Federal Court of Australia

Australia and New Zealand Banking Group Limited v State of Victoria [2023] FCA 1640

ORDERS

THE COURT ORDERS THAT:

1.    The applicant is entitled to calculate the entirety of the debts secured by and owing pursuant to registered mortgage number AF996531T (Mortgage) over the whole of the Land estate in fee simple in the property described as Lot 14 on Plan of Subdivision 313558B, being the property contained in Certificate of Title Volume 10134 Folio 305 and situated at and known as 20 Ronald Court, Ross Creek, Victoria (Property) as if there had been no disclaimer of the Property by the second respondent.

2.    Pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth), one of a total of two equal undivided shares in the estate in fee simple in the Property presently registered in the names of Nick Mellos and Stephen Robert Dixon as Joint and Several Trustees of the Bankrupt Estate of Trevor Mark Gamble vest in the applicant for the purposes of the applicant exercising its powers as mortgagee under the Transfer of Land Act 1958 (Vic) (TLA) and under the Mortgage, subject to the following conditions:

(a)    for the purpose of any dealings with the Property, the applicant may (but is not bound to) act as if it were exercising its power as mortgagee under the TLA and under the Mortgage except that the applicant is not required to serve:

(i)    a default notice under section 88 of the National Credit Code, being Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth); and

(ii)    a notice of default under section 76 of the TLA;

(b)    the proceeds of sale from the Property shall be applied as follows:

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

(iii)    thirdly, in discharge of the debt owed to the applicant as secured by the Mortgage (including its costs of this application);

(iv)    fourthly, in payment of any subsequent registered mortgages; and

(v)    the residue (if any) of the proceeds so received:

A.    in relation to the second respondent's interest in the Property must be paid to the second respondent or, if when any surplus funds become available the appointment of the second respondent as trustees in bankruptcy has ceased, the surplus proceeds in relation to the second respondent's interest must be paid into the Court; and

B.    that does not relate to the Second Respondent's interest in the Property to be distributed in accordance with the applicant's obligations under section 77(3) of the TLA;

(c)    the applicant will account to the first, second and third respondents, and the Victorian Registry of the Federal Court in respect of the mortgagee sale of the Property.

3.    The applicant's costs of and incidental to these proceedings are to be treated as reasonable enforcement expenses under the Mortgage and are to be payable from the proceeds of sale of the Property pursuant to the terms of the Mortgage over the Property.

4.    There be no order as to costs.

5.    The applicant has liberty to apply as to matters relating to giving effect to order 2.

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

REASONS FOR JUDGMENT

MCEVOY J:

1    This proceeding concerns a 50 per cent interest in land at 20 Ronald Court, Ross Creek, Victoria (the Property) formerly held by Trevor Mark Gamble (now a bankrupt) and disclaimed by the second respondent, Mr Gamble’s trustee in bankruptcy (the Trustee). The applicant, the Australia and New Zealand Banking Group Ltd (the Bank), has filed an originating application seeking orders under s 133(9) of the Bankruptcy Act 1966 (Cth) vesting that 50 per cent interest in the Property in the Bank. The Bank is the registered mortgagee of the Property and wishes to sell it and apply the proceeds against debts owed to it by its customers Mr Gamble and the third respondent, Mrs Melissa Anne Horbury (also known as Melissa Anne Gamble) (together, the Gambles).

2    The Bank and the first respondent, the State of Victoria (on behalf of the Crown in right of the State of Victoria) have requested that the application be heard and determined on the papers pursuant to s 20A of the Federal Court of Australia Act 1976 (Cth). There has been no material filed by, and no response from, the second and third respondents or any other person asserting an interest in the proceeding or the Property.

3    For the reasons that follow I am satisfied that the Bank should have orders substantially in the terms that it seeks.

Material before the Court

4    In support of its application, the Bank relies upon:

(a)    an affidavit of Mr Attwood affirmed 29 June 2023;

(b)    affidavits of Mr Pacillo affirmed 18 August 2023, 11 September 2023 and 7 December 2023;

(c)    an affidavit of service of Mr Domaile sworn 21 August 2023;

(d)    written submissions dated 11 September 2023; and

(e)    an affidavit of service of Mr Wright sworn 20 November 2023 (filed 7 December 2023) (the Wright Affidavit).

5    The State relies upon:

(a)    written submissions dated 19 September 2023; and

(b)    an affidavit of service of Ms Seeger sworn 26 October 2023.

Relevant background

6    On or about 4 June 2008 the Bank advanced the sum of $435,402.50 to the Gambles pursuant to a written loan agreement. As security the Gambles gave the Bank a registered mortgage over the Property.

7    Under the terms of the mortgage:

(a)    a “Default Event” would occur if the Gambles did not pay any part of the Secured Money payable on time (see clause 7.1(a) of the mortgage memorandum of common provisions); and

(b)    if a “Default Event” occurred the Bank could, amongst other things, take possession of and sell the Property (see clause 7.3(a) and (b) of the mortgage memorandum of common provisions).

8    On and after 30 August 2021 the Gambles were in default of the loan agreement and the mortgage as they had ceased to make the required regular monthly repayments pursuant to the loan agreement.

9    On 13 July 2022 the Bank caused default notices to be issued to the Gambles. The notices expired without the defaults having been remedied. As at 6 April 2023 the Gambles remained indebted to the Bank in the amount of $367,961.70.

10    On or about 7 April 2015 Mr Gamble became bankrupt by debtor’s petition and the Trustee was appointed.

11    On 15 February 2016 the Trustee was registered on title as the holder of Mr Gamble’s former 50 per cent interest in the Property.

12    On 11 November 2022 the Trustee disclaimed any interest in the Property pursuant to s 133(1AA) of the Act.

The Statutory Provisions and Relevant legal principles

13    Section 133(9) of the Act is in the following terms:

(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.

14    In Australia and New Zealand Banking Group Limited v State of Queensland [2018] FCA 464 at [13], Logan J summarised the criteria to be established on an application for s 133(9) orders as follows:

In order for the court to vest the property in the bank under s 133, the following, on the authorities, needs to be established:

(1)     that a disclaimer of the property concerned occurred within the meaning of s 133;

(2)     that the applicant, in this case, the bank, has an interest in the disclaimed property, within the meaning of s 133(9); and

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

See also National Australia Bank Limited v State of South Australia (No 2) [2015] FCA 240 at [19] (Griffiths J); and National Australia Bank Ltd v State of New South Wales [2014] FCA 298 at [11] (Perram J).

15    The legal effect of a s 133(1AA) disclaimer by a trustee in bankruptcy has been considered in a series of decisions dealing with s 133(9) applications which are substantially similar to the present case.

16    In St George – A Division of Westpac Banking Corporation v State of Western Australia [2020] FCA 397, Banks-Smith J made the following observations at [20]-[22]:

20     The effect of a disclaimer in circumstances where a trustee in bankruptcy has not become the registered proprietor was summarised 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; … 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; … 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: …

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.

21     See also Commonwealth Bank of Australia v State of Queensland; in the matter of Ginn [2016] FCA 1337 at [16], where Edelman J described the view stated by Perram J in National Australia Bank Limited v State of New South Wales [2014] FCA 298 (cited by Derrington J in the above extract) as the 'dominant view'. Justice Edelman continued:

[16]     … However, on any view, in this process a pre-existing charge is not extinguished. A fee simple interest remains subject to a charge even after disclaimer and escheat: …

22     I respectfully adopt the position as explained in Commonwealth Bank of Australia v State of Queensland; in the matter of Ginn and Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane. It follows that the Trustee's notices of disclaimer determined the interests of both Ms Butson and the Trustee with respect to the Properties, but the Bank's rights under the Mortgage remain unaffected by the disclaimer such that the Bank is a party who is entitled to make an application to this Court under s 133(9) of the Bankruptcy Act.

(Footnotes omitted).

17    In Commonwealth Bank of Australia v State of Queensland, in the matter of Hewton [2021] FCA 22 at [14]ff, Derrington J summarised the effect of a disclaimer in terms which are consistent with those essayed in St George, as set out above.

Disposition

18    It may be accepted that despite the vesting of title to the Property in the Trustee, and the Trustee’s subsequent disclaimer, the Bank remains the holder of the mortgage over the Property. The terms of the mortgage grant the Bank rights and entitlements which it may exercise in the event of a default by the borrowers. Here, given that a default has occurred, those rights and entitlements include possession and sale of the Property. The Bank thus submits, and I accept, that it is “a person entitled to” the orders sought in the application within the meaning of s 133(9) of the Act.

19    In these circumstances, I accept that it is “just and equitable”, within the meaning of s 133(9) of the Act, for the orders sought by the Bank to be made. As Banks-Smith J observed in St George (at [23]):

I accept the Bank's submission that it is just and equitable that the Properties vest in it. A significant amount of money remains outstanding to the Bank. It is proper that the Bank should have the opportunity to take reasonable steps to recover the monies which it provided to Ms Butson and that remain outstanding, a step that would have been open to it if the Properties had not been disclaimed, taking into account Ms Butson's default. Without such an order, the Bank will be unable to sell the Properties and will be deprived of the benefit of the Mortgage.

20    It should also be noted that as the evidence suggests the Property was vacant with no occupiers, the Bank secured vacant possession of the Property on or around 5 May 2023 pursuant to the terms and conditions of the mortgage.

21    The Crown, in right of the State of Victoria, the Trustee and the third respondent have been served with the application materials. Insofar as the third respondent is concerned, this occurred on 27 October 2023 (as to which see the Wright Affidavit and clause 10.9(b) of the mortgage memorandum of common provisions). The State supports the Bank’s position.

22    It should also be noted that since late 2022 the Bank has been on notice of claims made against the Gambles by the Golden Plains Shire. The Bank, however, is not aware of the Council asserting any entitlement or claim upon the Property itself. Further, to the extent the Council’s claims may support a statutory charge, the orders sought by the Bank provide for those claims to be paid from the proceeds of sale of the Property in priority to the Bank.

23    It should be noted, finally, that since August 2023 the Bank has been on notice of claims made against the Property by a Mr Damien Stephen White. On 5 September 2023 the Bank wrote a letter to Mr White putting him on notice of this proceeding and seeking information in relation to his asserted interest in the Property. In response to the Bank's letter, Mr White has apparently informed the Bank that his claim is against Mr Gamble, a bankrupt, in the amount of $15,000.

24    The Bank submits and I accept that in these circumstances there are no other parties that need to be served with the application or who have a right to be heard.

25    The Bank’s originating application makes reference to the rights of a mortgagee pursuant to the Transfer of Land Act 1958 (Vic) (TLA), s 76 of which entitles a registered mortgagee to exercise a power of sale on the terms there set out. Part IV of the TLA deals with mortgages generally, including the transfer of property by way of a mortgagee sale pursuant to s 77 of that Act. The effect is that upon the court making orders in this application the Bank will be entitled to sell the Property (as a whole) without the need for any further proceedings.

26    The orders sought by the Bank in this application, and supported by the State of Victoria are in a form described as “usual” by Edelman J in Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 at [19]. In all the circumstances I am satisfied that it is appropriate to make the orders substantially in the form sought.

Associate:

Dated:    20 December 2023