Federal Court of Australia

Australia and New Zealand Banking Group Limited v State of Western Australia, in the matter of Aman [2022] FCA 191

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 known as:

(a)    57 Charnwood Avenue, Two Rocks WA 6037, which is more particularly described as Lot 168 on Plan 10185 and being the whole of the land comprised in Certificate of Title Volume 1972 Folio 367 (Two Rocks property) shall vest in the applicant for the purposes of the applicant exercising its powers as mortgagee under the Transfer of Land Act 1893 (WA) and registered mortgage number N077112 (Two Rocks mortgage), subject to the following conditions;

(i)    for the purposes of any dealings with the Two Rocks property the applicant may (but is not bound to) act as if it were exercising its power as mortgagee and as mortgagee in possession under the Transfer of Land Act 1893 (WA) and under the Two Rocks mortgage, except that it is:

(A)    deemed to have served additional default notices under s 88 of the National Credit Code (being Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)); and

(B)    deemed to have served additional default notices pursuant to s 106 Transfer of Land Act 1893 (WA);

(ii)    the applicant is required to serve, by standard post, a Form 14 Notice to Vacate providing 30 days' notice to vacate in line with the requirements set out in the Residential Tenancies Act 1987 (WA) on any occupant(s) (if any) of the Two Rocks property (whether or not the Residential Tenancies Act applies to the nature of the occupation of the Two Rocks property);

(b)    the applicant is entitled to calculate the entirety of the debt secured and owing pursuant to the Two Rocks mortgage as including all monies that would have been secured by the Two Rocks mortgage had the trustee in bankruptcy of Yusman Aman not disclaimed the Two Rocks property, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Two Rocks property as if it were money secured by the Two Rocks mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Two Rocks mortgage);

(c)    the proceeds of sale from the Two Rocks property shall be applied as follows:

(i)    first, in payment of any statutory charges affecting the Two Rocks property which the relevant statute provides are payable in priority to the applicant (in its capacity as a mortgagee);

(ii)    secondly, in payment of all costs, charges and expenses properly incurred by the applicant as incidental to the sale or any attempted sale;

(iii)    thirdly, in discharge of the debt owed to the applicant as secured by the Two Rocks mortgage;

(iv)    the residue (if any) of the proceeds so received shall be paid to the registrar of this Court; and

(d)    the applicant must, after any sale of the Two Rocks property, provide an account of its payments and receipts to:

(i)    the first respondent;

(ii)    the second respondent; and

(iii)    the registrar of this Court.

2.    Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the estate in fee simple in the property known as:

(a)    65 Kardan Drive, Yanchep WA 6035, which is more particularly described as Lot 1224 on Deposited Plan 71039 and being the whole of the land comprised in Certificate of Title Volume 2775 Folio 433 (Yanchep property) shall vest in the applicant for the purposes of the applicant exercising its powers as mortgagee under the Transfer of Land Act 1893 (WA) and registered mortgage number N077110 (Yanchep mortgage), subject to the following conditions;

(i)    for the purposes of any dealings with the Yanchep property the applicant may (but is not bound to) act as if it were exercising its power as mortgagee and as mortgagee in possession under the Transfer of Land Act 1893 (WA) and under the Yanchep mortgage, except that it is:

(A)    deemed have served additional default notices under s 88 of the National Credit Code (being Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)); and

(B)    deemed have served additional default notices pursuant to s 106 Transfer of Land Act 1893 (WA);

(ii)    the applicant is required to serve, by standard post, a Form 14 Notice to Vacate providing 30 days' notice to vacate in line with the requirements set out in the Residential Tenancies Act 1987 (WA) on any occupant(s) (if any) of the Yanchep property (whether or not the Residential Tenancies Act applies to the nature of the occupation of the Yanchep property);

(b)    the applicant is entitled to calculate the entirety of the debt secured and owing pursuant to the Yanchep mortgage as including all monies that would have been secured by the Yanchep mortgage had the trustee in bankruptcy of each of Yusman Aman and Nikita Lee Aman (also known as Nikita Lee Krakouer) not disclaimed the Yanchep property, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Yanchep property as if it were money secured by the Yanchep mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Yanchep mortgage);

(c)    the proceeds of sale from the Yanchep property shall be applied as follows:

(i)    first, in payment of any statutory charges affecting the Yanchep property which the relevant statute provides are payable in priority to the applicant (in its capacity as a mortgagee);

(ii)    secondly, in payment of all costs, charges and expenses properly incurred by the applicant as incidental to the sale or any attempted sale;

(iii)    thirdly, in discharge of the debt owed to the applicant as secured by the Yanchep mortgage;

(iv)    the residue (if any) of the proceeds so received shall be paid to the registrar of the Court; and

(d)    the applicant must, after any sale of the Yanchep property, provide an account of its payments and receipts to:

(i)    the first respondent;

(ii)    the second respondent; and

(iii)    the registrar of this Court.

3.    It is declared that the applicant is entitled to possession of the Two Rocks property.

4.    It is declared that the applicant is entitled to possession of the Yanchep property.

5.    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

BANKS-SMITH J:

1    The applicant Bank seeks orders vesting in it the estate in fee simple of two properties, the Two Rocks property and the Yanchep property respectively. The Bank seeks the vesting orders so that it may sell those properties exercising the powers it otherwise has as mortgagee in possession. It seeks to apply the proceeds of sale against debts due to it by the registered proprietors, relevantly Yusman Aman and Nikita Aman, who are now both bankrupt.

2    The Bank also seeks consequential orders dispensing with notice provisions, confirming that it has a right to possession of the properties and facilitating the payment of any surplus proceeds from the sale into Court.

3    To the best of the Bank's knowledge, the properties are currently occupied by the fourth, fifth and sixth respondents under residential tenancies.

4    Although the vesting order is not challenged, the first respondent, the State of Western Australia, contends that this Court should not make any order or declaration with respect to possession. The State contends that any entitlement to possession is properly a matter to be determined under the Residential Tenancies Act 1987 (WA), and that this Court has no jurisdiction in that regard. It also seeks an order that any surplus from the proceeds of sale be paid to the State.

5    For the reasons that follow, I have determined that orders largely in the terms sought by the Bank should be made.

Facts

6    The following facts are established by five affidavits of Shani Claassen, a solicitor employed by Thomson Geer, the firm representing the Bank in this application.

The secured debt

7    Yusman Aman is the registered proprietor of the Two Rocks property. Both Yusman Aman and Nikita Aman are the registered proprietors of the Yanchep property as joint tenants.

8    The properties have at all relevant times been the subject of registered mortgages in favour of the Bank as security for loans advanced to the Amans under two loan agreements.

9    The loan agreements incorporate terms set out in a booklet referred to as the Consumer Lending Terms and Conditions, Version 22, 25 May 2015.

10    Each registered mortgage incorporates the provisions of Memorandum of Provisions number I 867952, filed and registered with Landgate.

11    On 16 July 2019, Yusman Aman was made bankrupt under the Bankruptcy Act 1966 (Cth) by way of a debtor's petition. On 4 May 2020, Nikita Aman was similarly made bankrupt. The second respondent, Graeme Lean, was appointed the trustee of both bankrupt estates.

12    The Amans failed to make payments due under the loan agreements, and that failure constituted an event of default for the purpose of the Terms and Conditions and the Memorandum (I set out the relevant terms of the Memorandum in further detail below).

13    On 21 May 2020 the Bank by its solicitors issued default notices to Yusman Aman and Nikita Aman relating to both loan agreements pursuant to s 88 of the National Credit Code (being Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)), s 106 of the Transfer of Land Act 1893 (WA), and under the relevant clauses of the Terms and Conditions and the Memorandum. The notices provided the Amans with a period of forty days (to 30 June 2020) to make payment.

14    Copies of the default notices were also sent by registered mail to the trustee by letter dated 21 May 2020.

15    The Amans did not comply with the default notices. Under the Terms and Conditions and the Memorandum, their failure to comply resulted in the total amounts owing under the loan agreements becoming due and payable on 1 July 2020.

16    By letters dated 14 October 2019 and 5 June 2020 addressed to the Bank, the trustee had disclaimed any interest in the properties and respective mortgages pursuant to s 133 of the Bankruptcy Act, stating that he considered there was no realisable equity in the properties for the benefit of the bankrupt estates.

17    On 12 April 2021, the Bank used a valuation tool to obtain estimates of the value of the respective properties. The estimated value of the Two Rocks property was $353,656.25. The estimated value of the Yanchep property was $284,635.43 (a total of $638,291.68).

18    As at 21 April 2021, the amount that was due and owing to the Bank pursuant to the respective loan agreements was $348,568.98 and $473,013.41 (a total of $821,582.39).

The residential tenancies

19    It appears that both properties have been occupied by tenants.

20    The Bank's inquiries indicate that the fourth respondent, Ketha Martin, is a tenant of the Two Rocks property and she resides there with her children. Ms Claassen deposes to a number of communications with the trustee and with Ms Martin about the premises. Relevantly, the trustee said that he entered into a one page lease agreement with Ms Martin but that she paid no rent as had been agreed. Ms Martin told Ms Claassen she understood she had a lease pursuant to a residential tenancy agreement entered into between her and the trustee. Ms Claassen considers the occupants of the Two Rocks property occupy it under a periodic lease agreement.

21    Ms Martin has not paid any money to the Bank. On 22 January 2021 Thomson Geer issued a Form 17 'Notice to Tenant of Proposed Recovery of Premises by Person with Superior Title under s 81B of the Residential Tenancies Act 1987' to the occupants of the Two Rocks property, indicating that the premises would be the subject of proceedings before the Federal Court. For reasons discussed below, the Notice was likely of no effect if it purported to suggest to Ms Martin that this Court would make orders permitting entry onto the premises, but the Notice is not relied upon by the Bank for that purpose, and can be put to the side for the purpose of this application. Its only relevance appears to be that it was another document that gave Ms Martin an indication that the Bank claimed an interest in the property. However, events were overtaken by this application. Ms Martin was subsequently served with the documents relating to this application (noted below).

22    As to the Yanchep property, Ms Claassen deposed to a number of communications, relevantly telephone calls that she had with Nikita Aman and the (now) fifth respondent, Rachel Satherly, in August 2021.

23    From those phone calls it is apparent that Ms Satherly and her sister, the (now) sixth respondent Jamie-Lee Verwey, reside in the Yanchep property with their respective children; that Nikita Aman and Ms Satherly entered into an agreement whereby Ms Satherly was required to look after the property and pay rent in exchange for living there; that Ms Satherly was informed by Nikita Aman that the Bank 'will want the Yanchep property'; that Nikita Aman and Ms Satherly gave conflicting accounts to Ms Claassen as to whether Ms Satherly continued to pay rent; that Ms Verwey helped to look after the property; and that Ms Claassen told Ms Satherly that the Bank was intending to join the sisters to these Federal Court proceedings and that the outcome for the proceedings might affect their ability to reside in the Yanchep property. The sisters were subsequently joined as respondents.

24    On or about 20 May 2021 Ms Martin was served with the application in this matter (which set out the orders sought) and a supporting affidavit of Ms Claassen. The Bank relies on an affidavit of service of Garry Armstrong sworn 26 July 2021 in this regard.

25    Ms Martin has not made any contact with this Court and did not appear at the hearing.

26    Having been joined as respondents, both Ms Satherly and Ms Verwey were served with the application and a supporting affidavit of Ms Claassen (and other documents relevant to their joinder). The Bank relies on affidavits of service of Mr Armstrong sworn 26 July 2021 and Gary McNamara sworn 11 November 2021 respectively.

27    Neither Ms Satherly nor Ms Verwey have made contact with the Bank or the Court about the hearing, and they did not appear.

28    I am satisfied by Ms Claassen's evidence that each of the fourth, fifth and sixth respondents (together the tenant respondents) were formally notified in writing that they had been joined to the proceedings and it was suggested to them that they seek legal advice.

29    For completeness I note that in some of the records (including the National Personal Insolvency Index records) Nikita Aman is referred to as Nikita Krakouer. It is apparent from searches undertaken by Ms Claassen through the Office of Births, Deaths and Marriages that the use of both names reflects Nikita Krakouer's marriage to Yusman Aman in 2011. There is no issue between the parties and I accept that Ms Aman and Ms Krakouer are the same person.

Bank otherwise entitled to exercise powers

30    As will be seen, under s 133(9) of the Bankruptcy Act the Court may make an order for the vesting of property in a person to whom it seems to the Court to be 'just and equitable' that it should be vested. In assessing whether it is just and equitable that the properties vest in the Bank, it is important to consider the nature of the Bank's interests in the properties prior to and after the trustee's disclaimer. Therefore, it is appropriate to consider matters such as whether the Bank is entitled to recover all of the secured funds and whether, but for the disclaimer, it would otherwise be entitled as mortgagee to enter into possession. This exercise emphasises the prejudice to the Bank resulting from the disclaimer that the vesting order seeks to address.

31    Clause 7 of the Memorandum contains the terms of the mortgages relevant to defaults.

32    Clause 7.1(a) relevantly provides to the effect that failure to pay any part of the secured money under the terms of the loan agreements is a Default Event. Clause 7.2(a) relevantly provides that a consequence of a Default Event is that the Bank may issue a notice, and if the Default Event continues for at least 30 days after service of the notice, then the whole of the secured monies becomes payable and the Bank may exercise any power under cl 7.3.

33    Clause 7.3 sets out 'enforcement powers'. Clause 7.3 of the memorandum provides that the Bank may take possession of the property and sell the property.

34    Clause 5.1 of the Memorandum is headed 'General obligations'. Clause 5.1(c)(iv) provides that a mortgagor will not give anyone a lease or similar right over the property.

35    It is open to a mortgagee to consent to a registered or unregistered lease (see s 91 of the Transfer of Land Act). The Bank has not consented to the leases in this case. It follows that any lease agreement entered into by an owner or trustee is not enforceable against the Bank.

36    The Residential Tenancies Act reflects this position. Section 60(1)(d) provides that a residential tenancy agreement shall terminate where a mortgagee in respect of the premises takes possession of the premises in pursuance of the mortgage.

37    The mortgagee's right to take possession is subject to a stipulation under the Residential Tenancies Act that when a mortgagee is entitled to take possession they must give any tenant holding over under a terminated lease a 30 day notice to vacate before taking possession. These provisions are set out and discussed further below.

38    I am satisfied in this case that there has been a Default Event, that the requisite notices have been served, that the secured amount under the mortgages has become due and payable and that, but for the disclaimer, the Bank would be entitled to possession of the properties as mortgagee in possession. I am also satisfied that the Bank is not bound by the terms of any leases with the tenant respondents.

Effect of bankruptcy on real property

39    The general rule under s 58(1)(a) of the Bankruptcy Act is that upon bankruptcy, all of the right, title and interest in a bankrupt's estate vests in their trustee. However, s 58(2) relevantly provides that where a law of the Commonwealth or a State or Territory requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner, then such property does not vest at law until the requirements of that law have been complied with.

40    In Western Australia, in order for a trustee in bankruptcy to secure legal title to those interests, it is necessary to cause the land to be registered in their own name. This is provided for by s 234 of the Transfer of Land Act. This provision entitles every person who as trustee is the representative of a bankrupt estate to be registered as the proprietor of property. Unless the requirements of the Transfer of Land Act are complied with, the trustee in bankruptcy has only equitable title to the property.

41    In this case the trustee did not seek to be registered as the proprietor of the properties.

42    Rather, as noted above, the trustee disclaimed any interest in the properties.

Effect of disclaimer by trustee

43    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 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.

…

(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.

…

44    The effect of a disclaimer in circumstances where a trustee in bankruptcy has not become the registered proprietor was analysed by Derrington J in Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt) [2017] FCA 696 as follows:

[16]    The Notices of Disclaimer referred to above were effective compliance with the requirements of s 133(1) with the consequence that they 'determined the rights, interests and liabilities of the bankrupts and the bankruptcy trustees in, or in respect of the property as from the date on which the disclaimer was made' (see s 133(2) of the Bankruptcy Act).

[17]    The delivery of the Notice of Disclaimer to the Registrar of Titles had two separate but cumulative effects. First, the equitable title to the fee simple interests in the properties was divested from the bankruptcy trustees and became vested in the Crown via the doctrine of escheat. Second, the legal interest in the fee simple in the two properties divested from Mr and Mrs McFarlane and became vested in the Crown. Although the exact manner in which s 133(1) operates to divest both the equitable interest from the bankruptcy trustees and the legal title from the bankrupt is not entirely clear; (Westpac Banking Corporation v State of Queensland [2016] FCA 269; [30]-[31]; Commonwealth Bank of Australia v State of Queensland; In the matter of Ginn [2016] FCA 1337; ING Bank (Australia) Limited v State of Queensland [2017] FCA 411; [17]-[20]); the position appears to be now too well established for there to be any real doubt about it. Perhaps the most acceptable explanation is that s 133(1) enables a bankruptcy trustee to disclaim the totality of ownership, rights, titles and interests in relation to the Torrens System land owned by the bankrupt and that is so notwithstanding that legal title to that land has not vested in the bankruptcy trustee.

[18]    Although the effect of the complete disclaimer of all interest in the fee simple of the relevant properties might have been thought to have had the effect that the fee simple was extinguished by reason of the merger of a dominant and subservient interest; (Purefoy v Rogers (1671) 2 WmsSaund 380; 85 ER 118; ING Bank (Australia) Ltd v State of Queensland (2017) FCA 411; [22]); the currently prevailing view is that, despite the disclaimer, the fee simple which is subject to the mortgagee's charge, continues to exist. Support for this proposition can be found in the explanation of Perram J in National Australia Bank Limited v State of New South Wales [2014] FCA 298 where his Honour said:

8.    Mr Hynes, of counsel, who appeared for the Bank, drew to my attention the apparent tension in the text of s 133 between the determination forthwith of the rights, interests and liabilities of the bankrupt, on the one hand, and the continued existence of the rights or liabilities of other persons, on the other. In a purely theoretical space there is a tension between extinguishing a set of rights which is attached to another set of rights which are not extinguished. The courts, however, have not been troubled by this anomaly. In a series of decisions it has been held that the rights of other persons, and in particular, the rights of mortgagees continue to have sufficient existence to ground an application such as the present one made by the Bank: see, for example, Re Tulloch Ltd (in liquidation) (1978) 3 ACLR 808 at 813 (sic), per Needham J. That reasoning is regarded as orthodox: see National Australia Bank Ltd v Leroy [2003] FCA 862 at [5]-[7]; Rams Mortgage Corp Ltd v Skipworth (No 2) (2007) ALR 799 at [15]-[19]; National Australia Bank Ltd v New South Wales [2009] FCA 1066; (2009) 182 FCR 52 at [29]; and National Australia Bank Ltd v Victoria [2010] FCA 1230; (2010) 118 ALD 527 at [10] [12].

9.    The immediate consequence of the disclaimer of the onerous property by the Bank was that the Paruna Place property escheated to the Crown in right of New South Wales: see Re Tulloch; NAB v Leroy at [5]; Rams v Skipworth at [8]. It has been said of the operation of s 133 that the Crown holds the property in fee simple and that only the interest of the proprietor goes out of existence on the escheat. The immediate consequence of the escheatment is therefore that the Bank does not presently have the rights it would have had against Mr Elters but for his bankruptcy and presently has no right to enforce its security against the State of New South Wales. …

[19]    Consequently, it appears that despite the escheatment to the Crown, the preserving effect of s 133(2) has the result that the fee simple interest remains in existence albeit vested in the Crown, such that third party's security interests in the fee simple of the land remain unaffected.

45    Therefore, applying McFarlane and the cases cited therein, it is apparent that upon disclaimer by the trustee the interests of the Amans in both properties were extinguished. The Crown holds the fee simple in those properties. However, the Bank's mortgages are not extinguished. The fee simple remains subject to the charge even after disclaimer and escheatment to the Crown. The Bank does not have the rights it would otherwise have had against the Amans, and nor does it have any right to enforce its security against the State. The course by which the Bank may seek to redress this position is to seek a vesting order under s 133(9) of the Bankruptcy Act.

The Bank may seek vesting order and parties may be heard

46    A mortgagee is a person 'claiming an interest in' disclaimed property within the meaning of s 133(9) of the Bankruptcy Act, and accordingly it may seek a vesting order: Re Tulloch Ltd (in liq) and The Companies Act (1978) 3 ACLR 808 (Needham J); and National Australia Bank Limited v State of New South Wales [2014] FCA 298 at [8] (Perram J).

47    The Court may make orders under s 133(9) 'after hearing such persons as it thinks fit'. The respondents to this application are the State, the trustee, the Registrar of Titles and each of the tenant respondents. Generally speaking, an applicant for vesting orders under s 133(9) should show that the application has been brought against and served upon the relevant Crown entity and any other person with a relevant interest in the proceeding, and that those parties have either not sought to appear in the proceedings, or that they do not oppose the vesting orders: Commonwealth Bank of Australia v State of Queensland, in the matter of Hewton [2021] FCA 22 at [20(a)] (Derrington J). Similarly, notice of the application should be given to the trustee in bankruptcy: Hewton at [20(b)].

48    Here, the State and the Registrar of Titles have participated in the proceeding, both represented by the State Solicitor's Office and by the same counsel. The Registrar of Titles indicated by written submissions that he only sought to be heard as to the terms of the orders to be made. The trustee (who was represented by solicitors) filed a submitting notice and indicated he did not wish to be heard on the application. Each of the tenant respondents were formally served and notified in writing of the proceedings, but have not sought to be heard or otherwise involved.

49    I am therefore satisfied that all those persons with a relevant interest in the vesting application have had an opportunity to be heard.

Vesting order should be made

50    In National Australia Bank Limited v State of New South Wales, Perram J described the conditions that must be met by an applicant such as the Bank to be entitled to the relevant vesting order (at [11]):

(a)    that a disclaimer to relevant property has occurred within the meaning of s 133;

(b)    that the applicant has an interest in the disclaimed property within the meaning of s 133(9); and

(c)    that the applicant is entitled to the disclaimed property or that the court considers it to be just and equitable that it should be so vested or delivered.

51    The first and second conditions identified by Perram J are satisfied in the present case. The properties have been disclaimed under s 133. The Bank as mortgagee of the properties has an interest in the properties within the meaning of s 133(9).

52    As to the third, it is also satisfied. It would be just and equitable for the properties to be vested in the Bank because, for the reasons given above, until the disclaimer it was entitled to possession of the properties and was entitled to sell them and apply the proceeds against the secured debt. It advanced funds in consideration of the security, and now has a secured debt in excess of $820,000. Through no conduct on its part, it has been denied its right under the mortgages to enter into possession of the properties because of the disclaimer. Unless the vesting order is made, the Bank will be deprived of the benefit of its security. There are no further steps which the Bank can take apart from the present application to facilitate enforcement of its securities in order to obtain some reduction in and satisfaction of the debt.

53    As Derrington J noted in Hewton at [22], in general terms, the courts should attempt to ensure that valid securities are given effect even after the process of escheat has vested the land in the Crown. To do otherwise would accord the Crown an unmerited windfall.

The issue raised by the Residential Tenancies Act

The State's position

54    I note that it is possible that the tenant respondents may choose to vacate the properties voluntarily, but as their position is unknown, I am asked to proceed on the assumption that residential tenancy agreements are in place.

55    Assuming the vesting order were to be made, the Bank also seeks a declaration or order to the effect that it is entitled to possession of the properties. It is this relief that proved to be the main point of contention in this proceeding. The State contends that any question as to possession must be dealt with by the Magistrates Court of Western Australia, having regard to the Residential Tenancies Act, and not by this Court. The State relies on the decision of Colvin J in Carrafa v Chaplin, in the matter of the bankrupt estate of Michael Chaplin [2019] FCA 415.

Statutory context

56    According to its long title, the Residential Tenancies Act was enacted to 'regulate the relationship between lessors and tenants under residential tenancy agreements, to consequentially amend certain Acts, and for connected purposes'.

57    Part III provides for determination of disputes.

58    Part IV prescribes the form of residential tenancy agreements and deals with matters such as rent, security bonds and standard terms.

59    Part V provides for termination of residential tenancy agreements. Section 60(1) relevantly provides:

How residential tenancy agreements and tenant's interests in agreements are terminated

(1)    Despite any Act or law to the contrary, a residential tenancy agreement shall not terminate or be terminated except in one of the following circumstances -

(a)    where the lessor or tenant gives notice of termination under this Act and -

(i)    the tenant delivers up vacant possession of the premises on or after the expiration of the period of notice required under this Act; or

(ii)    a competent court, upon application by the lessor, terminates the agreement under section 71;

(b)    in the case of a tenancy for a fixed term, where the lessor or tenant gives a notice of termination under section 70A and -

(i)    the tenant delivers up possession of the premises on or after the day on which the term of the agreement expires in accordance with that section; or

(ii)    a competent court, upon application by the lessor, terminates the agreement under section 72;

…

(bc)    in the case of a particular tenant's interest in the agreement, where a competent court terminates the tenant's interest under section 71AE;

(c)    where a competent court terminates the agreement under section 73, 74, 75A or 75;

(d)    where a person having superior title to that of the lessor becomes entitled to possession of the premises;

(e)    where a mortgagee in respect of the premises takes possession of the premises in pursuance of the mortgage;

(f)    where the tenant abandons the premises;

(g)    where the tenant delivers up vacant possession of the premises pursuant to an agreement in writing between the lessor and the tenant to terminate the residential tenancy agreement;

(h)    where the agreement terminates by merger;

(i)    where every tenant dies.

60    Division 2 deals with notices of termination given by a lessor, including where a lessor enters into a contract of sale.

61    Division 4 deals with applications by a lessor for termination and orders for possession. For example, s 71(1) provides:

Where a lessor or a tenant under a residential tenancy agreement gives notice of termination to the other under this Act except under section 70A and the tenant fails to deliver up possession of the premises on the day specified, the lessor may, subject to section 62(5)(a), within 30 days after that day, apply to a competent court for an order terminating the agreement and an order for possession of the premises.

62    Division 5 contains general provisions, including provisions dealing with possession. Relevantly, s 80 provides:

No person shall except under an order of a competent court enter premises or any part of premises of which a person has possession as a tenant under a residential tenancy agreement or a former tenant holding over after termination of a residential tenancy agreement for the purpose of recovering possession of the premises or part of the premises, whether entry is effected peaceably or otherwise.

Penalty: a fine of $20 000

63    Section 81A(2) provides:

If a residential tenancy agreement is terminated under section 60(1)(e), the mortgagee is not to take possession of the residential premises from a tenant who is holding over after termination of the agreement unless the mortgagee, after becoming entitled to take possession, gives the tenant a notice to vacate the premises.

64    Section 81B provides:

Notice of proposed recovery of premises by person with superior title

(1)    This section applies where a person (the plaintiff) brings proceedings in a competent court for the recovery of possession of residential premises.

(2)    The court must not make an order for possession unless it is satisfied -

(a)    that a person is not in possession of the residential premises as -

(i)    a tenant under a residential tenancy agreement; or

(ii)    a tenant holding over after termination of a residential tenancy agreement;

or

(b)    if there is such a person in possession of the residential premises and the plaintiff is not the lessor under the residential tenancy agreement - that the person has been given written notice, in a form approved by the Minister, of the proceedings not less than 30 days before the commencement of the proceedings.

65    The Residential Tenancies Act provides that a competent court, in relation to an application made under the Act, means a court that has jurisdiction under s 12A or s 13, and that court is expressly stated to be the Magistrates Court of Western Australia.

Carrafa v Chaplin

66    In Carrafa, the trustee in bankruptcy became the registered proprietor of the property formally owned by Mr Chaplin, but not until a significant period of time had passed and Mr Chaplin had been discharged from bankruptcy. The trustee entered into an agreement whereby Mr Chaplin was permitted to continue to occupy the property. Eventually the trustee sought vacant possession of the property. His solicitors issued a notice of termination under s 64 of the Residential Tenancies Act (notice of termination by lessor without any ground). Vacant possession was not relinquished. The trustee then applied to this Court seeking orders for possession and delivery up of the property, relying on s 30 (general power to decide all questions of fact and law in any case of bankruptcy), s 77(1)(e) (bankrupt shall execute all instruments to assist in administration of the estate) and s 129(2) (trustee to take possession of property capable of manual delivery and Court may enforce possession accordingly) of the Bankruptcy Act.

67    However, as Colvin J recognised, under s 60(1)(a) of the Residential Tenancies Act any tenancy as between the trustee as lessor and Mr Chaplin did not terminate unless or until Mr Chaplin vacated the premises, or the Magistrates Court made an order terminating the agreement under s 71: 'The Trustee, like any owner, must abide by residential tenancy legislation …' (at [26]).

68    The trustee then contended that this Court could make an order under s 71 of the Residential Tenancies Act under jurisdiction conferred by s 79 of the Judiciary Act 1903 (Cth). His Honour queried whether s 79 of the Judiciary Act extended to the making of an order terminating the residential tenancy, noting that the authority to terminate an agreement made in Western Australia is entrusted exclusively to the Magistrates Court: at [29], and relevantly citing Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559 at [50]-[60]; and Smith v Smith (1986) 161 CLR 217 at 240-241.

69    It was not necessary for Colvin J to resolve any question of jurisdiction because the application for an order terminating the residential tenancy agreement was dismissed on other grounds, including late notice given to Mr Chaplin and the trustee's non-disclosure of relevant circumstances.

Analysis

70    The circumstances of this application are distinguishable from those considered in Carrafa.

71    In contrast to the position in Carrafa, the Bank does not in the present case seek an order from this Court terminating the residential tenancies.

72    The Bank cannot rely on s 60(1)(a) or s 60(1)(b) of the Residential Tenancies Act as it is not a lessor. Nor can it rely on s 60(1)(e), because where title to the properties vests in the Bank it does not proceed strictly as a mortgagee in possession. Nor does it meet the description of a lessor or tenant for the purpose of Division 4 (which includes s 71), which provides for circumstances where a lessor or tenant can apply to terminate a residential tenancy.

73    The question, then, is whether the Residential Tenancies Act provides for termination of a residential tenancy in circumstances such as these, where the property vests in the mortgagee Bank. In my view, this scenario is encompassed by s 60(1)(d): the Bank is a person having superior title to that of the lessor trustee and has become entitled to possession of the premises by way of the vesting order.

74    Therefore, the Bank does not require an order to terminate the residential tenancies. On the vesting of the properties it has superior title to the properties than the trustee or bankrupts, is not otherwise bound by the tenancies granted by the trustee or bankrupts without its permission and, as the holder of the vested fee simple interest, is entitled to possession. So much follows from the grant of the vesting order in the circumstances of this case. By s 60(1)(d) the residential tenancy is terminated. That is not an outcome that requires any determination by or application to the Magistrates Court.

75    However, it is important not to conflate the entitlement to possession with the right to proceed to take possession by re-entry. Despite the operation of s 60(1)(d) and the termination of the residential tenancy, pursuant to s 80 the Bank cannot proceed to enter and take possession where there remain tenants in possession, including where they are holding over under a terminated lease, without a court order of a competent court.

76    The Bank does not seek in this application any relief with respect to entering into or recovering possession. Rather, it acknowledges that unless the tenant respondents choose to vacate the properties voluntarily, then it must seek any necessary orders under the Residential Tenancies Act to permit it to enter into and recover possession, whether by reference to s 81B or otherwise under that Act, or under any other relevant legislation. I refer to 'any other relevant legislation' only because the Bank suggests that in the alternative it may be able to proceed to re-enter in accordance with the Civil Judgments Enforcement Act 2004 (WA). It is not necessary for me to resolve the question of the manner in which the Bank should or can proceed in order to seek any such orders.

77    The tenant respondents have not sought to appear and put forward any contrary view as to the construction or otherwise of the Residential Tenancies Act. It may be that they may have further opportunities before another court to pursue arguments as to the recovery of possession. For completeness I note that the Bank has indicated that if the relief sought in this application is granted it intends to issue a notice granting the tenants 30 days in which to vacate before taking any further step in any event, a step it would ordinarily take as a mortgagee in possession. It has proposed an order to that effect.

78    It is against this backdrop that the State contends that it remains outside the jurisdiction of this Court to make any declaration or order as to the Bank's entitlement to possession because such a declaration or order is made in effect for the purpose of facilitating the Bank in falling within the scope of s 60(1)(d) of the Residential Tenancies Act.

79    It is apparent that any finding or declaration made by this Court in the course of the vesting application under s 133(9) to the effect that the Bank is entitled to possession may assist the Bank in the application of the Residential Tenancies Act. That it may have that result does not restrict the grant of such relief by this Court or render it inappropriate or beyond jurisdiction. In granting such relief this Court does not seek to elevate the position of the Bank in any manner or determine any rights under the provisions of the Residential Tenancies Act.

80    Rather, it is relief that seeks to quell any uncertainty as to the effect of the vesting order on the Bank's rights and powers as mortgagee post disclaimer. That is a justiciable issue for the purpose of the Bankruptcy Act. The nature and effect of a vesting order under s 133(9) is relevant to the question of whether, despite a disclaimer, the Bank can retain the entitlements to possession that it otherwise had under the mortgage. It is a matter directly relevant to the question of whether it is just and equitable for the estate in fee simple of the properties to vest in the Bank within the meaning of s 133(9) of the Bankruptcy Act. As is apparent from the analysis at [30]-[38] above and from the reasons at [52]-[53], both the assessment that the Bank otherwise had an entitlement to take possession and the appropriateness of ensuring its entitlements to take possession were retained were powerful reasons justifying the grant of the vesting order.

81    It could be said that no such declaratory order is required where the Bank's position should be apparent in any event from my findings. However, the point having been in contention, it seems to me appropriate in the circumstances of this case, in addition to making the vesting order, to make an ancillary declaratory order to the effect that the Bank is entitled to possession of the properties. Such relief does not deny the obligations on the part of the Bank to comply with the Residential Tenancies Act or any other legislation as to enforcement of such right of possession. It is declaratory relief that may be granted as a proper exercise of the powers of the Court under s 30 of the Bankruptcy Act.

Allocation of surplus

82    The valuation of the properties suggests there is unlikely to be any surplus available after the Bank applies the proceeds of sale against its secured debt. However, the parties are at odds as to where any surplus should be directed, assuming it exists.

83    This question has been dealt with in a number of decisions. The preponderance of authorities support the view that the surplus should be paid to the registrar of this Court: Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 (Edelman J); Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of King [2016] FCA 1338 (Edelman J); Commonwealth Bank of Australia v State of Queensland [2018] FCA 1041 (Rangiah J); National Australia Bank Limited v State of Queensland [2018] FCA 1624 (Logan J); and St George - A Division of Westpac Banking Corporation v State of Western Australia [2020] FCA 397 (Banks-Smith J). That is the order sought by the Bank in this case.

84    There are examples where the Court has ordered any surplus be paid to the trustee in bankruptcy: Australia and New Zealand Banking Group Limited, in the matter of Hawks (bankrupts) v State of Queensland [2018] FCA 1982 (Griffiths J); National Australia Bank Limited v The State of Queensland [2018] FCA 2020 (Burley J); AMP Bank Limited v State of New South Wales [2014] FCA 1437 (Rares J); and Westpac Banking Corporation v State of Western Australia [2021] FCA 1264 (Jackson J).

85    In St George - A Division of Westpac Banking Corporation v State of Western Australia I recorded my view as to the appropriate recipient of the surplus as follows:

[28]    In circumstances where the Trustee has expressly disclaimed the Properties, there is room for different views as to whether any surplus should be paid to the Trustee. The Bank's submissions do not address the authorities where the court ordered that there be payment of any surplus to the trustee. However, the Trustee was in the best position to assess the question of whether there might be any surplus proceeds at the time of the disclaimer. Having made such an assessment, the Trustee chose to disclaim both Properties. Accordingly, I am of the view that the question is most likely to be academic.

[29]    Under the orders the Bank is in any event to account to the Registrar of this Court. Therefore, I consider that it is appropriate that any surplus proceeds be paid into Court. Any issue as to the dispersal of the surplus might then be ventilated fully. The State says that such a course may impose too high a costs burden on the Trustee as it may be necessary to initiate or be involved in a further hearing. However, the extent of the Trustee's involvement in any further hearing is a matter for the Trustee to consider, having regard to the quantum of any relevant surplus once known.

86    However in this case the State seeks an order that any surplus be paid to it. It submits that the funds ought to be paid to the Crown because the property would have remained vested in the Crown had the application not been made, and the State is in a position to take a flexible approach to the distribution of surplus funds. A similar argument was made and rejected by Jackson J in Westpac Banking Corporation v State of Western Australia [2021] FCA 1097:

[29]    The State submits that it is appropriate for it to receive any surplus funds because had the application not been made, the Property would have remained vested in the Crown. However, once the orders are made, the Property will no longer be vested in the Crown, so that prior vesting, which reflects the feudal origins of the Australian law of property (see Attorney-General of Ontario v Mercer (1883) 8 App Cas 767 at 772 and Re Tulloch Ltd (1978) 3 ACLR 808 at 813), also carries little weight. The State also submits that it will be in a position to take a flexible approach to the distribution of surplus funds. It submits that the costs to the parties and the resources of the court to manage the funds if they are paid into court will be disproportionate. But holding funds and disbursing them appropriately is a proper function of the court in cases like this, and there is no real basis to think that the process will be significantly less costly if the Crown is holding them instead.

87    I remain of the view I expressed in St George - A Division of Westpac Banking Corporation v State of Western Australia. The trustee in this case has disclaimed the properties, taken no interest in these proceedings and not sought any order that any surplus be directed to him. The registrar will inevitably make contact with the trustee if there is in fact any surplus. The registrar is adept at dealing with such matters efficiently and the orders require the Bank to report relevantly to the registrar in any event. I consider the appropriate order in the circumstances of this case is that any surplus be paid to the registrar of this court, who is empowered to make other directions relating to the surplus as appropriate.

Other non-contentious orders

88    The orders sought by the Bank permit it to sell the land free of the burdens imposed on it by the National Credit Code or by the Transfer of Land Act. Such orders are relatively standard in matters of this nature and are justified on the basis that the fee simple title vests in the Bank under the orders, and the orders include obligations on the Bank to account for the receipt of the proceeds of sale not only to the trustee and the State but also to a registrar of this Court. The State did not oppose such orders and I consider them appropriate.

Conclusion

89    There will be orders accordingly.

Associate:

Dated:    9 March 2022

SCHEDULE OF PARTIES