Federal Court of Australia

Westpac Banking Corporation, in the matter of Burton (bankrupt) v Burton [2021] FCA 773

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) the estate in fee simple in the property described as Lot 804 on Plan of Subdivision 631823J being the property contained in Certificate of Title Volume 11331 Folio 304 and situated at Ground Floor, 668A Chapel Street, South Yarra (also known as 804/35 Malcolm Street, South Yarra and also known as Lot 8.04 The Vogue Apartments 670 Chapel Street, South Yarra) in the State of Victoria (Property), vest in the Applicant 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/or the registered mortgage number AJ528042Q (Mortgage).

2.    That the above interest in the Property vesting in the Applicant is subject to the following conditions:

(a)    for the purpose of any dealings with the Property, the Applicant may (but is not bound to) act as if it were exercising its powers as mortgagee under the Property Law Act 1958 (Vic), the Transfer of Land Act 1958 (Vic) and/or 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, the Applicant is not required to serve:

(i)    any further 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)    any further notice pursuant to section 76 of the Transfer of Land Act 1958 (Vic);

(c)    the Applicant be entitled to calculate the entirety of the debt secured and owing pursuant to the Mortgage over the Property including all monies that would have been secured by the Mortgage had there been no disclaimer of the Property by David Charles Quin, the trustee of the bankrupt estate of Robin Thomas Burton (Trustee), 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)    the Applicant must 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 secured by the Mortgage; 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;

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

(i)    the Trustee;

(ii)    Robin Thomas Burton;

(iii)    the Registrar of the Court; and

(iv)    the Second Respondent.

3.    A copy of this Order be served by the Applicant on the Registrar of Titles of the State of Victoria.

4.    Liberty to apply be reserved.

5.    The Applicant’s costs of and incidental to this proceeding are to be treated as reasonable enforcement expenses under its Mortgage over the Property and are to be payable from the proceeds of sale of the Property on the indemnity basis pursuant to clause B1(b) of the Mortgage Memorandum of Provisions No. AA1530.

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

REASONS FOR JUDGMENT

(REVISED BY TRANSCRIPT)

LOGAN J:

1    Mr Robin Thomas Burton (Mr Burton) is a bankrupt. The trustee of his bankrupt estate is Mr David Charles Quin (Mr Quin). In his capacity as trustee and in the exercise of a power granted to him by s 133 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), Mr Quin has disclaimed the interest which passed to him as trustee upon sequestration in certain land in the State of Victoria.

2    That land is more particularly described as Lot 804 on plan of subdivision 631823J being the land contained in certificate of title volume 11331 folio 304 and situated at Ground Floor, 668A Chapel Street, South Yarra, also known as 804/35 Malcolm Street, South Yarra and also known as Lot 804, the Vogue Apartments, 670 Chapel Street, South Yarra in the State of Victoria (the property).

3    The property is held under the system of Torrens title for which the Transfer of Land Act 1958 (Vic) (Transfer of Land Act) provides. At present, the registered proprietor of the property is the bankrupt. There has been no transmission of the legal estate to the trustee in bankruptcy although, of course, the effect of bankruptcy was to vest the property of the bankrupt, including this property, in the trustee.

4    The applicant, Westpac Banking Corporation (Westpac), as at the date of bankruptcy, held a registered interest in the property in the form of a registered mortgage in its favour which secured certain loans made by Westpac to Mr Burton. Those loans comprised moneys advanced pursuant to a loan agreement made on or about 18 January 2012 between Westpac and Mr Burton. On the security of the mortgage the amount of the loan’s principal was $540,000. Later, on 28 August 2015, that particular loan facility was split into two accounts each of which was also secured by the registered mortgage.

5    The evidence relied upon by Westpac in respect of the application before the Court establishes that Mr Burton is in default and was at bankruptcy in default in respect of making payments as and when due both pursuant to the first loan facility and, by variation, the second loan facility. As at 30 June 2021, the balance of the first loan facility was $143,400.87 and the related arrears was $13,705.54. As to the second loan facility the balance as at 30 June 2021, was $440,605.47 with the relevant arrears being $47,876.02.

6    Notices of default have been served on Mr Burton by Westpac as follows; on 4 March 2020, in respect of the first loan facility and on 2 May 2019 in respect of the second loan facility. It was on 24 September 2020, that Mr Burton was made bankrupt.

7    The application, therefore, by Westpac is of a kind the Australian origins of which may be traced to a judgment given by Needham J in Re Tulloch Ltd and The Companies Act (1978) 3 ACLR 808 concerning the operation of provisions cognate to s 133 of the Bankruptcy Act found in the then Companies Act 1961 (NSW). More particularly, Westpac’s application is made pursuant to s 133(9) of the Bankruptcy Act which provides:

133(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.

Thus, the effect of disclaimer by a liquidator or, as the case may be, a trustee in bankruptcy is no new subject.

8    A helpful collection of pertinent authority is to be found in a recently delivered judgment of Derrington J in Commonwealth Bank of Australia v State of Queensland, in the matter of Hewton [2021] FCA 22, at [15]. Suffice it to say, the prevailing view is that subject to the operation of s 133(9) of the Bankruptcy Act, the effect of the disclaimer is to cause the interest in the property to vest in the Crown in right of Victoria but not to destroy an interest such as that held by Westpac under its registered mortgage. The Court is empowered under s 133(9) of the Bankruptcy Act, as the authorities summarised by Derrington J reveal, to make an order the effect of which is to permit a mortgagee such as Westpac to realise its security but, in recognition of the interest that disclaimer creates in the Crown, with the proviso that any surplus be paid into this Court. In the ordinary course of events and subject to any other interest which survived bankruptcy being proved. One might expect that any such surplus would on application by the State be paid to the State.

9    The solicitors for Westpac have, as is necessary, made a thorough investigation indeed of the state of the register in respect of the property. At one stage, a third party had lodged a caveat in respect of the property but, as the affidavit evidence discloses, that caveat has now been withdrawn.

10    I respectfully agree with an observation made by Derrington J in the case already cited, at [18], that, had that caveat remained on the register, it would have been necessary to make the caveator a party to the proceeding.

11    In accordance with what has become the usual practice in respect of applications of this kind, notice of the proceeding has been given to the trustee in bankruptcy, the bankrupt and also to the relevant State, in this case the State of Victoria. The evidence establishes that none of these persons wishes to be heard in respect of today’s application. I particularly note a letter which is in evidence, written on behalf of the State of Victoria, which signifies that particular position on the part of the State.

12    There is another caveat though which is present still on the register. That is a registrar’s caveat for which the Transfer of Land Act provides. That particular caveat appears to me to be in accordance with the registrar’s policy notified in a practice note published in 2014 (Customer Information Bulletin No. 146/2014) in respect of the lodging of a caveat by the registrar in cases where she is notified by a trustee in bankruptcy of a disclaimer. For that reason, in addition to orders that would usually be made in a case of this kind, I propose additionally to order that a copy of the order made today be served by Westpac as applicant upon the Victorian Registrar of Titles. I should expect that, upon the order coming to the registrar’s attention, in the ordinary course the registrar would then withdraw the caveat, thereby removing an obstacle to the orderly realisation of the property in accordance with the other orders which I propose to make. These would see the property vest in Westpac for the purposes of sale. And I also propose to make ancillary orders in relation to the sale in accordance with the realisation of Westpac’s mortgage security over the property. If only out of an abundance of caution and because there is a degree of novelty in relation to the interface between Victorian Titles Office practice and the making of an order of the present kind, I shall also reserve liberty to apply.

13    There was also at one stage something of an interrogative note as to whether or not the property was the subject of a residential tenancy. I am however satisfied on the evidence that this subject has been thoroughly investigated on behalf of Westpac by its solicitors and, particularly on the basis of a statement made by the bankrupt which is in evidence, that there is no tenancy subsisting in respect of the property. Obviously enough if, notwithstanding the investigation made, it were alleged that there were such a tenancy, then the liberty to apply which has been reserved would accommodate the resolution of whether or not that presented a particular obstacle to sale and the making of such orders as were just to accommodate such interest, if any, as a tenant may have. For the present however, the evidence satisfies me that there is no tenancy. I have therefore not made any provision in that regard in the orders in respect of the realisation of the mortgage security.

14    Otherwise, the orders envisage that there may, but not must, be compliance with particular provision in the Transfer of Land Act and the National Credit Code (as Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)) in relation to the realisation of the property.

15    The case therefore is just one where Westpac has established an interest which survives bankruptcy and the disclaimer. It has established that there is money owing pursuant to loans secured by mortgage and that it is entitled both to a vesting order and to related ancillary relief directed to the end of the realisation of its security. All parties who might conceivably have an interest in the orders sought have been notified of the proceeding; none wish to be heard. There will therefore be an order which is in terms of the draft but with the addition of the particular additional orders that I have foreshadowed.

Associate:    

Dated:    7 July 2021