Australia and New Zealand Banking Group Limited, in the matter of Hawks (bankrupts) v State of Queensland

GRIFFITHS J: 1 By an amended application dated 5 September 2018, the applicant (ANZ) seeks orders under s 133(9) of the Bankruptcy Act 1966 (Cth) (the Act). The effect of the orders, if made, would vest in ANZ certain real property which was previously owned by Mr Paul John Hawks and Ms Kayleen Maree Hawks as joint tenants. The property is situated at Lot 44 on Registered Plan 736698 in the Local Government of Townsville, being all of the land contained in Title Reference 21189020, and is known as 8 Kavenagh Court, Oak Valley in Queensland (the Property). Mr and Mrs Hawks are the registered proprietors of the Property. 2 On or about 6 October 2015, Mr and Mrs Hawks entered into a loan agreement with ANZ under which ANZ agreed to extend credit to them in the amount of $533,286.23 (the Loan Agreement). In return, Mr and Mrs Hawks offered to give a registered mortgage over the Property. The mortgage was subsequently given the Registered Number 716814821 (the Mortgage). On 9 October 2015, in accordance with the Loan Agreement, ANZ advanced the amount of $533,286.23 as directed by Mr and Mrs Hawks. 3 On 28 July 2017, Ms Moira Kathleen Carter was appointed Trustee in Bankruptcy of Mr and Mrs Hawks' bankrupt estates. On 4 October 2017, the Trustee in Bankruptcy disclaimed any interest in the property and forwarded a copy of the notice of disclaimer to ANZ. 4 A title search of the property, which was conducted on 12 May 2018, reveals that there is a second registered mortgage on the property, held by Business Fuel (Cash Advance) Pty Ltd (Business Fuel) and is recorded on 8 February 2017. The title search also revealed a Registered Caveat by Prospa Advance Pty Ltd (Prospa) which was recorded on 12 July 2017. 5 On 5 March 2018, ANZ sent separate default notices to Mr and Mrs Hawks respectively relating to the account associated with the Loan Agreement and pursuant to s 84 of the Property Law Act 1974 (Qld) and s 88 of the National Credit Code. On the same day, ANZ sent letters to the Trustee in Bankruptcy, the second registered mortgagee and the registered caveator enclosing a copy of the Default Notice. 6 ANZ estimates the value of the Property, as at 20 August 2018, to be in the order of $597,235. As at 3 September 2018, the amount of $558,592.16 was owing under the Loan Agreement and related Mortgage, and remains unpaid. 7 The State of Queensland, who is the first respondent, has filed a submitting notice and indicated that it did not intend to appear on the application. The Trustee in Bankruptcy, who is the second respondent, notified ANZ that because she had disclaimed the property, she was not prepared to comment concerning the proceeding. This is unsurprising. 8 I am also satisfied that the second registered mortgagee (Business Fuel) was given notice of the proceedings, but has taken no part. Similarly, I am satisfied that Prospa was given notice of the proceedings, but it too has taken no part. 9 ANZ informed the Court that if the orders it sought were made, it intended to take possession of and sell the Property. It said that it intended to apply the proceeds of which sale in the following manner: (a) payment of any statutory charges affecting the Property which the relevant statute provides are payable in priority to the mortgagee; (b) payment of all costs, charges and expenses properly incurred by ANZ as incident to the sale, or any attempted sale, or otherwise; (c) discharge of the debt owed to ANZ under the Loan Agreement and related Mortgage; (d) payment of any subsequent mortgages or caveats (if any); and (e) any residue of the proceeds so received would be paid to the Trustee in Bankruptcy. 10 The immediate consequence of a disclaimer of real property by the Trustee in Bankruptcy is that the property is escheated to the Crown of the relevant State. Accordingly, a mortgagee does not have rights it otherwise would have against a bankrupt, but for their bankruptcy, and it has no right to enforce its security against the relevant State. 11 The relevant principles are outlined in cases such as National Australia Bank Limited v The State of New South Wales [2014] FCA 298 per Perram J and National Australia Bank Limited v State of South Australia (No 2) [2015] FCA 240 (NAB) per Griffiths J. Having regard to the relevance of Queensland's Land Title Act 1994 and Property Law Act 1974, it is also appropriate to note the guidance provided by Logan J's decision in National Australia Bank Limited v State of Queensland [2018] FCA 1624. Relevantly, his Honour stated there at [6] to [10] (emphasis in original): 6. The root authority in respect of applications of this kind is Re Tulloch Limited (In Liquidation) (1978) 3 ACLR 808 (Re Tulloch). The views expressed by Needham J in that case have been applied by analogy on numerous occasions in relation to s 133 of the Bankruptcy Act. I am one of those who has applied his Honour's views in that way, see Australia and New Zealand Banking Group Limited v The State of Queensland [2018] FCA 464 (ANZ Bank v The State of Queensland). I reviewed the authorities in which Needham J's views had been applied for the purposes of the Bankruptcy Act in that case. I shall not repeat what is there stated. To the authorities mentioned by me might be added Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt) [2017] FCA 696 (Derrington J), and Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1221 (Rangiah J). 7. The total amount owed under the loans to the bank as at 5 October 2018 was $475,289.14. The Bank is presently in possession of the property. It is vacant. Interest continues to accrue on the amounts owing under the loans, and will do so until the debt is paid in full. 8. The case is one where, as at the time of disclaimer, the effect of default having occurred was that, before disclaimer, the Bank had particular contractual rights, including rights under the mortgage, by way of realising its security, so as to recoup some, at least, of what it was owed. The effect of the authorities, commencing with Re Tulloch, is that a person, such as the Bank, who holds, as mortgagee, an interest in Torrens system land, is a person with an interest in the disclaimed property. In ANZ Bank v the State of Queensland, at [14], I adopted this observation made by Rares J in National Australia Bank v State of New South Wales [2009] FCA 1066, at [29]: 29. Here, by force of s 133(2) the effect of the trustee's disclaimer on 29 October 2008 appears to have determined any ongoing charge on the land for subsequent liabilities that would otherwise have continued to accrue, such as future (unpaid) interest on the debt secured by the mortgage. I agree with Needham J's conclusion that a mortgagee of Torrens title land is entitled to be granted a vesting order: Re Tulloch. I am of opinion that the land should be vested under s 133(9) in the bank for the purpose for which it originally was mortgaged, namely to secure payment to the bank of all principal, interest and other moneys due to it notwithstanding the effect of the disclaimer. If, after a sale, there is a shortfall the bank will be able to prove for it as an unsecured creditor in the bankrupts' estate. 9. Those observation are pertinent in the present case. The Bank, in my view, meets the criteria in s 133(9) of the Bankruptcy Act for a vesting order in respect of the property. Absent the making of such an order, it would be unable, notably, to sell that property. I consider that it is just and equitable, in the circumstances, that a vesting order should be made. 10. In earlier cases which have arisen in Queensland, the vesting order has been made on conditions, which include that for the purpose of dealing with the property, a mortgagee, such as the Bank, may, but is not bound to, act as if it were exercising powers as mortgagee under the Land Act 1994 (Qld); the Property Law Act (Qld); and under the mortgage, save that it is not required to serve notices of default under s 88 of the National Credit Code, or the Property Law Act 1974 (Qld); or, were it applicable, a notice to vacate under the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) (RTRAA). The draft order proposed takes up those sentiments, save, because it is not material, any reference to the RTRAA. 12 I am satisfied as to each of the following matters. (a) A disclaimer to the Property has occurred within the meaning of s 133 of the Act. That is evident from the notice of disclaimer dated 4 October 2017, which expressly states that the disclaimer is made pursuant to s 133 of the Act (see reg 6.10 of the Bankruptcy Regulations 1996 (Cth) and NAB at [20]). (b) ANZ has an interest in the disclaimed Property within the meaning of s 133(9) of the Act. ANZ's interest arises from its first registered mortgage over the Property. (c) ANZ is entitled to the disclaimed Property and the Court considers it to be just and equitable that it should be so vested or delivered. Unless such an order is made, ANZ will be deprived of the benefit of its security (see National Australia Bank Limited v State of New South Wales [2009] FCA 1066; 182 FCR 52 at [29] per Rares J). 13 The making of an order vesting the Property in ANZ will allow the property to be used for the purpose for which the Mortgage was originally granted, namely to secure payment to ANZ of all principal and other moneys due to it notwithstanding the effect of the disclaimer. 14 Once enforcement and selling expenses are taken into account, and subtracting the indebtedness to ANZ, it appears unlikely that there will be any, or any significant, surplus from the sale of Property. In any event, if there is such a surplus, the orders will require any such surplus to be paid to subsequent interest holders registered on the title to the Property, followed by the Trustee.

Conclusion 15 For these reasons, I am satisfied that it is appropriate to make orders in accordance with the proposed orders set out in the amended application, with one qualification. The applicant sought a declaratory order to the effect that its calculation of the entirety of the debt under the Loan Agreement and related Mortgage be on the basis that there had been no disclaimer of the Property by the Trustee in Bankruptcy. I am not persuaded that it is appropriate to grant such a declaration. On the evidence before the Court, however, I am satisfied that the calculation is soundly based. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.