Federal Court of Australia

Aprile v State of Queensland, in the matter of Leftwich [2021] FCA 471

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the one half share as tenant in common of the estate in fee simple for the property described as Lot 16 on Survey Plan 190127, Title Reference 50805634, situated at Unit 112, 22 Ben Lexcen Place, Robina in the State of Queensland, disclaimed by the Bankruptcy Trustee of Brett Robert Antony Leftwich and currently registered in the name of Brett Robert Leftwich (the Property) vest in Cara Zarb Aprile (the applicant), subject to:

(a)    any charges or body corporate debts relating to the Property imposed by statute or otherwise including, but not limited to, any unpaid land tax, body corporate fees, local government rates and water and sewerage or similar charges; and

(b)    the mortgage to the Commonwealth Bank of Australia registered with dealing number 715028606.

2.    There be no order as to costs against the respondents.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    This is an application under s 133(9) of the Bankruptcy Act 1966 (Cth) (the Act) in which the applicant, Ms Cara Aprile, seeks an order that an interest in the fee simple of certain real property be vested in her such that she, as the holder of the entire fee simple, may sell it.

2    Ms Aprile was the co-owner of the property with a Mr Brett Leftwich who is now bankrupt. Mr Leftwich’s trustee in bankruptcy has disclaimed the property. Ms Aprile seeks to sell the property so that she may discharge the mortgage over it for which she has been solely responsible.

3    Ms Aprile’s solicitors have, commendably, expedited this matter and brought it to a conclusion in a most expeditious way. For the following reasons, Ms Aprile should have the orders which she seeks.

Background

4    The property in question is a residential apartment being Unit 112, 22 Ben Lexcen Place, Robina in the State of Queensland, more properly described as the fee simple in the property at Lot 16 on Survey Plan 190127, Title Reference 50805634. A title search in respect of that property refers to Mr Leftwich as “Brett Robert Leftwich”.

5    On or about 11 April 2013, Ms Aprile and Mr Leftwich executed a mortgage in favour of the Commonwealth Bank of Australia (the Bank) which was subsequently registered and allocated the dealing number 715028606.

6    Mr Leftwich was made bankrupt on 31 August 2018 and Mr Alan Nicholls of Nicholls & Co Chartered Accountants was appointed as his trustee in bankruptcy.

7    Ms Aprile has continued to make payments in respect of the mortgage since the bankruptcy of Mr Leftwich, however, she now seeks to be relieved of those onerous obligations.

8    On or about 22 February 2021, Mr Nicholls, as the trustee in bankruptcy, disclaimed all interest in the property. Curiously, the notice of disclaimer sent to the Registrar of Titles of Queensland refers to the bankrupt estate of “Brett Robert Antony Leftwich”. For present purposes, the Court is satisfied that each Brett Leftwich referred to in the material before the Court, whatever their middle names, is the same person.

9    The instructing solicitors have served the first respondent, being the State of Queensland, and the second respondent, the Bank, and has given notice of the matter to the trustee in bankruptcy. The Bank, in its capacity as mortgagee of the property, has confirmed that it submits to any orders that the Court makes and does not contest the application.

10    Similarly, the trustee has confirmed that he does not wish to be joined as a party to the proceedings nor to appear, and that he agrees to the making of orders on the application.

11    The State of Queensland filed submissions in the application which perspicaciously identified a number of issues in the orders sought. Ms Aprile has consequently made some adjustments to the relief sought and has proposed a new form of orders. The Bank consents to the making of orders in that form.

Effect of disclaimer

12    The effect of the trustee in bankruptcy disclaiming Mr Leftwich’s erstwhile interest in the property was to cause it to vest by escheat in the Crown in the right of the State of Queensland. Section 133 of the Act relevant provides:

133 Disclaimer of onerous property

(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.

…

(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.

(11)     Where:

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

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

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

…

13    In Commonwealth Bank of Australia v State of Queensland, in the matter of Hewton [2021] FCA 22 [15], the operative effect of the above section was summarised as follows:

15.    The nature of the operation of s 133 has been the subject of a number of decisions in this Court in recent years and the principles which have emerged in relation to it can be summarised as follows:

(1)    The reference to “property” in the section includes a reference to any land which is burdened with “onerous covenants”, and that includes any financial obligations which can be enforced against the land: Re Tulloch Ltd (in liq) and the Companies Act (1977) 3 ACLR 808, 812; ING Bank (Australia) Limited v State of Queensland, in the matter of Watson [2017] FCA 411 (ING v Queensland) [15];

(2)    A disclaimer operates immediately to determine the rights, interests and liabilities of the bankrupt and their trustee in respect of the property: s 133(2) of the Bankruptcy Act: and its effect is not dependent upon the registration of a notice of the disclaimer by the trustee: Commonwealth Bank of Australia v State of Western Australia, in the matter of Arbidans (a Bankrupt) [2020] FCA 1514 (CBA v WA) [19]; Commonwealth Bank of Australia v State of Queensland [2019] FCA 1362 [4];

(3)    Where a trustee, who only holds an equitable title in a bankrupt’s land because the bankrupt remains the registered owner, disclaims under s 133, the effect is to disclaim both that equitable interest and any legal interest of the bankrupt who remains registered under the relevant Torrens system legislation: Westpac Banking Corporation v State of Queensland [2016] FCA 269 [31]; Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 (Ginn) [15]; ING v Queensland [17] – [20]; Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt) [2017] FCA 696 (ANZ v Queensland) [17]; Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1566 [11] – [14]; CBA v WA [14];

(4)    The primary consequence of disclaiming the fee simple interest is to cause of the process of statutory escheat to take effect with the consequence that full and complete title to the land vests in the Crown. Any existing mortgage over the fee simple interest is not enforceable against the Crown which has given no covenants to repay any money: Bank of Queensland Limited v State of Western Australia [2020] FCA 442 [36].

(5)    However, it is now accepted that the erstwhile legal and equitable interests in the fee simple are not dissolved, and nor do they merge in the superior title; cf Purefoy v Rogers (1669) 85 ER 1181; with the consequence that the fee simple, which is taken to vest in the Crown, remains subject to any securities attaching to that interest: ING v Queensland [22] – [26]; National Australia Bank Limited v State of New South Wales [2014] FCA 298 [8] – [9]; ANZ v Queensland [17]; Stacks Managed Investments Ltd v State of New South Wales [2016] NSWSC 1349 [11] – [13]; National Australia Bank Limited v State of Queensland [2019] FCA 1780 (NAB v Queensland) [16](c);

(6)    It follows that subsequent to the making of the disclaimer by the trustee, a person with an interest in the fee simple, such as mortgagee, may make an application under s 133(9) of the Bankruptcy Act for the vesting of the property in them: National Australia Bank Ltd v Victoria (2010) 118 ALD 527, 530 [9] – [12]. It is possible that in the absence of the making of an order under this section the mortgagee will not be able to enforce their security: NAB v Queensland [16](d);

(7)    Prima facie, it is just and equitable to vest title to the disclaimed fee simple interest in land in an unsatisfied security holder whose security exists over that interest because the making of an order removes all doubt as to the veracity of any other action by a security holder to recover their debt (ANZ v Queensland [23]), to refuse to make the order would diminish the value of securities including registered securities, the disclaiming by the trustee strongly indicates that the security holder’s claim exceeds the land’s value, and the security holder has an interest to realise the land for the highest value: ING v Queensland [31] – [ 33];

(8)    It is usually the case, and especially so in circumstances where the debt of the security holder exceeds the value of the land, that a Court will make orders liberalising the holder’s ability to sell the land so that it may do so without compliance with statutory obligations relating to the exercise of the power of sale by security holders. That, is subject to the making of orders, such as the requiring of the making of an account, which ensure the security holder does not receive more than the amount to which it is entitled: Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1221; Ginn [19]; ING v Queensland [38]; ANZ v Queensland [25]; NAB v Queensland [25]. The orders sought and made in the present case are what have become the standard suite of orders giving effect to these matters.

14    In this case, at least until the disclaimer of the property by the trustee, Ms Aprile and Mr Leftwich held the property at law as joint tenants. The joint tenancy was earlier severed in equity upon Mr Leftwich becoming bankrupt: see Re Weber (2006) 154 FCR 80 at 86 [23]; Sistrom v Urh (1992) 40 FCR 550 at 557. No submissions were made as to the effect of the doctrine of escheat on the joint tenancy at law following the disclaimer by the trustee and the giving of notice in accordance with s 133(3) of the Act. Fortunately, the point is ultimately academic in the context of the present application.

15    Ms Aprile and Mr Leftwich were also jointly liable in respect of the mortgage which had been granted to the Bank. Despite continuing to bear the burden of making repayments to the Bank in respect of that mortgage, Ms Aprile is unable to sell the property as she has only a partial interest in it. By the present application, she seeks the vesting in her of the interest presently escheated to the Crown such that she may thereafter sell the property and discharge the mortgage.

Consideration

16    Sub-section 133(9) grants standing to a person who is under a liability not discharged by the Act in respect of the disclaimed property. As the principles which have been set out above disclose, the tenancy in the property which is now vested in the Crown remains subject to the securities attaching that interest even if they are not enforceable against the Crown. As Ms Aprile remains liable under the mortgage in respect of the disclaimed property which has not been discharged by the Act, it follows that she has standing to make the application. This is consistent with the conclusions reached in McVey v State of New South Wales, in the matter of McVey (Bankrupt) [2012] FCA 455 [10] and in McMillan v Bidmonta Pty Ltd, in the matter of the bankrupt estate of David Robert McMillan [2013] FCA 865 [15].

17    In the present circumstances, it is just and equitable to make an order for the vesting of Mr Leftwich’s erstwhile interest in the property in Ms Aprile because:

(a)    presently, Ms Aprile has a limited interest in the property as a whole and the title is split between herself and the Crown, being a circumstance to which she obviously did not voluntarily agree;

(b)    moreover, Ms Aprile is burdened with the obligation of discharging the mortgage over the entirety of the property even though she has only a half interest in it;

(c)    if title is vested in Ms Aprile, it will remain subject to the mortgage in favour of the Bank such that the Bank’s interests will be protected;

(d)    neither the Crown nor the Bank oppose the making of the orders and the trustee has no interest in the proceedings;

(e)    Ms Aprile is not aware of any other competing interests which might affect the making of the orders and claims to have no other security interest which affects the proceeds of sale; and

(f)    the effect of the orders will be to allow for Ms Aprile to sell the property, for the mortgagee to be paid out and the costs and expenses of sale to be paid, and for Ms Aprile to recover the surplus if any.

18    In those circumstances, an order in the form sought by Ms Aprile should be made.

19    The parties are all agreed that there be no order as to costs and that is appropriate.

Associate:    

Dated:    7 May 2021