Federal Court of Australia

Commonwealth Bank of Australia v State of Western Australia [2021] FCA 1186

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 28 on Plan 12964 being the property contained in Certificate of Title volume 1545 folio 535 and situated at 61 Bushland Retreat, Carramar in the State of Western Australia (Property) vest in the applicant for the purpose of the applicant exercising its powers as mortgagee under the Transfer of Land Act 1893 (WA) and registered mortgage number K854695 (Mortgage).

2.    On the vesting of the Property in the applicant pursuant to s 133(9) of the Bankruptcy Act, the applicant:

(a)    may deal with the Property as if it were exercising its powers as mortgagee in possession under the Transfer of Land Act 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 purposes of selling the estate in fee simple of the Property in exercise of its power of sale, is deemed to have served:

(i)    a 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; and

(ii)    a notice under s 106 of the Transfer of Land Act;

(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 Trustees in Bankruptcy of the bankrupt estates of Kevin Paschal McWilliams and Laura Patricia Townsend 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 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)    must apply the proceeds of sale from the Property as follows:

(i)    first, in payment of any statutory costs and charges affecting the Property, which the relevant statute provides are payable in priority to the applicant;

(ii)    second, 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 Kevin Paschal McWilliams and Laura Patricia Townsend as secured by the Mortgage;

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

(i)    the Official Trustee in Bankruptcy;

(ii)    Piggott Partners;

(iii)    Kevin Paschal McWilliams;

(iv)    Laura Patricia Townsend;

(v)    the Registrar of the Court;

(vi)    the first respondent; and

(vii)    the second respondent;

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

3.    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

COLVIN J:

1    Mr Kevin Paschal McWilliams and Ms Laura Patricia Townsend are the registered proprietors of a property at 61 Bushland Retreat, Carramar. Sequestration orders have been made in respect of the estates of the bankrupts that include their interests in the Carramar property. The trustees in bankruptcy of each of their estates have disclaimed any interest in the property and have served a notice to that effect upon the Commonwealth Bank of Australia (CBA) which is the holder of a registered mortgage over the Carramar property.

2    The CBA applies for an order pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) vesting the fee simple in the Carramar property in the CBA so that it can exercise its powers as mortgagee and consequential orders to allow it to exercise its power of sale.

3    The existence of the CBA's interest as mortgagee and default under the terms of the mortgage have been established by the evidence in support of the application. The evidence also shows that on 30 September 2010, Addstyle Constructions Pty Ltd (the second respondent on the application) registered a caveat on the certificate of title for the Carramar property claiming an interest as charge. It has filed a submitting appearance.

4    Prior to disclaiming his interest, the trustee of the estate of Ms Townsend also lodged a caveat. It has not been withdrawn. Neither of the trustees are parties to the application though they are aware that it has been brought.

5    The State of Western Australian and the Registrar of Titles are also respondents to the application.

6    The Official Trustee has been given notice of the application and does not object to the orders sought.

7    The debt owed to the CBA that is secured on the Carramar property by the mortgage is substantial and appears to be well over $1 million allowing for accrued interest, fees and charges.

8    Section 133 of the Bankruptcy Act allows for disclaimer of onerous property by a trustee in bankruptcy and sets out the procedure to be followed. There is no issue on the present application as to the procedure. What is sought is an order in the exercise of the power conferred on the Court by s 133(9) which provides:

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.

9    The principles with respect to the operation of s 133 of the Bankruptcy Act were succinctly summarised by Derrington J in Commonwealth Bank of Australia v State of Queensland, in the matter of Hewton [2021] FCA 22. I gratefully adopt his Honour's summary at [15].

10    Save for the specific matters addressed below, it is accepted by the State and the Registrar of Titles that orders as sought should be made in accordance with those principles.

Joinder of parties

11    Usually, in a case like the present, it would be necessary for all persons with a caveat on the property to be joined. Any such person should be heard if they wish to make submissions. In the present case, the trustees in bankruptcy have not been joined. The effect of the disclaimer by each of the trustees is 'to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed': s 133(2). Therefore, although the bankrupts remain as registered proprietors and there is both a caveat by one trustee and two further caveats applied to notify the disclaimers, the bankrupts' interests (and therefore the interests of the trustees) have been determined.

12    Therefore, the present circumstances may be distinguished from those considered in cases such as John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 at [132] and News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 524-525. In the present case, on the evidence, there is no basis to conclude that the trustees (or the bankrupts) or the Official Trustee may have an interest in the Carramar property. No doubt this is the reason that has led to the general practice to the effect that the trustee is usually not made a party to applications of the present kind, although the trustee is given notice: Commonwealth Bank of Australia v State of Queensland at [19].

13    For those reasons, the fact that the trustees have not been joined as parties is not a reason why the orders sought should not be made.

Orders as to surplus

14    An issue has arisen on the application as to whether any surplus funds should be ordered to be paid into Court. The State submits that the appropriate order is for any surplus to be paid in equal shares to the person administering the bankrupt estates and otherwise to the Crown in right of the State if there is no longer any trustee. This is said to be appropriate, in part, because of the passage of time since the disclaimers which might have affected the value of the Carramar property. It is also said to be preferred because it will avoid unnecessary expense and the costs of a further application. There is merit in these submissions. However, they would result in orders that would remove any further supervision by the Court of the surplus and would affect the trustees in circumstances in which they are not parties to the proceedings and have disclaimed any interest. The usual order on applications of the present kind is for payment into Court. At that time a decision can be made as to whether any the surplus should be paid to the State or whether there is a basis upon which payment may be ordered to be made to the benefit of the bankrupt estates. I propose to follow the usual practice as was done in Commonwealth Bank of Australia v State of Queensland.

Relevant notices

15    It is accepted that the appropriate order as to notices of default and statutory notices that would otherwise be required to be served by CBA as mortgagee before exercising any power of sale is that they be deemed to have been served.

Conclusion

16    I am satisfied that it is just and equitable to make the orders sought and it is appropriate to make them. Therefore, allowing for the amendment as to the relevant notices, I am satisfied that there should be orders in terms of the application. Noting that the applicant does not seek costs against the respondents there will be a formal order to the effect that there be no order as to costs.

Associate:

Dated:    30 September 2021