FEDERAL COURT OF AUSTRALIA

Commonwealth Bank of Australia v State of Queensland [2019] FCA 2217

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth):

(a)    the estate in fee simple held before bankruptcy by Walter Edward Schilling, a Bankrupt (the Bankrupt), and disclaimed by his Trustee in Bankruptcy, in the property described as Lot 24 on Registered Plan 843230, Title Reference 30633086 being the land situated at 18 Barry Street, Emerald in the State of Queensland (Barry Property); and

(b)    the tenancy-in-common in equal share with one Jennifer Maree Down, in the estate in fee simple created by the bankruptcy of the Bankrupt, and as to the Bankrupt's tenancy-in-common interest disclaimed by his Trustee in Bankruptcy, in the property described as Lot 45 on Survey Plan 161853, Title Reference 50471925 being the land situated at 10 Divine Street (also known as 10 Devine Street), Yeppoon in the State of Queensland (Divine Property),

(collectively referred to as the Schilling Interests) 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 respectively, the registered mortgage 715595490 over the Barry Property and the registered mortgage 709235185 over the Divine Property (Mortgages).

2.    On the vesting of the Schilling Interests 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 each of the Schilling Interests 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 Mortgages, including exercising the right to sell the Schilling Interests in exercise of its power of sale and all its other rights under the Mortgages;

(b)    for the purpose of selling the Schilling Interests in exercise of its power of sale, is not required to serve:

(i)    a notice of default or demand whether under section 88 of the National Credit Code, being 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 Mortgages as including all monies that would have been secured by the Mortgages had the Trustee of the Bankrupt Estate of Mr Schilling not disclaimed the Schilling Interests, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Schilling Interests as if it were money secured by the Mortgages (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Schilling Interests);

(d)    must apply the respective proceeds of sale from each of the Barry Property and the Divine Property as follows:

(i)    first, in payment of any statutory charges affecting the associated 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 of the associated property;

(iii)    thirdly:

(A)    to the extent that the proceeds of sale arise from the Barry Property, in discharge of the debt owed to the Applicant by Mr Schilling as secured by the Barry Mortgage; and

(B)    to the extent that the proceeds of sale arise from the Divine Property, in discharge of the debt owed to the Applicant by Mr Schilling and the registered co-owner (Jennifer Maree Down) as secured by the Divine Mortgage;

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

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

(i)    the Trustee of the Bankrupt Estate of Mr Schilling;

(ii)    the Bankrupt;

(iii)    Ms Jennifer Maree Down (in respect of the Divine Property only);

(iv)    the Registrar of the Court; and

(v)    the Respondent; and

(f)    must pay into Court in this proceeding, the surplus (if any) arising from the sale of the Barry Property and the Divine Property.

3.    There be no order as to costs against the Respondent.

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    A Mr Walter Edward Shilling became a bankrupt on 8 March 2019 as a sequel to his presentation of a debtor’s petition under the Bankruptcy Act 1966 (Cth) (the Act).

2    At the time of his bankruptcy, Mr Shilling held interests in real property in Queensland. The properties concerned were lot 24 on registered plan 843230, title reference 30633086, being land situated at 18 Barry Street, Emerald, in Queensland (the Barry property), and lot 45 on survey plan 161853, title reference 50471925, being land situated at 10 Divine Street, Yeppoon, in Queensland (the Divine property).

3    As to the Barry property, Mr Shilling held, in his own right, an estate in fee simple. Prior to his bankruptcy, his interest in the Divine property was as a joint tenant with a Ms Jennifer Maree Down of an estate in fee simple. In each instance, Mr Shilling or, as the case may be, Mr Shilling and Ms Down, held those interests as registered proprietors. The effect of Mr Shilling becoming a bankrupt was, as to the joint tenancy in respect of the Divine property, to sever that joint tenancy such that Mr Shilling’s trustee in bankruptcy and Ms Down became tenants in common in equal shares in respect of the state in fee simple in that property: see, for example, Re Francis; Ex parte Official Trustee in Bankruptcy (1988) 19 FCR 149 at 153.

4    On 15 November 2005, Mr Shilling and Ms Down entered into a loan agreement with the present applicant, the Commonwealth Bank of Australia (the Bank), for the borrowing of money from the Bank. That borrowing was secured by a registered mortgage over the Divine property. The mortgage was registered on 20 December 2005. Mr Shilling entered into three further loan agreements with the Bank, each of which were secured by registered mortgage over the Divine property:

(a)    on 2 November 2007 with Ms Down for a loan of $102,056. This loan agreement was varied for the purpose of a further advance of $30,000 on 28 May 2014;

(b)    again with Ms Down, on 30 March 2009, for $321,000; and

(c)    in his own right as borrower but with Ms Down as guarantor on 25 November 2013 for $308,236.

5    Also on 25 November 2013, Mr Shilling granted a mortgage to the Bank over the Barry property. That mortgage was registered on the title on 11 February 2014. It is an all moneys mortgage securing all moneys owing by Mr Shilling to the Bank.

6    On 13 March 2019, the Bank, by its solicitors, sent to Ms Down a letter enclosing a notice of demand on her as guarantor for payment of moneys owing in respect of the loan of 25 November 2013. On 9 April 2019, Mr Shilling’s trustee in bankruptcy gave notice to the Land Titles Office by letter of his disclaimer of his interest as trustee in bankruptcy in respect of the Barry property, pursuant to s 133 of the Act. A like letter giving notice of disclaimer was sent by Mr Shilling’s trustee in bankruptcy to the Land Titles Office in respect of the Divine property on 27 June 2019.

7    As it happened, the following day, 28 June 2019, the Bank sent notices of default to Mr Shilling and to Ms Down by post. At that time, the Bank calculated that in respect of their borrowings, they were $78,349.63 in arrears. The notice required remedying of the default by 8 August 2019, with the Bank demanding payment in full of then outstanding amounts in the total sum of $737,607.33. That default not having been remedied by 8 August 2019, the Bank took possession of the Divine property on 29 August 2019 and of the Barry property on 5 September 2019.

8    Section 133 of the Act provides materially:

(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.

(1AB)    Where:

(a)    any part of the property of the bankrupt consists of property, being neither land nor an interest in land; and

(b)    it may reasonably be expected that the costs, charges and expenses that the trustee would incur in realising the property would exceed the proceeds of realising the property;

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.

…

(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.

…

(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.

9    Section 133 of the Act is a contemporary analogue of a provision found in s 23 of the Bankruptcy Act 1869 (UK). In respect of that section, the then Master of the Rolls, Sir George Jessel, observed in In re Mercer and Moore (1880) 14 Ch D 287 at 292 (In re Mercer and Moore):

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.

10    As I observed in Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1566, at [3] (ANZ v State of Queensland):

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

11    Also in In re Mercer and Moore, at 295, the Master of the Rolls observed in respect of disclaimer by a bankruptcy trustee in respect of land held in fee that it reverted to the Crown. That observation was not made in respect of a system of title by registration, in other words, a Torrens system of title, such as that applicable both to the Barry property and the Divine property. It will be necessary later in these reasons for judgment to make some observations, but fortunately without need to reach conclusions as to the effect of the bankruptcy trustee’s disclaimer in respect of the Divine property particularly.

12    The Bank’s application, which is made under s 133(9) of the Act, is for the purpose of enforcing its rights under the registered mortgages which it holds in respect of both the Barry property and the Divine property so as to recover amounts owing to it under the various loans. For that purpose, it seeks orders that so much of the estate in fee simple not held by Ms Down in those properties vest in it for the purpose of its exercising its powers of sale, and such other rights as it may have under the registered mortgages. The Bank has joined as a party the State of Queensland. Unquestionably, that was a necessary joinder, having regard to the State’s interest in each of the properties as a result of the disclaimer.

13    The Bank has also given notice of the application to Mr Shilling’s trustee in bankruptcy. That was, at the very least, a prudent course to take in respect of an application concerning Mr Shilling’s bankruptcy. The trustee has signified to the Bank’s solicitors that he has no interest in the present application and does not seek to be heard.

14    The Bank has further taken the course of giving notice of the application to Ms Down. I am satisfied that she has been served, both with the application and its supporting affidavits. This also was a prudent course to take – indeed, in my view, a necessary course – given the requirement found in s 133(9), “And after hearing such persons as it thinks fit”, which is a precondition to the making of any orders pursuant to that subsection. Ms Down’s interest as, post the bankruptcy, a person holding a tenancy in common in an equal share in respect of the estate in fee simple in the Divine property made her a person entitled to be heard, if she wished, in respect of the making of any orders which might affect her interest in that property.

15    As it happens, though she has been given notice of the application, Ms Down did not appear today, either in person or by solicitor or counsel. That, of course, is her perfect right. Section 133(9) required, at the very least, that she be given notice, but the absence of her appearance after notice is no impediment to the making of orders.

16    It is unnecessary, for present purposes, to decide whether she ought to have been joined as a party. Section 133(9) does not, in terms, require that; only that the court not make orders until after hearing such persons as it thinks fit. At the very least, as I have observed, that required, in the circumstances of this case, that Ms Down be given notice.

17    A similar regime to that found in s 133(9) of the Act is found in the Corporations Act 2001 (Cth) in respect of the disclaimer of onerous property of companies in liquidation. As I observed in Walsh v The State of Queensland (2019) 369 ALR 725, at [15] - [16] (Walsh v State of Queensland):

[15]    There is a similar regime in the Corporations Act 2001 (Cth) (Corporations Act) to the Bankruptcy Act in respect of the disclaimer of onerous property. That present regime in the Corporations Act has a provenance which may be traced materially to s 296(2) of the Companies Act 1961 (NSW). In relation to that regime, Needham J, in Re Tulloch Ltd (in liq) and the Companies Act (1978) 3 ACLR 808 (Re Tulloch), observed at 813 that it was “not easy to give an entirely satisfactory meaning to s 296(2)”. That observation was made against the background of a case where in respect of a company in liquidation, a disclaimer had been made, but there existed a registered mortgage. His Honour further stated at 813:

The next question is what remains to the mortgagee … In order to release “the company and the property of the company from liability” it is certainly necessary to hold that the contractual provisions of the mortgage cease to apply…There can remain no personal covenant and, as the Crown would take not as a successor to the company but by operation of law, the various provisions of the mortgage would not apply to it. There being no obligation on the company to comply with the contractual covenants, there could be, it would seem, no default in complying with them which would permit the mortgagee to exercise its powers, eg, of sale. Where however, the default already exists, it would follow, in my opinion, that the right to sell vested in the mortgagee is one of the rights not affected by the disclaimer …

[16]    Needham J’s view in Re Tulloch has become something of a root authority in both corporate and personal insolvency law in relation to the consequences of a disclaimer insofar as that affects the holder of a registered mortgage. It has been repeatedly applied both in this Court as well as in the State Courts, exercising Federal corporations jurisdiction: see the authorities collected by me in Australia and New Zealand Banking Group Ltd v Queensland [2018] FCA 464 (ANZ v Queensland) at [8]. In that case, and with particular reference to a view expressed by Rares J in National Australia Bank Ltd v New South Wales (2009) 182 FCR 52; 260 ALR 115; [2009] FCA 1066 (NAB v New South Wales) at [23], I observed at [11]–[12]:

11.    Absent authority, I should have thought that because the authority for the disclaimer is found in the Bankruptcy Act, whatever effect the disclaimer might have under the doctrine of escheat must necessarily be subject to what is otherwise the operation of the Bankruptcy Act. As it happens, I have the benefit of the consideration by Rares J on that very same point in National Australia Bank Ltd v New South Wales (2009) 182 FCR 52; 260 ALR 115; [2009] FCA 1066 (National Australia Bank v New South Wales), where his Honour stated at [23]:

23.    I think that the better view may be that by force of a disclaimer under the Bankruptcy Act (or Div 7A of Pt 5.6 of the Corporations Act) the title to the fee simple or other property does not escheat absolutely to the Crown in right of the State because the Court can make an order vesting that title in someone else. The Court’s power to make such a vesting order is created by a law of the Commonwealth (s 133(9) of the Bankruptcy Act or s 568F(1) of the Corporations Act). By force of s 109 of the Constitution that law supplants any inconsistent automatic operation of a law of a State to the extent that some form of immediate and indefeasible escheat to the Crown in right of the State would otherwise have occurred. As I have observed, the ordinary incidents of an escheat are not readily seen as conformable with its suggested application to disclaimers. However, it is not necessary to express a final view, since this matter was not argued and I do not need to decide it.

12.    His Honour’s considered view accords with my initial impression. That view, I note, was also adopted by Bennett J in National Australia Bank Ltd v Victoria (2010) 118 ALD 527; [2010] FCA 1230 at [12]. Her Honour’s observation at [15], that the land concerned, “does not escheat absolutely to the Crown”, such as to preclude the court’s ability to make an order vesting the title in someone else, pursuant to s 133(9), is completely congruent with the views expressed by Rares J in National Australia Bank v State of New South Wales.

18    As it was in Walsh v State of Queensland, and in other similar cases, the question is whether, in the circumstances prevailing, an order vesting the interests in the land hitherto held by Mr Shilling and disclaimed on bankruptcy by his trustee in the Bank is just and equitable? The State’s position – and it is a considered one, given the representation by the State today – is that it does not oppose the application.

19    A unique feature of this case, at least in terms of my experience of them, and insofar as my researches in the limited time available have disclosed, as well as those of the Bank and the State, is that in respect of the Divine property there is a tenancy in common in an equal share in respect of the whole of the land which is held by a person, Ms Down, who is not a bankrupt. That interest, though, was, as at the time of bankruptcy, subject to a registered mortgage in favour of the Bank.

20    In Walsh v State of Queensland, I had occasion to consider the interplay between the Act and the present contemporary manifestation in Queensland of the Torrens system in the Land Title Act 1994 (Qld) (Land Title Act). The passage concerned is somewhat lengthy but is nonetheless pertinent in the present case. I observed at [20] - [31]:

[20]    The question becomes whether an order vesting the land in the applicants is, in terms of s 133(9) of the Bankruptcy Act, just and equitable? Neither the researches of Ms Gothard, who appeared for the applicants and made helpfully candid and comprehensive submissions, nor my own, have disclosed a case exactly on point. The earlier cases in relation to this intersection between insolvency law and land law have entailed applications by the holders of registered mortgages, exercising or seeking to vindicate the exercise of powers of sale.

[21]    In terms of conditions precedent, s 133(9) requires that the application materially be made by someone claiming an interest in the property. The applicants claim that they have entered into a contract and settled, for that matter, a contract with the registered proprietor in respect of the land. The land in question is freehold land held under the Land Titles Act.

[22]    The Land Titles Act is a contemporary manifestation in Queensland of the Torrens system, and as Barwick CJ notably observed in Breskvar v Wall (1971) 126 CLR 376 at 384; [1972] ALR 205, the Torrens system is a “system of title by registration”.

[23]    Thus, materially, the Registrar of Titles is obliged by s 28(1) to record in the freehold land register particulars necessary to identify:

   (a)    every lot brought under this Act; and

   (b)    every interest registered in the register; and

(c)    the name of the person who holds, and the name of each person who has held, a registered interest; and

(d)    if the person who holds a registered interest is a minor — the minor’s date of birth; and

(e)    all instruments registered in the register and when they were lodged and registered.

[24]    At the time of settlement, Mr McWha was, and remained, the registered proprietor on the face of the freehold land register. Also recorded at that time in the freehold land register was the administrative noting notifying the disclaimer.

[25]    In Australia and New Zealand Banking Group Ltd v Fairfield City Council (2016) 18 BPR 36,045; [2016] NSWSC 668 (ANZ v Fairfield) at [32]–[34], Emmett AJA made the following observations:

32.    The Mortgage was registered under the Real Property Act. However, that registration did not operate as a transfer of the fee simple in the Property to the g, as it would in relation to a mortgage of old system land. Rather, by the operation of s 57 of the Real Property Act, the Mortgage took effect as a security. The third question that arises is what happens to the estate in fee simple in land of which a company in liquidation is the registered proprietor when its liquidator disclaims that estate.

33.    There are substantial reasons for concluding that the Crown in right of New South Wales became entitled to the fee simple in the Property as bona vacantia by the doctrine of escheat, and that the Company became, by implication of law, a trustee of the Property for the Crown, subject to the Bank’s rights as mortgagee under the Mortgage. That is to say, where escheat occurs, and freehold land reverts to the Crown, the Crown will ordinarily take the land subject to any mortgages or charges upon the land that may have been created. Where, following disclaimer, a company’s name remains on the register kept under the Real Property Act, with nothing more entered than a notation of the disclaimer, the rights of a mortgagee under its security will not be destroyed or substantially impaired.

34.    The Corporations Act, of course, is an Act of the Commonwealth Parliament and not of the New South Wales Parliament, albeit in the exercise of legislative power referred by the States. For that reason, it may be arguable that escheat of the Property was to the Crown in right of the Commonwealth, rather than the Crown in right of the State. However, it is the Crown in right of the State that alienates land in New South Wales. Notwithstanding that the disclaimer may be effective by reason of the Corporations Act, the Property became bona vacantia as a consequence of disclaimer. I would be disposed to conclude that, being land in New South Wales, the Property escheated to the Crown in right of New South Wales, subject to the Mortgage. It would follow that, if no liability to the Bank was secured by the Mortgage, the Crown in right of New South Wales would be entitled to any surplus generated by the sale under s 713 of the Local Government act. Accordingly, I had a reservation as to whether the Crown should have been joined as a contradictor.

[26]    His Honour’s allowing that it is arguable that the consequence of the Corporations Act being an Act of the Commonwealth Parliament is that escheat of the property was to the Crown in right of the Commonwealth, would have like application to an argument based on a consequence of the Bankruptcy Act, which is likewise an Act of the Commonwealth Parliament. Emmett AJA’s allowance that it may be arguable that the escheat went to the Commonwealth has some support in views expressed in a current edition of Professor B Edgeworth Butt’s Land Law (7th ed Lawbook Company 2017) at [1.130].

[27]    Ultimately, as is noted in that text, and apparent from [34] of ANZ v Fairfield, Emmett AJA’s view was that the escheat went to the State, in that case, of New South Wales.

[28]    As to escheat, s 20 of the Property Law Act 1974 (Qld) (Property Law Act) relevantly provides:    

20    Incidents of tenure on grant in fee simple

(1)    All tenures created by the Crown upon any grant of an estate in fee simple made after the commencement of this Act shall be taken to be in free and common socage without any incident of tenure for the benefit of the Crown.

(2)    Where any quit rent issues to the Crown out of any land, or the residue of any quit rent issues to the Crown out of any land in respect of which quit rent has been apportioned or redeemed, such land or residue is released from quit rent.

(3)    In respect of property of any person dying intestate on or after 16 April 1968 —

   (a)    escheat is abolished; and

(b)    all such property, whether real or personal, shall, subject to this section, be distributed in the manner and to the person or persons provided by the Succession Act 1981, but subject to the provisions (including part 4) of that Act.

(4)    Subject to any other Act, property of any corporation dissolved after the commencement of this Act shall not escheat, but the Crown shall be entitled to and take as bona vacantia all such property, whether real or personal, as would apart from this Act be liable to escheat or pass to the Crown as bona vacantia.

[29]    Notably, in relation to an abolition of escheat in Queensland, that abolition is in respect of property of any person dying intestate on or after 16 April 1968. In respect of corporations, the provision that property of a dissolved corporation shall not escheat, but rather that the Crown shall be entitled to and take as bona vacantia is in respect of dissolved corporations. There is no provision in the Property Law Act which abolishes escheat in relation to persons who become bankrupt.

[30]    It would, in my view, be inconsistent with the views, expressed in Mabo v Queensland (No 2) (1992) 175 CLR 1 at 66; 107 ALR 1 at 48 by Brennan J, and CLR 114–15; ALR 86–7 by Deane and Gaudron JJ, to hold that the effect of an escheat was to vest the land in the Crown in right of the Commonwealth. Federation did not effect a vesting of unallocated land hitherto vested in the Crown in the colonies, in the Crown in right of the Commonwealth. I therefore respectfully agree with the view expressed in ANZ v Fairfield by Emmett AJA, that the effect of the disclaimer, subject to an order by a court of competent jurisdiction, is to escheat the land to the relevant State Crown, in this case the Crown in right of Queensland.

[31]    But the Crown in right of Queensland was not shown on the register kept under the Land Titles Act as the registered proprietor at the time of settlement; nor is it presently so recorded. What follows from views which I have expressed is that, even though the effect of the disclaimer was to escheat the land to the State, subject to such orders as this Court (or another court having jurisdiction in bankruptcy might make), I do not regard the administrative noting as removing Mr McWha as registered proprietor. Rather that administrative noting served to notify the world at large as to the existence of a disclaimer. That disclaimer does have a consequence in law for which s 133 of the Bankruptcy Act provides, but in relation to a system of title by registration, that particular consequence had not been carried fully into effect. To state that is not in any way to voice any criticism of the Registrar of Titles whose administrative noting of the disclaimer was, in my respectful view, entirely appropriate.

21    Earlier in time, in ANZ v State of Queensland at [11] – [14], I observed:

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.

22    In ING Bank (Australia) Limited v State of Queensland, in the matter of Watson [2017] FCA 411, Derrington J also made observations on this subject, at [30]:

One question which necessarily arises in these circumstances is whether it is appropriate for the Court to make an order vesting the Property if the Bank is entitled to exercise its powers as the mortgagee against the Property to recover the amount which it had lent to Mr Watson together with relevant interest, cost and charges? On the theory which is accepted in this Court, it is apparent that some form of fee simple title exists to which the Bank’s mortgage attaches. That being so, it ought to be possible for the Bank to exercise its rights as mortgagee against the fee simple estate as would be the case in the similar scenario which arises when there is a transfer of land subject to an existing mortgage. This seems to be consistent with the view reached by Helsham J in Re Middle Harbour Investments Ltd (in liq) [1977] 2 NSWLR 652 concerning the granting of leave to a liquidator to disclaim property in the course of a liquidation. In that matter the Court was concerned that the disclaiming of real property by the liquidator would adversely affect the interests of a mortgagee of that land. His Honour concluded that, despite some uncertainty as to how the mortgage remained unaffected, there was an absence of any identifiable detriment to the interests of the mortgagee as a result of the liquidator disclaiming. In other words, the Court reached the conclusion that the mortgagee’s rights to enforce the security against the land remained unaffected. If that conclusion is correct, a question might arise on an application such as the present as to why it is necessary for the Court to exercise the power under s 133(9).

23    In respect of the Barry property where, prior to bankruptcy, it was only Mr Shilling who held the estate in fee simple in respect of that land, the effect of the disclaimer, as I opined in that case by reference, in particular, to observations made by Emmett J in Australia and New Zealand Banking Group v Fairfield City Council (2016) 18 BPR 36045, was that the interest disclaimed went by escheat to the State.

24    As I noted in Walsh v State of Queensland, at [28] – [29], though s 20 of the Property Law Act 1974 (Qld) (Property Law Act) makes express provision, in subs (4), in respect of the property of dissolved corporations that the property shall not escheat but rather that the Crown shall be entitled to take bona vacantia, there is no similar provision in that Act in respect of a person who becomes a bankrupt.

25    It does seem an unlikely outcome, as a sequel to disclaimer, that a tenancy in common interest in fee simple in the whole of the land held by a person who is not a bankrupt could be destroyed by that disclaimer with a consequential escheat to the State. So it may be that the effect of the disclaimer, where there has been a severance of a joint tenancy on bankruptcy and the consequential creation of a tenancy in common, followed by a disclaimer of the bankrupt’s interest in the tenancy in common, is that the State succeeds to the disclaimed tenancy in common interest but the estate in fee simple is not destroyed.

26    The same would seem necessarily to apply where there was no pre-bankruptcy joint tenancy, but rather a tenancy in common where one of the tenants in common becomes bankrupt.

27    On any view, though, the effect of the cases which have followed Re Tulloch Ltd (in liq) and the Companies Act (1978) 3 ACLR 808 and applied it in the context of bankruptcy law, of which Wash v State of Queensland and ANZ v State of Queensland are exemplars, is that it is just and equitable that the Bank’s mortgage interests, which are in respect of the estate in fee simple, should survive bankruptcy and that the Bank ought to be permitted to exercise its power of sale and other rights under the mortgages.

28    It is, particularly in the absence of any submission by or on behalf of Ms Down as the non-bankrupt tenant in common, neither necessary nor desirable in the circumstances to express any concluded view as to the effect of the disclaimer of Mr Shilling’s tenancy in common interest. As I have said, it does seem an unlikely consequence indeed that the disclaimer and any escheat could, in any way, destroy Ms Down’s interest as a non-bankrupt. Without finally deciding the point, the better view is that her interest survives, but it is subject to the registered mortgage. It is, quite properly, no part of the Bank’s application that it seeks to have any vesting order in respect of Ms Down’s tenancy in common interest.

29    As to the Divine property, the vesting order which it seeks is only in respect of the disclaimed tenancy in common interest previously held for bankruptcy by Mr Shilling. I consider that the Bank is entitled to the vesting order it seeks in respect of the disclaimed interest in the Barry property and the disclaimed tenancy in common interest in the Divine property.

30    The order promoted by the Bank is that that vesting be made on conditions, which include that, for the purpose of dealing with the land, a mortgagee such as the Bank may, but is not bound, to act as if it were exercising powers as mortgagee under the Land Title Act and the Property Law Act.

31    The proposed orders also recognise that, potentially, there may be charges in favour of a local government or the State in respect of rates, land tax or other moneys owing under statute for which statutory charges are provided. Also recognised by the proposed orders is the potential for the existence of a surplus by the provision for the payment into court of any surplus after the payment of other charges on the land, the discharge of moneys owning under the loans and related recovery costs, and moneys owing to such person, if any, who may otherwise hold a registered mortgage. There does not appear to be any such person. Had there been such a person, there would have been a need, in my view, for them, too, to have been given notice.

32    There will be orders accordingly.

Associate:    

Dated:    13 March 2020