Federal Court of Australia

Morris v State of Queensland [2021] FCA 989

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 46 on Survey Plan 171951, Title Reference 50553811, situated at 54 Mountain View Crest, Mount Nathan in the State of Queensland, disclaimed by the Bankruptcy Trustee Jason Bettles and Rajendra Khatri as trustees of the Bankrupt Estate of Damien John Morris (Bankruptcy Trustee) and currently registered in the name of Damien John Morris (Property), vest in the applicant, subject to:

(a)    any charges over the Property (if any) imposed by statute; and

(b)    the mortgage to the second respondent registered with dealing number 712717929 (Mortgage).

2.    The second respondent is entitled to calculate the amount of the debt secured by and owing pursuant to the Mortgage, between the second respondent as mortgagee and the applicant as mortgagor, as if there had been no disclaimer of the Property by the Bankruptcy Trustee.

3.    There shall 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

DOWNES J:

INTRODUCTION

1    This is an application under s 133(9) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) by which the applicant, Damien John Morris (Mr Morris), seeks an order that an interest in the fee simple of certain real property be vested in him.

2    For the following reasons, Mr Morris should have the order which is sought by him.

3    The only question which remains is the form of that order and the terms on which that order should be made, if any.

4    A proposed draft order containing the terms on which the order should be made was provided by the parties to my associate on 13 August 2021 (exhibit 1). A modified form of that draft order was provided to the parties on 16 August 2021 (exhibit 2).

5    At the hearing of the application on 16 August 2021, the parties appeared and indicated that they did not oppose the form of orders contained in paragraphs 1, 3 and 4 of the modified form of draft order in exhibit 2. The parties did not press the inclusion of paragraph 2 of that draft order.

6    For the reasons which follow, and taking into account the position of the parties at the hearing, orders will be made which are substantially in the terms contained in exhibit 2 and with paragraph 2 removed.

THE FACTS

7    The real property in question is a 4,751m2 rural residential allotment on which a four bedroom house has been constructed. It is located at 54 Mountain View Crest, Mount Nathan in the State of Queensland, more properly described as Lot 46 on Survey Plan 171951, Title Reference 50553811 (the Property).

8    On 19 January 2006, Mr Morris and his former wife, Marnie Elizabeth Morris (Ms Morris), purchased the Property as joint tenants.

9    On or about 26 August 2009, Mr and Ms Morris entered into a credit contract with the second respondent, Westpac Banking Corporation (Westpac).

10    On 26 August 2009, as security for the loan agreement, Mr and Ms Morris granted a mortgage over the Property to Westpac which was registered pursuant to the Land Title Act 1994 (Qld) (Land Title Act) and given the registration number 712717929 (Mortgage).

11    On 30 January 2015, Ms Morris was declared bankrupt and the third respondent became the Official Trustee in Bankruptcy for the Bankrupt Estate of Marnie Elizabeth Morris (AFSA).

12    The consequence of the bankruptcy of Ms Morris was that the joint tenancy in the Property was severed in equity: see Aprile v State of Queensland, in the matter of Leftwich [2021] FCA 471 at [14].

13    On 20 March 2015, Mr Morris was also declared bankrupt and Mr Jason Bettles and Mr Rajendra Khatri, of Worrells Solvency and Forensic Accountants (Worrells), became the trustee of the Bankrupt Estate of Damien John Morris (as joint and several trustees) (Bankruptcy Trustee).

14    By no later than on or shortly after 22 April 2015, Westpac (through RAMS Financial Group) was informed of the bankruptcy of Mr Morris.

15    On 31 October 2017, the Bankruptcy Trustee disclaimed any interest in the Property pursuant to s 133 of the Bankruptcy Act 1966 (Cth) on the basis that it was property which was burdened with onerous covenants. Notice of the disclaimer was given to the Registrar of Titles and to Westpac on that date.

16    On 31 January 2018, the bankruptcy of Ms Morris was discharged.

17    On 26 November 2019, AFSA became the registered proprietor of Ms Morris’ former legal interest in the Property, being a half interest in the fee simple as a tenant in common.

18    On 6 January 2020, the bankruptcy of Mr Morris was discharged.

19    Mr Morris has, since the date of the disclaimer on 31 October 2017, continued to reside at the Property, made various payments to Westpac, expended personal time and labour in maintaining the Property and contributed to certain costs relating to the Property. His unchallenged evidence was that, prior to in or about March 2020, he did not understand the legal effect of the disclaimer.

20    According to the records of Westpac, the debit balance of the loan account held in the name of Mr and Ms Morris was $614,903.94 as at 31 October 2017 and $635,549.35 as at 16 July 2021.

21    In or about July 2020, a comparable market analysis indicated that the value of the Property was between $760,000 and $800,000. A desktop valuation conducted by Westpac in June 2021 indicated that the value of the Property had increased to $978,740.

THE RELEVANT LEGISLATION

22    Section 133 of the Bankruptcy Act relevantly 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.

…

23    A convenient summary of the principles is contained in Commonwealth Bank of Australia v State of Queensland, in the matter of Hewton [2021] FCA 22 (Hewton) at [15] as follows:

(1)    The reference to “property” in the section [section 133] 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).

APPLICATION

Standing to bring the application

24    The application must be brought by a person either claiming an interest in, or being under a liability not discharged by the Bankruptcy Act in respect of, disclaimed property.

25    It is usual for an application pursuant to s 133(9) of the Bankruptcy Act to be brought by a security holder, such as a registered mortgagee of a fee simple interest in real property.

26    In this case, Mr Morris is the former bankrupt.

27    It was submitted by counsel for Mr Morris that, since the date of the disclaimer, Mr Morris has continued to reside at the Property, made certain payments to Westpac and contributed solely to all costs connected to residing in and maintaining the Property including, but not limited to: rates charges, insurance and other costs involved in home maintenance. The evidence supports this submission, and is not disputed.

28    The evidence also discloses that Ms Morris does not dispute that payments were made by Mr Morris alone in relation to “mortgage payments, rates and upkeep of the property”.

29    Mr Morris claims an equitable interest in the Property by reason of these matters and therefore claims that he has standing to bring this application.

30    The respondents did not dispute the facts relied upon by Mr Morris to assert his equitable interest in the Property. Further, none of the respondents disputed his standing to bring the application.

31    That Mr Morris has such standing, based on his claimed equitable interest in the Property, accords with the conclusions reached in Hausler v State of Queensland [2019] FCA 1904 at [11] – [12] and Walsh v State of Queensland (2019) 369 ALR 725 at 733 [32]; [2019] FCA 871 at [32].

32    For these reasons, I am satisfied that Mr Morris has standing to bring an application under s 133(9) of the Bankruptcy Act by reason of his claimed equitable interest.

Proper parties to the application

33    The next question is whether “such persons as [the Court] thinks fit” have been heard on the application brought by Mr Morris.

34    In Hewton at [17] and [18], the following were identified as necessary parties in relation to an application brought pursuant to s 133(9) in connection with real property, namely: the Crown in the right of the State in which the real property is located and any person who has an interest in the property identified on the certificate of title which might be relevantly affected by the making of an order.

35    In this case, the State of Queensland, Westpac (the registered mortgagee) and AFSA (the registered proprietor of one half share of the estate in fee simple for the Property) were necessary parties, were joined as respondents and have all been heard on the application.

36    In addition, the Trustee in Bankruptcy was informed of the application but not joined as a respondent, which is consistent with a general practice which has emerged in applications of this kind, and is a prudent step: see Hewton at [19] and [20(b)].

37    Mr Khatri (who was appointed jointly and severally with Mr Bettles, and is a partner of Worrells) provided an affidavit which stated that he had no objection to the application and did not wish to be heard on the application.

38    In this case and for these reasons, the Court has heard from all appropriate persons as required by s 133(9).

Further requirements

39    In Hewton at [20(c)], certain matters were identified as being relevant to an application brought under s 133(9). Where relevant and with appropriate modifications, these are described below along with findings as to whether they have been satisfied in this case:

(a)    the existence of the land. This has been satisfied. The results of a title search of the Property from the Department of Resources, Queensland, forms part of the material relied upon by Mr Morris;

(b)    the bankruptcy of the registered owner or owners of the land. This has been satisfied. A Certificate of Appointment of Trustee to the bankrupt estate of Mr Morris forms part of the material relied upon by Mr Morris;

(c)    that the trustee in bankruptcy has disclaimed the relevant property pursuant to s 133(1) of the Bankruptcy Act and has given notice of it to the Registrar of Titles as required by s 133(3). This has been satisfied. The written disclaimer forms part of the material relied upon by Mr Morris, and notice of the disclaimer was given to the Registrar of Titles on 31 October 2017 and given dealing number 718553928;

(d)    that the circumstances render it just and equitable that an order be made vesting the land in the applicant. This is addressed below;

(e)    there are no unusual circumstances which might militate against the making of the orders. No such circumstances arise in this case.

Whether it is just and equitable

40    Pursuant to s 133(9) and relevantly to this application, the Court may make an order “on such terms as the Court considers just and equitable” for the vesting of the property in a person in whom it seems to the Court to be “just and equitable that it should be vested”.

41    This gives rise to two considerations in this case, namely:

(a)    whether it is just and equitable to vest one half share as tenant in common of the estate in fee simple for the Property in Mr Morris (the applicant in this case); and

(b)    whether such vesting should be on any terms and if so, on what terms.

42    Having regard to the facts set out above, including that the vesting order sought by Mr Morris is not opposed, I am satisfied that it is just and equitable to vest one half share as tenant in common of the estate in fee simple for the Property in Mr Morris.

43    In reaching this conclusion, I place weight on the relative interests of Mr Morris and Westpac in comparison to that of the Crown. If the order is not made, it would accord the Crown an “unmerited windfall” to adopt the words of Derrington J in Hewton at [22].

44    As to the terms on which the vesting order should be made, the parties do not oppose the order being made on terms that:

(a)    the second respondent is entitled to calculate the amount of the debt secured by and owing pursuant to the Mortgage, between the second respondent as mortgagee and the applicant as mortgagor, as if there had been no disclaimer of the Property by the Bankruptcy Trustee; and

(b)    there shall be no order as to costs.

45    Terms of a similar kind have been attached to vesting orders made by this Court where the applicant is a security holder: see, for example, National Australia Bank Limited v The State of Queensland [2018] FCA 2020.

46    For these reasons and taking into account the fact that these orders are not opposed by any party, it is just and equitable that such terms be imposed.

Associate:

Dated:    20 August 2021