Australia and New Zealand Banking Group Limited v State of Queensland

LOGAN J: 1 Mr Trevor John Ritchie (Mr Ritchie) and Mrs Jennifer Louise Ritchie (Mrs Ritchie) borrowed from the Australia and New Zealand Banking Group, in 2016, a principal sum of $88,000 pursuant to a loan agreement. That borrowing was secured by a mortgage in favour of the bank, executed on 25 May 2016 and registered on the Register of Titles in Queensland on 13 June 2016. It was allocated registration number 717310189. 2 The mortgage was granted by Mr and Mrs Ritchie in respect of land at 127 Rodboro Street, Berserker in Queensland (Berserker Property), in which they held an estate in fee simple. 3 On 23 December 2019, Mr and Mrs Ritchie respectively presented a debtor's petition under the Bankruptcy Act 1966 (Cth) (the Act). At that time, they were already in arrears in respect of making payment in accordance with their loan agreement. 4 On 24 February 2020, the bank sent to Mr and Mrs Ritchie a notice of default under the loan agreement and the mortgage. The following day, the bank also sent a copy of that notice of default to the Trustee in Bankruptcy (the Trustee). 5 On or about 26 February 2020, the Trustee disclaimed the Berserker Property. That disclaimer was made pursuant to s 133(1) of the Act. In Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 (Commonwealth Bank v State of Queensland), Edelman J, then a member of this Court, made these observations in respect of the effect of a disclaimer: 14 One conception of s 133 is that the disclaimer operates to determine all the trustee's title and interests in relation to the bankrupt's property. However, if the trustee's title has not been registered then the only title which is determined is the equitable title of the trustee (recognised by s 58(2)). This might mean that the bankrupt remained the holder of a notional legal title and no escheat to the Crown would occur. 15 There is a second, competing, conception of the operation of s 133 where the property is not registered which I considered in Westpac Banking Corporation v State of Queensland [2016] FCA 269 [31]. This is that although the trustee had only equitable title in relation to the disclaimed property, the effect of the disclaimer was to disclaim rights which the trustee did not have. Section 133(2) of the Bankruptcy Act determines all rights and interests of the bankrupt in respect of the property disclaimed (the trustee's equitable title). This is also consistent with the provision in s 133(1) that the trustee may disclaim "the property" (which might mean all of the bankrupt's rights in relation to the property) notwithstanding that the trustee is not the registered owner. The trustee therefore disclaims all of the bankrupt's rights including those rights which arise from being the registered owner. This would seem to be what was meant in Sandhurst Trustees Ltd v 72 Seventh Street Nominees Pty Ltd (In Liq) (1998) 45 NSWLR 556, 565-566, where Bryson J explained that proof of legal ownership "has stepped outside or beyond the Torrens System; when the whole facts are seen they show that the person who, according to the register, is apparently the fee simple owner in truth is not". 16 On the assumption that the second conception is correct, the dominant view in the authorities is that the disclaimer by the trustee immediately caused all title to each of the Airlie Beach Property and the Airlie Beach Unit to escheat to the Crown (contra National Australia Bank v New South Wales [2009] FCA 1066; (2009) 182 FCR 52, 59 [21]-[23] (Rares J)). 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: Rams Mortgage Corporation Ltd v Skipworth (No 2) [2007] WASC 75; (2007) 210 FLR 11, 15 [10] (E M Heenan J, citing Sandhurst Trustees, 564 (Bryson J)); National Australia Bank Ltd v State of New South Wales [2014] FCA 298 [8] (Perram J). 6 As his Honour observes in the passage quoted, there are two schools of thought, on the authorities, as to the effect of a disclaimer in respect of land held in fee simple. It is unnecessary for the purposes of this case, as it was for that matter in Commonwealth Bank v State of Queensland and many earlier authorities in respect of this branch of the law, finally to resolve the precise effect of disclaimer in relation to the interest in the land assumed by the Crown. That is because, as Edelman J observed, and as I agree, "… on any view, … a pre-existing charge is not extinguished". Here, the pre-existing charge is the registered mortgage in favour of the bank. 7 By s 133(9) and s 133(10) of the Act, it is provided: (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. (10) Subject to subsection (11), where an order vesting property in a person is made under subsection (9), the property to which it relates vests forthwith in the person named in the order for that purpose without any conveyance, transfer or assignment. 8 In the circumstances of this case, the bank, as mortgagee, has an interest in the title to the Berserker Property. The loan debt, which is secured by a mortgage over the Berserker Property, is in default and continues to be in default. Notice of the application has been given to the Trustee, as well as to the bankrupts. The Trustee is not disposed to appear and certainly not disposed to contest the making of the orders which the bank seeks. There has been no endeavour by the bankrupt, to seek to be joined in the proceeding. The State has, appropriately, been joined as a party by the bank. The State does not oppose the making of orders vesting the Berserker Property in the bank, subject to particular conditions, not the least of which, so far as the State is concerned, is express provision in relation to the payment of any statutory charges which may exist in relation to the Berserker Property. 9 In the circumstances, and there being no other registered mortgage security in respect of the property, the making of orders in terms of the draft lodged by the bank is appropriate. Indeed, this is a classic case in which the making of such orders is appropriate. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Logan.