Federal Court of Australia
Australia and New Zealand Banking Group Limited v State of Western Australia, in the matter of Raleigh  FCA 639
STATE OF QUEENSLAND
DATE OF ORDER:
THE COURT ORDERS THAT:
1. Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), estates in fee simple of the following properties (Properties) vest in the applicant immediately without any conveyance, transfer or assignment, subject to s 133(11) of the Bankruptcy Act 1966 (Cth), for the purpose of the applicant exercising its powers as mortgagee under the Transfer of Land Act 1893 (WA), the Property Law Act 1969 (WA), the Land Title Act 1994 (Qld) and/or the Property Law Act 1974 (Qld) and registered mortgage numbers K342349, K159263, J831647 and 714596109:
(a) 24 Malone Loop, Meadow Springs in the State of Western Australia more particularly described as lot 779 on deposited plan 50939 being the whole of the land in certificate of title volume 2633 folio 634;
(b) 5 Raynor Road, Baynton in the State of Western Australia more particularly described as lot 330 on deposited plan 45429 being the whole of the land in certificate of title volume 2592 folio 616;
(c) 27 Koolyoo Street, Newman in the State of Western Australia more particularly described as lot 699 on deposited plan 214581 being the whole of the land in certificate of title volume 1642 folio 8,
(together the WA Properties); and
(d) 94 Utah Drive, Moranbah in the State of Queensland more particularly described as Lot 235 on Survey Plan 220905 being the whole of the land in title reference 50754831 (the Queensland Property).
2. The parties take all necessary steps, including executing with the Western Australian Registrar of Title and Queensland Registrar of Titles (to the extent it is required by the State's Titles Registries) all necessary documents to give effect to order 1 above.
3. The applicant shall act as if exercising its powers as mortgagee in possession, including its exercise of power of sale as mortgagee under the Transfer of Land Act 1893 (WA), the Property Law Act 1969 (WA), the Land Title Act 1994 (Qld) and the Property Law Act 1974 (Qld) and registered mortgage numbers K342349, K159263, J831647 and 714596109.
4. On the vesting of the estates in fee simple of the Properties in the applicant pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the applicant:
(a) is entitled to calculate the entirety of the debt secured and owing pursuant to the mortgages as including all monies that would have been secured by the mortgages had the trustee in bankruptcy of each of the mortgagors not disclaimed the Properties, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Properties as if it were money secured by the mortgages (including costs of this application and all costs properly incurred in selling, and incidental to the sales of, the Properties).
(b) may apply the proceeds of sale from each Property as follows:
(i) first, in payment of any charges or body corporate debts affecting the Property imposed by statute or otherwise including, but not limited to, any unpaid land tax, body corporate fees, local government rates and water, and sewerage or similar charges which are payable in priority to the mortgages or enforceable against the owner of the Property (as applicable);
(ii) secondly, in payment of costs, charges and expenses properly incurred as an incident to any sale or any attempted sale or otherwise of the Property by or on behalf of the applicant as mortgagee;
(iii) thirdly, in discharge of the debt owing to the applicant secured by the mortgage over the Property (as applicable);
(iv) fourthly, in payment of any subsequent mortgages or encumbrances (if any); and
(v) fifthly, after the sale of each Property, the applicant is to pay any surplus proceeds to the Official Trustee in Bankruptcy of the bankrupt estates of Bryan James Gardam and Michael Christopher Raleigh, save that if the Official Trustee in Bankruptcy is no longer the trustee of the bankrupts' estates nor any other trustee appointed in its place, the surplus proceeds be paid to the Court and the applicant shall give written notice of such payment within seven (7) days to the first and second respondent.
(c) must, after the sale of each Property, file an affidavit in the action outlining its receipts and payments in relation to the sale of the Property.
5. The applicant, for the purpose of selling the estates in fee simple of the Properties in exercise of its power of sale:
(a) is deemed to have served a notice of default or demand under s 106(1) of the Transfer of Land Act 1893 (WA), and s 88 of the National Credit Code (being Schedule 1 of the National Consumer Credit Protection Act 2009) (NCC) or otherwise;
(b) is not required to serve a notice of default or demand under s 84 of the Property Law Act 1974 (Qld) and s 88 of the NCC or otherwise.
(c) is not required to issue a notice of default, pursuant to s 88(5)(c) of the NCC.
6. The applicant, for the purpose of selling 94 Utah Drive, Moranbah in the State of Queensland issue a notice to vacate under s 317 of the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) on the occupant(s) (if any) of that property.
7. The applicant's costs, charges and expenses of and incidental to the sales, and its solicitor/client costs of this application:
(a) be treated as reasonable enforcement expenses pursuant to the mortgages; and
(b) be paid from the proceeds of such sale with such priority as specified in order 4 above.
8. A declaration that the applicant is entitled to prove in the bankruptcies of the bankrupts for an amount equal to the total of the bankrupts' debt to the applicant and the applicant's said costs, less any amount received by the applicant from the proceeds of any sales of the Properties.
1 The applicant Bank seeks orders vesting in it the estate in fee simple of four properties, three in Western Australia (respectively in Meadow Springs, Baynton and Newman), and one in Queensland (in Moranbah). The Bank seeks the vesting orders so that it may sell those properties exercising the powers it otherwise has as mortgagee in possession.
2 The Bank seeks to apply the proceeds of sale against debts due to it by the registered proprietors, relevantly Michael Raleigh, who is the registered proprietor of the Western Australian properties, and Bryan Gardam, who is the registered proprietor of the Queensland property, jointly with Mr Raleigh.
3 Mr Raleigh and Mr Gardam were both declared bankrupt on 16 May 2019 on the filing of debtors' petitions. Peter Macks was appointed as the trustee in bankruptcy of both estates. On 4 June 2019 Mr Macks disclaimed the properties by written notice. On 23 February 2021 Mr Macks resigned, and was replaced by the Official Trustee.
4 The Bank also seeks consequential orders dispensing with notice provisions and facilitating the payment of any surplus proceeds to the Official Trustee or replacement trustee. It did not oppose an order to the effect that if no trustee remained appointed at the relevant time, then any surplus proceeds are to be paid into Court.
5 Based on the Bank's inquiries, the Western Australian properties are currently unoccupied. To the extent the Queensland property is occupied, the Bank intends to issue a notice to vacate and has been in communication with the tenant, as discussed below.
6 The vesting order is not challenged. There was only one dispute before me. The State of Western Australia contended that in the absence of any trustee, any surplus proceeds of the sale of the Western Australian properties should be paid to the State, rather than into Court. The State of Queensland did not seek such an order. It sought an order that in the absence of a trustee, any surplus proceeds of the sale of the Queensland property be paid into Court.
7 For the reasons that follow, I have determined that orders in the terms sought by the Bank and the State of Queensland should be made.
Bank's loans and security
8 The following facts are established by an affidavit affirmed by Ching Yung Teoh, a manager of the Bank.
9 The Bank and Mr Raleigh entered into four loan agreements, each with a separate loan account. The loans were secured by one of two mortgages (first mortgage and second mortgage).
10 The Bank, Mr Raleigh and Mr Gardam entered into a fifth, sixth and seventh loan agreement, each with a separate loan account, and secured by the second mortgage or one of two further mortgages (third mortgage and fourth mortgage).
11 The titles to each of the four properties the subject of this application were encumbered by one of the registered mortgages. Each mortgage incorporates terms set out in registered memoranda. The Western Australian properties are encumbered by one of the first, second or fourth mortgages, each of which expressly incorporates the terms of a Memorandum of Provisions filed and registered with Landgate Western Australia (registered number G267269). The Queensland property is encumbered by the third mortgage, which expressly incorporates the standard terms of a Memorandum of Common Provisions registered at the Queensland Land Registry (document number 707489998).
Bank otherwise entitled to exercise powers
12 Mr Raleigh and Mr Gardam are in default of their respective loan agreements if they fail to pay any of the respective loan amounts in accordance with the terms of the loan agreements (the terms of the loan agreements were in evidence).
13 Mr Raleigh and Mr Gardam are also in default of their respective mortgages if they fail to pay any of the respective loan amounts in accordance with the terms of their respective loan agreements, and breach any other term of the mortgage, including by being declared bankrupt (the mortgages, Memorandum of Provisions and Memorandum of Common Provisions were also in evidence).
14 As at 27 January 2021, the indebtedness secured by the mortgages (secured debt) was $2,955,614.23 plus interest and fees comprised of:
(a) $289,284.39 in relation to the first loan account;
(b) $229,408.59 in relation to the second loan account;
(c) $200,209.28 in relation to the third loan account;
(d) $462,688.81 in relation to the fourth loan account
(e) $99,016.60 in relation to the fifth loan account;
(f) $1,246,568.05 in relation to the sixth loan account; and
(g) $428,438.51 in relation to the seventh loan account.
15 The Teoh affidavit establishes that Mr Raleigh and Mr Gardam are in continuing default of the terms of the loan agreements and the mortgages, because they have failed to pay the amounts owing and because they have been declared bankrupt.
16 By virtue of those defaults, the Bank is entitled to exercise its enforcement rights under the mortgages to recover the secured debt.
17 In 2018 the Bank obtained independent valuations of each of the properties. The combined valuation was in the order of approximately $1.42 million. Whilst the Bank intends to obtain up to date valuations prior to any sale, based on the 2018 valuations it is apparent that there is likely to be a significant shortfall owing in respect of the liability of Mr Raleigh and Mr Gardam.
18 But for Mr Macks' disclaimer of the respective interests of Mr Raleigh and Mr Gardam in the properties and the resulting escheating of those interests to the respondents (discussed below), the Bank would have been empowered under the terms of the mortgages to, amongst other things, take possession of the properties and exercise its power of sale as mortgagee: Part 7 of Memorandum of Provisions; cl 7.3 of Memorandum of Common Provisions.
Effect of bankruptcy on real property
19 The general rule under s 58(1)(a) of the Bankruptcy Act 1966 (Cth) is that upon bankruptcy, all of the right, title and interest in a bankrupt's estate vests in the 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. In this case Mr Macks in his capacity as trustee did not seek to be registered as the proprietor of the properties. Rather, as noted above, he disclaimed any interest in the properties.
Effect of disclaimer by trustee
20 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.
21 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)  FCA 696 at -, and I respectfully adopt those comments without repeating them. For the reasons explained by his Honour, upon disclaimer by the trustee the interests of Mr Raleigh and Mr Gardam in the respective properties were extinguished. The Crown holds the fee simple in those properties via the doctrine of escheat. 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 Mr Raleigh and Mr Gardam, 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. Once vesting orders are made, the properties will no longer be vested in the Crown.
The Bank may seek vesting order and parties may be heard
22 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.
23 A mortgagee is a person 'claiming an interest in' disclaimed property within the meaning of s 133(9) of the Bankruptcy Act, and accordingly the mortgagee 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  FCA 298 at  (Perram J).
24 The Court may make orders under s 133(9) 'after hearing such persons as it thinks fit'.
25 As I noted in Australia and New Zealand Banking Group Limited v State of Western Australia, in the matter of Aman  FCA 191 at , 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  FCA 22 at [20(a)] (Derrington J). Similarly, notice of the application should be given to the trustee in bankruptcy: Hewton at [20(b)].
26 In Aman, notice was of particular relevance as the properties were tenanted and obligations arose under the Residential Tenancies Act 1987 (WA). In this case, the question of ensuring tenants were on notice of the application also arose, but only with respect to the Queensland property.
27 One part of the Queensland property (street number 94B) is leased and occupied, but the applicant filed evidence that satisfies me that the tenant was served with the relevant papers and has indicated that he does not wish to be heard or to participate in the hearing. The evidence also discloses that Ms Alison Robertson, the partner at the Bank's firm of solicitors with carriage of this matter, participated in a telephone call with the tenant in which she explained the effect of the application and informed him that if this application succeeded, the Bank intended to issue him with a notice to vacate, giving him 60 days to do so. The tenant indicated that he would start to look for another property. The tenant confirmed his position in writing.
28 The balance of the property (street number 94A) is also the subject of a lease, but occupied only irregularly. I am satisfied that the Bank by its solicitors has served the relevant papers and made contact with the agent who manages the property. The agent asked to be the point of contact on behalf of the company lessee.
29 As to other interested parties, both the State of Western Australia and the State of Queensland have participated in the proceeding and provided written submissions (and, in the case of the State of Western Australia, oral submissions).
30 The evidence establishes that the Official Trustee was informed of the application. The Official Trustee and the Bank's solicitors conferred as to the proposed orders, and the Official Trustee consented to the orders sought by the Bank. At that time, the proposed orders included an order to the effect that the applicant was to pay any surplus sale proceeds to the Official Trustee of the bankrupt estates. It is therefore apparent that the Official Trustee understood that it may have an ongoing role and responsibility, and was prepared to proceed on that basis, despite the disclaimer of the properties.
31 I am 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
32 In National Australia Bank Limited v State of New South Wales  FCA 298, 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 ):
(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.
33 The first and second conditions identified by Perram J are satisfied in this 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).
34 As to the third condition, 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 on a secured basis, and 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.
Allocation of surplus
35 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 State of Western Australia pursues its argument as to where any surplus should be directed. It is unfortunate that this question appears to have taken on a life of its own in vesting applications, particularly when it might reasonably be assumed that a surplus will be an infrequent event.
36 In Aman, I collected some of the authorities and include those passages for convenience:
 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  FCA 1337 (Edelman J); Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of King  FCA 1338 (Edelman J); Commonwealth Bank of Australia v State of Queensland  FCA 1041 (Rangiah J); National Australia Bank Limited v State of Queensland  FCA 1624 (Logan J); and St George - A Division of Westpac Banking Corporation v State of Western Australia  FCA 397 (Banks-Smith J). That is the order sought by the Bank in this case.
 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  FCA 1982 (Griffiths J); National Australia Bank Limited v The State of Queensland  FCA 2020 (Burley J); AMP Bank Limited v State of New South Wales  FCA 1437 (Rares J); and Westpac Banking Corporation v State of Western Australia  FCA 1264 (Jackson J).
 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:
 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.
 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  FCA 1097:
 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.
37 There is a feature of this case, a feature not present in Aman, which has led me to order that any surplus first be directed to the Official Trustee or other trustee of the bankrupt estates of Mr Raleigh and Mr Gardam. In this case the Official Trustee has communicated with the Bank's solicitors, has taken an interest in the proceedings (without being formally heard) and has indicated consent to a regime where it may be necessary to participate further with respect to the estates. That was not the position of the trustee in Aman. In that case, the trustee expressed no interest in the application. Nor was it the position of the trustee in another case where I ordered that any surplus be paid into Court, rather than to the trustee in bankruptcy: St George - A Division of Westpac Banking Corporation v State of Western Australia  FCA 397 at -. In that case the trustee similarly had taken no interest in the proceedings after choosing to disclaim the properties, other than to inform the applicant's solicitors that they did not oppose the orders sought, being orders that involved payment of any surplus proceeds into Court.
38 On the facts of this case, I consider it appropriate that the Official Trustee (or any replacement trustee in bankruptcy) be the recipient of any surplus proceeds, to deal with in accordance with their obligations as trustee. However, in the event that at the relevant time there is no appointed trustee in bankruptcy, then I remain of the view that any surplus should be paid into Court and not to the State.
39 In reaching this view I have considered the State of Western Australia's submissions. In effect the State repeats the arguments made and rejected by Jackson J in Westpac Banking Corporation v State of Western Australia  FCA 1097 at  (cited in the passage above from Aman) and also rejected in Aman. It is true that in Bank of Queensland Limited v State of Western Australia  FCA 442 McKerracher J said that if a trustee in bankruptcy is no longer appointed then any surplus should go to the State, on the basis that:
 Surplus proceeds from the sale of the Property that are paid into Court will remain there in the absence of further application, requiring Court resources to manage them and depriving creditors of their benefit.
40 However, it is not apparent from the reasons:
(a) whether his Honour was referred to any argument that little weight should be accorded the escheat of property to the State once a vesting order is made (as addressed in the later decision of Jackson J in Westpac Banking Corporation v State of Western Australia at );
(b) whether the submission was made that if the State proceeded to make decisions as to where the surplus funds might be distributed (as anticipated in this case), there may well be no real difference in the relative efficiencies, particularly where the registrars of this Court are experienced decision makers in the bankruptcy jurisdiction; or
(c) whether his Honour took into account in addressing the destination of any surplus that the Bank was obliged in any event to report and account to the Court as to the allocation of funds by filing an affidavit - and so a registrar of this Court would be appraised of and review relevant information as to the surplus in the ordinary course.
41 I have also considered the State's contention that it is likely that any person who deals with a registrar in order to access any surplus funds would retain a lawyer and so incur more expenses than in dealing with the State. To my mind whether a person would seek legal advice in either or both scenarios is speculative. Registrars are adept at dealing with parties, represented or otherwise, with respect to funds paid into Court and with supervising their distribution.
42 The careful submissions of the State have not persuaded me that I should order that any relevant surplus should be paid to the State.
Other non-contentious orders
43 The orders sought by the Bank permit it to sell the land free of certain requirements otherwise imposed on it by s 88 of the National Credit Code (being Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth)), by s 84 of the Property Law Act 1974 (Qld) or by s 106(1) of the Transfer of Land Act 1893 (WA). Such orders are relatively standard in matters of this nature. They are generally justified on the basis that the fee simple title vests in the Bank under the orders, and also because (as noted above) the orders include obligations on the Bank to account for the receipt of the proceeds by filing an affidavit in this Court.
44 The respondents did not oppose such orders and I consider them appropriate.
45 There will be orders accordingly.