Federal Court of Australia

Shire of Carnarvon v State of Western Australia [2024] FCA 1064

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), Mary Kim Le's interest in the land described as Lot 13 on Diagram 18353 Title Number Volume 1657 Folio 238 being the land situated at 626 South River Road, South Plantations in the State of Western Australia (Land) as disclaimed by the fourth respondent (Property), vests in the applicant for the purposes of the applicant exercising its powers of sale of the Land, including the Property, under the Local Government Act 1995 (WA), subject to the following conditions:

(a)    the applicant can, but is not bound to, deal with the Land as if it were exercising its powers of sale pursuant to s 6.64(1)(b) of the Local Government Act 1995 (WA);

(b)    the applicant is not required to attempt, under s 6.56 of the Local Government Act 1995 (WA), to recover money due to it;

(c)    the applicant is not required to comply with the notice requirements contained in the following sections of the Local Government Act 1995 (WA):

(i)    s 6.64(2);

(ii)    Schedule 6.3 cl 1; and

(iii)    Schedule 6.3 cl 2; and

(d)    the sale otherwise must be conducted in accordance with the terms of the agreement annexed to these orders as Annexure A.

2.    The fifth respondent must give effect to the vesting of the Property under order 1 by removing Registrar's Caveat numbered P069705 from the Certificate of Title for the Land.

3.    The applicant must, on its sale of the Land, distribute the proceeds of that sale in accordance with the terms of the agreement annexed to these orders as Annexure A.

4.    The parties and any other person affected by these orders have liberty to apply.

5.    No order as to costs including any reserved costs.

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

ANNEXURE A

The Land will be sold by the applicant on the basis that:

(a)    It appoints a licensed real estate agent at agreed, fixed marketing and sales costs.

(b)    The licensed real estate agent conducts an orderly marketing and sale process.

(c)    The Land is sold by public auction, which can include a public online auction, with a reserve of $259,000 and, if not sold at auction then by private treaty immediately thereafter or subsequently, at a price agreed by the second respondent.

(d)    The reasonable costs, not including any legal costs, of the sale and settlement of the Land be reimbursed to the applicant from the proceeds of the sale of the Land.

(e)    The applicant account to the second respondent for its costs of the sale and settlement of the Land for reasonableness before taking any reimbursement of the costs referred to above in paragraph (d).

(f)    If there is a dispute about reasonableness of the applicant's claimed reimbursement under above paragraph (d), the dispute will be referred to the President of the Law Society for determination.

(g)    After the reimbursement of the costs of the sale and settlement of the Land under above paragraph (d), the net proceeds of sale will be distributed on the following basis:

(i)    in payment of any statutory charges (apart from any local government rates, service charges and any other costs);

(ii)    to the applicant, the first $74,000;

(iii)    to the second respondent, the next $180,000;

(iv)    of any remainder, 50/50 between the applicant and the second respondent up to the applicant receiving a capped total amount including the amount at above paragraph (ii) of $120,000;

(v)    the remainder to the second respondent up to the satisfaction of any amount due and owing to it under the registered mortgage over the Land; and

(vi)    any residue to the next registered interest holder in the Land.

(h)    After the application of the proceeds of sale in accordance with clause (g) above, the applicant must pay into Court the surplus, if any, arising from the sale of the Land.

(i)    Costs otherwise where they fall.

(j)    This agreement ceases to have effect after 30 June 2027 at which time the parties have liberty to apply.

Dated:        5 September 2024

REASONS FOR JUDGMENT

JACKSON J:

1    This proceeding concerns a 50% interest in an estate in fee simple in land within the Shire of Carnarvon located on South River Road, South Plantations, Western Australia.

2    The registered proprietors of the land are Mary Kim Le and the third respondent, Andrew Nguyen. Originally they held the land as joint tenants. However, a sequestration order was made in relation to Ms Le's estate in April 2016. One effect of her bankruptcy was that the joint tenancy was severed into tenancies in common: Geronimo v State of Western Australia [2024] FCA 196 at [3] (Banks-Smith J).

3    The parties have described the whole interest in the land as the Land, and the 50% tenancy in common in the Land attributable to Ms Le as the Property. I adopt those defined terms.

4    The applicant, the Shire of Carnarvon, seeks orders under s 133(9) of the Bankruptcy Act 1966 (Cth) vesting the Property in it, so that it may sell the Land.

5    Australia & New Zealand Banking Group Limited (ANZ) is the holder of a first registered mortgage over the Land, and is the second respondent in the proceeding. ANZ opposed the orders which the Shire initially sought. However after mediation, the Shire and ANZ have agreed to a minute of proposed consent orders providing for terms on which the Property may vest and the Land may be sold.

6    The first respondent, the State of Western Australia, does not oppose the orders consented to as between the Shire and ANZ. The fourth respondent, Ms Le's trustee in bankruptcy Paul Leroy, and the fifth respondent, the Registrar of Titles, both indicated that they did not oppose the orders sought in the originating application (they have each been served but have not filed any notice of address for service).

7    Mr Nguyen, the other 50% owner of the Land, has been served with the documents that commenced the proceeding, but has not appeared. Mr Nguyen was also contacted by ANZ and the Shire using the contact details they had on their files to invite him to participate in the mediation, but Mr Nguyen did not accept that invitation.

8    I have determined that it is within power and appropriate to make the orders consented to by the Shire and ANZ. As described below, however, there is a question concerning the Court's power to make some of the orders. In view of that, and also because Mr Nguyen has not participated in the mediation or the proceeding at large, it is appropriate to give these reasons for making the orders.

Background

9    On 11 April 2016 a sequestration order was made over Ms Le's estate, and Mr Leroy was appointed trustee in bankruptcy. On 8 March 2022, he gave notice to Landgate under s 133(3) of the Bankruptcy Act that he had disclaimed his interest in the Land under s 133(1), on the grounds that it was not readily saleable and that it may reasonably be expected that the costs, charges and expenses that he would incur in realising the property would exceed the proceeds of realising the property. The Property therefore vested in the State by the doctrine of escheat: Geronimo at [7]. As a consequence, the Registrar of Titles lodged a Registrar's caveat on the title under s 188(7) of the Transfer of Land Act 1893 (WA).

10    Roughly in parallel with these events, the Shire had been taking steps under the Local Government Act 1995 (WA) (LGA) to recover unpaid local government rates and service charges which Ms Le and Mr Nguyen had accrued since 2012. Section 6.64(1)(b) of the LGA gives the Shire a statutory power of sale, after taking possession of land over which rates or service charges have been unpaid for at least three years.

11    On 4 July 2019, the Shire obtained default judgment in the Magistrates Court of Western Australia against Mr Nguyen and Ms Le in the sum of $41,288.97 for unpaid rates and service charges. This was an attempt under s 6.56 of the LGA recover money, which (subject to irrelevant exceptions) was a necessary precondition to the Shire's exercise of its power of sale: LGA s 6.68.

12    In August 2021, the Shire commenced the exercise of its power of sale under the LGA, including by issuing various notices prescribed by the LGA (including under cl 1 of Schedule 6.3 to the LGA).

13    On 25 March 2022, the Shire obtained orders for vacant possession of the Land from the Magistrates Court, and in May 2022 the Shire took possession of the Land.

14    It was only after taking possession, in around July or August 2022, that the Shire says it became aware that the trustee in bankruptcy had disclaimed his interest, and of the existence of the Registrar's caveat. The Shire nevertheless decided to proceed with a public auction of the Land, which led to a contract for sale in late August 2022 for $347,000. But it appears that the sale was frustrated by the Registrar's caveat preventing transfer, and it did not complete.

15    On 22 August 2023 the Shire commenced this proceeding.

Legal principles

16    Section 133(9) of the Bankruptcy Act provides:

The Court may, on application by a person either claiming an interest in, or being under a liability not discharged by this Act in respect of, disclaimed property, and after hearing such persons as it thinks fit, make an order, on such terms as the Court considers just and equitable, for the vesting of the property in, or delivery of the property to, a person entitled to it or a person in whom, or to whom, it seems to the Court to be just and equitable that it should be vested or delivered, or a trustee for that person.

17    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 orders under s 133(9) 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.

18    There are a range of authorities dealing with s 133(9) applications which explain the often complex legal effect of a disclaimer. The prevailing view is that despite escheat to the Crown, the fee simple interest remains in existence, such that third parties' security interests in the land remain in place: see St George - A Division of Westpac Banking Corporation v State of Western Australia [2020] FCA 397 at [20]-[22], cited in Australia and New Zealand Banking Group Limited v State of Victoria [2023] FCA 1640 at [16] (ANZ v Victoria).

19    However, a mortgagee, for example, will not be able to enforce its mortgage against the Crown, which has given no covenant to repay any money: Commonwealth Bank of Australia v State of Queensland, in the matter of Hewton [2021] FCA 22 at [15(4)] (Derrington J). It is therefore possible that in the absence of a vesting order under s 133(9), the mortgagee will not be able enforce its security: Hewton at [15(6)]. It can be just and equitable, then, to vest title to the disclaimed fee simple interest in an unsatisfied security holder, so as to remove all doubt as to the validity of any action taken by the security holder to recover the debt: Hewton at [15(7)].

20    It is not contested that on 8 March 2022, the trustee in bankruptcy disclaimed Ms Le's interest in the Land under s 133(3) of the Bankruptcy Act. What remains to be considered, then, is whether the Shire has a sufficient interest in the Property to apply for orders under s 133(9), whether orders vesting the Property in the Shire can and should be made, and the appropriate form of the orders.

Does the Shire have a sufficient interest?

21    Although applications for vesting orders under s 133(9) are most often brought by mortgagees, other interests in the property can be sufficient: see e.g. Kellendonk v State of Western Australia, in the matter of Jasienska-Dudek (a Bankrupt) [2021] FCA 418 at [23].

22    Section 6.64(1) of the LGA provides:

If any rates or service charges which are due to a local government in respect of any rateable land have been unpaid for at least 3 years the local government may, in accordance with the appropriate provisions of this Subdivision take possession of the land and hold the land as against a person having an estate or interest in the land and -

(a)    from time to time lease the land; or

(b)    sell the land; or

(c)    cause the land to be transferred to the Crown; or

(d)    cause the land to be transferred to itself.

23    Subject to an irrelevant exception, s 6.43 of the LGA provides that rates and service charges imposed under the LGA, together with the costs of any recovery proceedings, are a charge on the land.

24    The phrase 'interest in … disclaimed property' in s 133(9) of the Bankruptcy Act should not be given a narrow construction: see Lucan (Trustee) v State of New South Wales, in the matter of the Bankrupt Estate of Williams [2022] FCA 751 at [28]-[29] (Goodman J). It seems to me that a party with a statutory charge over land, on whom a statutory power of sale is conferred, is in substance in the same position as a mortgagee with a contractually conferred security interest in the land. So in my view, the Shire claims an interest in the disclaimed property for the purposes of s 133(9).

Should the Property vest in the Shire?

25    The second issue for determination is whether the Shire is entitled to the Property and, if not, whether it is just and equitable for the Property to vest in the Shire.

26    The Shire has taken possession of the Land and has attempted to sell the Land. Section 6.64(1)(d) of the LGA empowers the Shire to cause the Land to be transferred to itself. It could therefore be argued that it is entitled to the Land, and so to the Property, for the purposes of s 133(9) of the Bankruptcy Act. However, the Shire's submissions are not to that effect. Rather, it submits that it would be just and equitable to vest the Property in the Shire.

27    It is also arguable that the provisions of s 6.64 of the LGA are fulsome enough to permit the Shire to enforce its rights against the Land, even as against the State, so that it is not necessary to vest the Property in the Shire: cf. the principles summarised in Hewton set out above. But that argument has not been made before me, and in circumstances where the Shire and the first mortgagee ANZ have agreed to the vesting, and no other potentially interested party has opposed it, it is just and equitable to make the orders sought. Among other things, the orders will give effect to an agreement between the Shire and ANZ which was not reached without effort from all concerned, and which has obviated the need for the Court to determine disputes between them.

28    The evidence reveals that the current liabilities owed to the Shire in respect of the Land total at least $120,000, and that if the Land sells for the price it fetched in 2022 ($347,000), the debt owed to ANZ is likely to exceed the balance. The property is currently vacant, dilapidated and at risk from bush fires, pests and invasive plants, and it requires active management to guard against those risks, which the Shire says will not occur until the Land is sold.

29    It therefore seems to me that it would be just and equitable to vest the disclaimed Property in the Shire.

The orders sought

30    After having taken a different position initially, the Shire now concedes that it can only seek a vesting order over the 50% interest in the Land that was disclaimed by the trustee in bankruptcy.

31    However, the orders sought by the Shire, being those set out at the commencement of these reasons, are not in the usual form: cf. Hewton at [15(8)]. Aspects of proposed paragraphs 1(a) to 1(c) apply not just to the Property, but to the Land as a whole. That is because, in so far as they go beyond the Property, the orders relevantly absolve the Shire of what might otherwise be obligations to comply with various notice and other requirements of the LGA when selling the Land.

32    In particular, the reason for paragraph 1(b) of the proposed orders (which absolves the Shire from needing to attempt to recover money due to it under s 6.56 of the LGA) is that, under s 6.68(1), a local government is not to exercise its power of sale under s 6.64(1)(b) in relation to land unless within the period of three years prior to the exercise of the power of sale, it has at least once attempted under s 6.56 to recover money due to it. The attempt that might qualify here took place in 2019, when judgment was obtained in the Magistrates Court, so any sale pursuant to the proposed orders will take place more than five years later.

33    The Shire submits that the Court has a broad discretion to make such orders as it sees as just and equitable under s 133(9) of the Bankruptcy Act to vest the disclaimed interest. It says that in circumstances where the debt of the security holder exceeds the value of the land, the authorities suggest a Court will make orders 'liberalising the holder's ability to sell the land so that it may do so without compliance with statutory obligations relating to the exercise of the power of sale'. The Shire cites Hewton, which states that orders to that effect have become a 'standard suite of orders' giving effect to these matters: see [15(8)] and the cases cited there.

34    However, those cases for the most part, involve an interest in an entire parcel of land, vested under s 133(9), not a half interest as in this case. Generally, where the cases involve vesting of a partial interest in land, any consequential orders also only relate to the partial interest, or are conditioned on the applicant obtaining the consent of remaining interest holders: see for example Commonwealth Bank of Australia v Queensland [2020] FCA 582 (Reeves J); National Australia Bank Limited v The State of Victoria [2010] FCA 1230 (Bennett J).

35    There is one example the Shire points to, namely ANZ v Victoria, where McEvoy J made orders vesting a disclaimed 50% interest in the land, and for the purpose of dealing with the property as a whole (including the non-bankrupt's interest), waived the notice requirements of the National Consumer Credit Protection Act 2009 (Cth) and the Transfer of Land Act 1958 (Vic). However neither that case, nor the cases cited in the preceding paragraph, contain any analysis of this specific issue.

36    In my view, it is within power to make the orders sought in so far as they concern Mr Nguyen's interest in the Land. While s 133(9) of the Bankruptcy Act only confers power to vest the property disclaimed, and not Mr Nguyen's interest, the power is to make the order 'on such terms as the Court considers just and equitable'. That is broadly expressed. It encompasses, in my view, terms that liberalise the exercise of a power of sale that is likely to be necessary to exercise in respect of the entire Land, not just the Property.

37    Also, s 133(9) provides for the Court to make such orders 'after hearing such persons as it thinks fit'. This suggests that the Court may make orders that potentially impinge on the interests of a range of persons, provided that it has heard from those persons. In this case, Mr Nguyen is such a person, but he has not taken up the opportunity to be heard. That is despite being on notice, by way of the originating application, of the possibility of orders being made that would affect his interest in the Land even more directly than the orders that are now proposed to be made.

38    The evident intention behind s 133(9) is to enable the Court to resolve difficulties that arise for third parties as a result of a disclaimer of property, and to do so on fair terms. Those difficulties are likely to arise in a wide variety of situations, many of which could not have been envisaged at the time the Bankruptcy Act was enacted. For that reason, the Court is given wide powers to do what is just and equitable. In my view, it would be inconsistent with that legislative intention to read the power to make orders on such terms as are just and equitable so that it does not authorise terms that liberalise the exercise of the power of sale over property that is inextricably connected to the disclaimed property, such as Mr Nguyen's interest in the Land. To do so is reasonably incidental to the exercise of the power to vest the property that is the subject of the matter that has been brought before the Court.

39    The next question is whether it would be just and equitable to provide for such terms in this case. As noted above, on 4 July 2019 the Shire obtained judgment from the Magistrates Court against Mr Nguyen and Ms Le. However, because of the frustrated 2022 sale and these proceedings, that recovery attempt 'in a court of competent jurisdiction' (s 6.56(1)) is outside the three year time period contained in s 6.68(1). However in substance, the proposed sale is a continuation of the LGA sale process that commenced in 2022 (within three years of the recovery attempt) rather than a 'fresh' sale requiring the Shire to start the entire LGA process anew. The Shire presumably seeks the proposed orders for the avoidance of doubt, but it may not need them.

40    The reason for proposed order 1(c) (which absolves the Shire from complying with certain notice requirements in the LGA) is because under the LGA, a series of notice requirements are imposed, including affixing notices in a prescribed form, giving notice to certain persons, and state wide public notification. The Shire has already taken these steps in respect of the 2022 sale, and it may be unnecessary repetition if it were required to take them again in any further sale process. Once again, if the proposed sale is properly characterised as part of the existing sale process, the Shire may not need these orders.

41    Taking these matters into account, it is appropriate to make the proposed orders. It is not apparent that any person will be prejudiced as a result, and if they are, there is liberty to apply.

42    The remaining orders sought are more straightforward.

43    Paragraph 2 of the proposed orders seeks to make clear that the Registrar's caveat will be removed from the Land. The Shires submits that in Geronimo, a not dissimilar form of order was made in respect of the Registrar of Titles to give effect to the vesting order, although in that case by giving effect to the sale and discharge of existing mortgages and registration of new mortgages.

44    Proposed paragraphs 1(d) and 3 give effect to the agreement between the Shire and ANZ as to the sale process, and distribution of any sale proceeds, which appears at Annexure A. That agreement provides for a transparent, commercial sale process, which allocates the proceeds between the Shire and ANZ. In the unlikely event of a surplus after that, it will go to the next registered interest holder in the Land (there is a memorial registered under the Water Services Act 2012 (WA)). Any surplus after that, is to be paid into court.

Conclusion

45    It is convenient and fair to make orders facilitating the sale of the Land and the distribution of the proceeds in the manner described above. For those reasons, the orders consented to will be made.

Associate:

Dated:    13 September 2024