Land Act 1958 (Vic) and registered mortgage number AH821414L (Mortgage).

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

a.     may, but is not bound to, deal with the Property as if it were exercising its powers as mortgagee in possession under the Property Law Act 1958 (Vic), the Transfer of Land Act 1958 (Vic) and the Mortgage, including exercising the right to sell the estate in fee simple of the Property in exercise of its power of sale and all its other rights under the Mortgage;

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

i.     any further notice of default or demand whether under s 88 of the National Credit Code, being Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) or otherwise;

ii.     any further notice pursuant to s 76 of the Transfer of Land Act 1958 (Vic); and

iii.     a notice to vacate pursuant to s 268 of the Residential Tenancies Act 1997 (Vic) on any occupant/s (if any) of the Property.

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

  d.     will apply the proceeds of sale from the Property as follows:

i.     first, in payment of any statutory charges affecting the Pro 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 by Mr Ross Francis Garlick and Mrs Toni Maria Garlick; and

iv.     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;

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

      i.    Mr Mathew Gallant as Trustee of the bankrupt estate of Mr Ross Francis Garlick;

ii.     Mr Ross Francis Garlick;

iii.     Mrs Toni Maria Garlick; and

iv.     the Registrar of the Court;

f.     the Applicant must pay into Court the surplus, if any, arising from the sale of the Property.

3.     The Applicant's costs of and incidental to this proceeding are to be treated as reasonable enforcement expenses under its Mortgage over the Property are to be payable from the proceeds of sale of the Property on the indemnity bases pursuant to clause B1 of the Mortgage.

 4.     Such further or other orders as the Court may see fit.

8    The Bank supported its application with an extensive affidavit of Ms Donna Stathi dated 15 May 2019, detailing the history of its dealings with Mr and Ms Gorlick exhibiting, inter alia, the terms of the mortgage document upon which it sought to rely.

9    I am satisfied that that application and affidavit were served on both the First and Second Respondents.

10    I am further satisfied that, although he was not named as a party, the application and affidavit were also served on Mr Gorlick as a person potentially affected by the orders sought, and on the trustee of his bankrupt estate.

11    In the circumstances I am entitled to conclude, no party or interested person having taken any step seeking to appear, that each have chosen deliberately to refrain from taking any part in these proceedings.

12    I am further satisfied, having regard to the terms of a letter sent to the Registrar dated 6 June 2019 by the Principal Solicitor, Legal and Governance Division, Department of Environment Land Water and Planning expressed to have been sent on behalf of the Victorian Minister for Energy, Environment and Climate Change that the First Respondent should be taken to neither consent to nor oppose the bank’s application.

13    As against Mr Gorlick I am entitled to infer that he asserts no relevant interest in the disclaimed property. I am satisfied, on the basis of the affidavit material filed in this proceedings that the Bank holds a registered mortgage over the Property which was, and remains, a valid charge over Mr Gorlick’s former interest in the Property.

14    I note in that regard that the Bank has taken possession of the Property pursuant to what it asserts as its rights. That followed, it asserts, the defaults of each of Mr Gorlick and Ms Gorlick with respect to arrears claimed under a mortgage executed on 7 February 2011 as registered on the title numbered AH821414 (the Mortgage).

15    The Bank asserts that that Mortgage is an all moneys mortgage providing that the mortgagors are required to pay:

All money which you owe to the Lender for any reason; and

If you give or have given a Guarantee, all money which the Customer owes the Lender for any reason, under or in relation to the Guaranteed Obligations.

16    The Bank has exhibited documents to Ms Stathi’s affidavit to establish that on 20 November 2010, Mr Gorlick provided a personal guarantee limited to $300,000 plus 20% of that amount to cover excesses to Westpac in support of a loan provided to Basin Sands Engineering Pty Ltd. as trustee for the RTG Partners Family Trust.

17    The Bank has exhibited documents to establish that on 7 February 2011 Mr Gorlick and Ms Gorlick accepted a loan offer of $50,000.00 to be secured by the mortgage referred to above.

18    The Bank further exhibits documents to establish that Mr Gorlick and Ms Gorlick each provided guarantees in support of a loan provided by the bank to Gorlick Investments Pty Ltd as trustee for the Gorlick Investment Trust. Those guarantees each were limited to $343,000.00 plus 20% of that amount to cover excesses, and were stated to be supported by the mortgage over the Property.

19    The Bank additionally has exhibited documents that establish that each of those facilities are in arrears.

20    On behalf of the Bank, its counsel Ms Bell submits, and I accept, that permitting those facilities to be in arrears was an act of default under the Mortgage. The Bank relies on the affidavit of Ms Stathi at [9] to establish that as at 13 May 2019 it was owed $821,003.36 under those three loan agreements, and that arrears under those agreements as at that date totalled $68,415.20.

21    I am accordingly satisfied that the Bank has established the preconditions which would entitle me to conclude that it would be just and equitable for Mr Gorlick’s disclaimed interest to be ordered to vest in the Bank to permit it to enforce its security.

22    I am accordingly satisfied, the First Respondent not contending to the contrary, that the bank is entitled to the first order it seeks. That much appears largely uncontroversial.

23    However, a difficulty arose in the Court’s view with respect to the further orders the Bank sought as would operate with respect to the interest of Ms Gorlick. The Court directed the Bank to make further submissions in that regard.

24    Ms Bell’s initial submission, which I accept was made in circumstances in which I had been insufficiently precise as to the nature of the Court’s concerns, was that Order 2 was simply the usual order expressed in terms which had become customary for courts exercising this jurisdiction to make.

25    I accept Ms Bell’s submission that such orders have become customary: see for example the orders made in Commonwealth Bank of Australia v State of Queensland [2019] FCA 1362 per Logan J and as were referred to by Edelman J in Ginn at [19].

26    However, the problem I sought to identify was different. It was that in this proceeding, in contrast to all of the other authorities to which I was referred, not only was a bankrupt’s disowned estate involved but also the interests of a non-bankrupt second party whose estate, as a tenant in common after the disclaimer of Mr Gorlick’s former estate by his trustee, was also to be taken into account.

27    The terms of Order 2 as originally sought by the Bank would have operated not only with respect to the Bank’s interest in its share of the Property as vested in it, but also would authorise the Bank to deal with and sell the whole estate in fee simple notwithstanding Ms Gorlick’s interest as a tenant in common.

28    I therefore indicated to Ms Bell that it occurred to the Court that its statutory jurisdiction pursuant to s 133 of the Act might not extend to the making of Order 2 in the terms the Bank was seeking.

29    Having considered that question, Ms Bell subsequently applied to the Court for an amended Order 2 to be made in the following terms (amendments highlighted):

On the grounds stated in the accompanying affidavit, the Applicant seeks: the following orders pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth):

1.    TheAn order pursuant to s133(9) of the Bankruptcy Act 1966 (Cth): interest held by the First Respondent in the property described as Lot 27 on Plan of Subdivision 216784x of Certificate of Title Volume 09896 Folio 508 being the land situated at 8 Lakeside Drive, Cabarita in the State of Victoria (Property) vest in the Applicant as tenant in common in equal shares with Toni Maria Gorlick for the purpose of the Applicant exercising its powers as mortgagee under the Property Law Act 1958 (Vic), the Transfer of Land Act 1958 (Vic) and registered mortgage number AH821414L (Mortgage).

2.    A declaration that Oon the vesting of the First Respondent's interest in the Property in the Applicant pursuant to Order 1s 133(9) of the Bankruptcy Act 1966 (Cth), the Applicant:

a.    may, but is not bound to, deal with the Property as if it were exercising its powers as mortgagee in possession under the Property Law Act 1958 (Vic), the Transfer of Land Act 1958 (Vic) and the Mortgage, including exercising the right to sell the estate in fee simple of the Property in exercise of its power of sale and all its other rights under the Mortgage;

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

i.     any further notice of default or demand whether under s 88 of the National Credit Code, being Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) or otherwise;

ii.     any further notice pursuant to s 76 of the Transfer of Land Act 1958 (Vic); and

iii.     a notice to vacate pursuant to s 268 of the Residential Tenancies Act 1997 (Vic) on any occupant/s (if any) of the Property.

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

  d.     will apply the proceeds of sale from the Property as follows:

i.     first, in payment of any statutory charges affecting the 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 by Mr Ross Francis Gorlick and Mrs Toni Maria Gorlick; and

   iv. ourthly, 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;

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

i.     Mr Mathew Gollant as Trustee of the bankrupt estate of Mr Ross Francis Gorlick;

   ii.     Mr Ross Francis Gorlick;

   iii.     Mrs Toni Maria Gorlick; and

   iv.     the Registrar of the Court;

f.     the Applicant must pay into Court the surplus, if any, arising from the sale of the Property.

3.     TheAn order that the Applicant’s costs of and incidental to this proceeding are to be treated as reasonable enforcement expenses under its Mortgage over the Property are to be payable from the proceeds of sale of the Property on the indemnity bases pursuant to clause B1 of the Mortgage.

  4.     Such further or other orders as the Court may see fit.

30    Ms Bell submits that on the materials before it the Court would be entitled to be satisfied to the requisite degree that the Bank is entitled to enforce its rights of sale as mortgagee as against Ms Gorlick and that, if so satisfied, the Court would have jurisdiction to make the declarations the Bank now seeks.

31    In respect of the first of those propositions, the Bank later sought leave to tender an additional document that had not been exhibited to Ms Stathi’s affidavit. It did so in response to the Court’s query as to how the Property secured the loans taken out by Basin Sands Engineering. The Court granted the Bank leave to tender that document.

32    The document so tendered is a letter with accompanying attachments. It evidences that on 1 October 2014, Ms Gorlick had signed a document of guarantee in which she agree[d] to the above replacement of [her] existing Guaranteed Obligations with new Guaranteed Obligations.

33    The Bank submits that that document clarifies the position it contends for: that Ms Gorlick remains indebted to it and is in default of her obligations under the Mortgage.

34    The declarations the Bank seeks are desirable to be made, Ms Bell submits, as much to protect Ms Gorlick’s interests as those of the Bank.

35    I am satisfied that the Court has jurisdiction to make the declarations the Bank seeks as an aspect of its original jurisdiction in a matter arising under a law of the Commonwealth as conferred on it pursuant to s 39B(1A)(c) of the Judiciary Act 1903 (Cth). Such a declaration would be with respect to the matter arising under the Act. However, that does not resolve the question as to whether such declarations ought to be made.

36    The orders the Bank originally sought as notified to Ms Gorlick clearly affect her interests. The Bank was plainly correct to have named Ms Gorlick as a respondent.

37    If a matter is commenced with a statement of claim, a court is entitled to make orders in default of appearance on the premise that a respondent party not appearing after service and notice of the proceeding has accepted the truth of the matters pleaded against it: Commonwealth of Australia v Harrison [2019] FCA 937 (Harrison) per Perry J at [15]-[17]. This proceeding was commenced by affidavit (as is permitted by the Federal Court Rules 2011 (Cth)) but there would seem to be no reason why the same foundational principles would not apply.

38    However, a court cannot make an order in default if the pleadings or affidavit materials as served on a defaulting party do not justify the orders the party seeks. A party is not entitled to lead evidence to alter their pleaded case or add to it where the matters which are the subject of evidence ought to have been pleaded: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (In Liq) [2007] FCAFC 146; 161 FCR 513.

39    I am satisfied that Ms Gorlick was served with an application seeking Order 2 in terms which I infer the Bank now accepts cannot be made absent the amendments now pressed. Notwithstanding, I was prepared to proceed on the basis that: (a) the amendment the Bank now seeks to make to Order 2 will not substantially alter the case it gave notice of to Ms Gorlick; and (b) evidence may be permitted to be adduced concerning the appropriateness of relief where, as is the case with a declaration, the granting of relief is discretionary: see Harrison at [19].

40    It was for that reason I granted leave to the Bank to tender the additional document I have referred to at [31]-[33] above.

41    However, while that document may be thought to have achieved that objective, it presents the Court with an unanticipated difficulty in that, on its face, that document evidences that the true basis for the Bank’s right to enforce sale with respect to Ms Gorlick’s interest in the Property is not in consequence of Ms Gorlick’s default of the obligations set out in Ms Stathi’s affidavit, but because Ms Gorlick is in default of the obligations she accepted on 1 October 2014.

42    The Bank is not to be criticised for making that late disclosure but, the Court having become aware of that agreement, it raises a further consideration relevant to the discretion to make the declarations the Bank now seeks.

43    Ms Gorlick was not served with that document. Unlikely as I accept it may be, it is at least hypothetically possible that, had Ms Gorlick been made aware of the true basis of the Bank’s application against her, she may have taken a different position in respect of these proceedings.

44    For that reason, I would decline to make the declarations the Bank now seeks as Order 2. I discern no practical prejudice that would be occasioned to the Bank in leaving it to rely on its contractual rights under that agreement and the Mortgage. It has gone into possession already.

45    I am unpersuaded that the protective function that Ms Bell advances with respect to Ms Gorlick’s interests is a reason to make those declarations. The declarations the Bank seeks are with respect to its own rights. They are not in respect of the rights of Ms Gorlick. Nor am I persuaded that the declarations sought are necessary to protect any residual interest that Mr Gorlick or his trustee might have. If it needs be said, the Court’s declining to make the declarations the Bank has sought will require the Bank to rely exclusively on its contractual rights in respect of its duties with respect to its interests in the property now vested in it that was formerly owned by Mr Gorlick.

46    I reject that I should assume that the Bank’s duty in complying with its obligations under the law as a mortgagee will be less in the absence of the Court making the declarations sought.

47    I would grant the Bank leave to apply for any order for costs it might seek within 14 days of the date of the publication of these reasons, otherwise I would make no order for costs and leave the Bank to its contractual rights as they exist.

I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kerr.

Associate:

Dated:    19 September 2019