Australia and New Zealand Banking Group Limited v State of South Australia

Federal Court of Australia|2021-06-04|Before: Mr J, Charlesworth J

Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the estate in fee simple in the whole of the Allotment 314 in Community Plan Number 28367, being the whole of the land comprised in Certificate of Title Volume 6145 Folio 469, and situated at and known as 314/33 Warwick Street, Walkerville in the State of South Australia (Property), vest in the applicant for the purpose of the applicant exercising its powers as mortgagee under the Real Property Act 1886 (SA) and registered mortgage number 12215580 (Mortgage).
On the vesting of the Property in the applicant pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) the applicant: (a) may, but is not bound to, deal with the Property as if it were exercising its powers as mortgagee in possession under the Real Property Act 1886 (SA) and the Mortgage, including exercising the right to sell the estate in fee simple of the Property in exercise of its power of sale and all its other rights under the Mortgage; (b) for the purpose of entering into possession of and selling the estate in fee simple of the Property in exercise of its power of sale, is not required to serve: (i) a notice of default or demand whether under s 88 of the National Credit Code, being Sch 1 to the National Consumer Credit Protection Act 2009 (Cth) or otherwise; (ii) a notice under s 55A of the Law of Property Act 1936 (SA); (iii) a notice under s 132 of the Real Property Act 1886 (SA); (c) is entitled to calculate the entirety of the debt secured and owing pursuant to the Mortgage as including all monies that would have been secured by the Mortgage as if there had been no disclaimer of the Property by Graeme Trevor Lane as the trustee of the Bankrupt Estates of Duncan Lewis Turner and Samantha Ann Turner (Mortgagors), and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Property as if it were money secured by the Mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Property); (d) will apply the proceeds of sale from the Property 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; (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 by the Mortgagors; (iv) fourthly, in payment of any subsequent mortgages (if any); and (v) the residue (if any) of the proceeds so received shall be paid into Court in this proceeding; (e) must, after any sale of the Property, provide an account of its payments and receipts to: (i) Graeme Trevor Lane as the trustee of the Bankrupt Estates of the Mortgagors; (ii) each of the Mortgagors; and (iii) the Adelaide Registry of the Federal Court of Australia.

CHARLESWORTH J: 1 The applicant, Australia and New Zealand Banking Group Limited (ANZ) seeks an order under s 133(9) of the Bankruptcy Act 1966 (Cth) that an estate in fee simple vest in it so that the property may be sold. The property is described as the estate in fee simple in the whole of Allotment 314 in Community Plan Number 28367, being the whole of the land comprised in Certificate of Title Volume 6145 Folio 469 (the Property). The Property is situated at 314/33 Warwick Street, Walkerville in the State of South Australia. 2 The first respondent is the State of South Australia. The second respondent is Mr Graeme Trevor Lean, the trustee in bankruptcy of Mr Duncan Lewis Turner and Ms Samantha Ann Turner. 3 Mr Turner and Ms Turner entered into two loan agreements with the applicant on 8 September 2013 and 8 October 2014. The Property was provided as security. By 8 January 2019 Mr and Ms Turner were in default under both loan agreements. Mr and Ms Turner became bankrupt on 23 August 2019 on their own petitions. At that time, they were indebted to the applicant in the sum of $321,613.99 under both loan agreements. 4 Upon the bankruptcy of Mr and Ms Turner the Property vested in the trustee: s 58 of the Act. The trustee did not seek to become registered as the proprietor of the Property. On 11 September 2019 the trustee disclaimed an interest in the Property pursuant to s 133(1AA) and (1) of the Act. 5 The applicant seeks an order under s 133(9) of the Act to overcome the divestiture of the bankrupts or the second respondent's interest in the Property to the Crown through the doctrine of escheat. 6 On 24 March 2021 I made an order that the application be determined on the papers: s 20A of the Federal Court of Australia Act 1976 (Cth). The applicant filed written submissions in support of the application on 13 April 2021. The applicant also filed an affidavit of Mr Mark Greenwell, a case manager of the applicant, sworn on 16 February 2021 in support of the application. 7 The first respondent takes no position with respect to the application.

Principles 8 The criteria to be established on an application under s 133(9) of the Act were summarised by Logan J in Australia and New Zealand Banking Group Limited v State of Queensland [2018] FCA 464 at [13] 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. 9 The legal effect of the disclaimer is conveniently summarised by Derrington J in Commonwealth Bank of Australia v State of Queensland, in the matter of Hewton [2021] FCA 22 at [15]: The nature of the operation of s 133 has been the subject of a number of decisions in this Court in recent years and the principles which have emerged in relation to it can be summarised as follows: (1) The reference to 'property' in the section includes a reference to any land which is burdened with 'onerous covenants', and that includes any financial obligations which can be enforced against the land: Re Tulloch Ltd (in liq) and the Companies Act (1977) 3 ACLR 808, 812; ING Bank (Australia) Limited v State of Queensland, in the matter of Watson [2017] FCA 411 (ING v Queensland) [15]; (2) A disclaimer operates immediately to determine the rights, interests and liabilities of the bankrupt and their trustee in respect of the property: s 133(2) of the Bankruptcy Act: and its effect is not dependent upon the registration of a notice of the disclaimer by the trustee: Commonwealth Bank of Australia v State of Western Australia, in the matter of Arbidans (a Bankrupt) [2020] FCA 1514 (CBA v WA) [19]; Commonwealth Bank of Australia v State of Queensland [2019] FCA 1362 [4]; (3) Where a trustee, who only holds an equitable title in a bankrupt's land because the bankrupt remains the registered owner, disclaims under s 133, the effect is to disclaim both that equitable interest and any legal interest of the bankrupt who remains registered under the relevant Torrens system legislation: Westpac Banking Corporation v State of Queensland [2016] FCA 269 [31]; Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 (Ginn) [15]; ING v Queensland [17] - [20]; Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt) [2017] FCA 696 (ANZ v Queensland) [17]; Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1566 [11] - [14]; CBA v WA [14]; (4) The primary consequence of disclaiming the fee simple interest is to cause of the process of statutory escheat to take effect with the consequence that full and complete title to the land vests in the Crown. Any existing mortgage over the fee simple interest is not enforceable against the Crown which has given no covenants to repay any money: Bank of Queensland Limited v State of Western Australia [2020] FCA 442 [36]. (5) However, it is now accepted that the erstwhile legal and equitable interests in the fee simple are not dissolved, and nor do they merge in the superior title; cf Purefoy v Rogers (1669) 85 ER 1181; with the consequence that the fee simple, which is taken to vest in the Crown, remains subject to any securities attaching to that interest: ING v Queensland [22] - [26]; National Australia Bank Limited v State of New South Wales [2014] FCA 298 [8] - [9]; ANZ v Queensland [17]; Stacks Managed Investments Ltd v State of New South Wales [2016] NSWSC 1349 [11] - [13]; National Australia Bank Limited v State of Queensland [2019] FCA 1780 (NAB v Queensland) 16; (6) It follows that subsequent to the making of the disclaimer by the trustee, a person with an interest in the fee simple, such as mortgagee, may make an application under s 133(9) of the Bankruptcy Act for the vesting of the property in them: National Australia Bank Ltd v Victoria (2010) 118 ALD 527, 530 [9] - [12]. It is possible that in the absence of the making of an order under this section the mortgagee will not be able to enforce their security: NAB v Queensland 16; (7) Prima facie, it is just and equitable to vest title to the disclaimed fee simple interest in land in an unsatisfied security holder whose security exists over that interest because the making of an order removes all doubt as to the veracity of any other action by a security holder to recover their debt (ANZ v Queensland [23]), to refuse to make the order would diminish the value of securities including registered securities, the disclaiming by the trustee strongly indicates that the security holder's claim exceeds the land's value, and the security holder has an interest to realise the land for the highest value: ING v Queensland [31] - [ 33]; (8) It is usually the case, and especially so in circumstances where the debt of the security holder exceeds the value of the land, that 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 by security holders. That, is subject to the making of orders, such as the requiring of the making of an account, which ensure the security holder does not receive more than the amount to which it is entitled: Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1221; Ginn [19]; ING v Queensland [38]; ANZ v Queensland [25]; NAB v Queensland [25]. The orders sought and made in the present case are what have become the standard suite of orders giving effect to these matters.

Consideration 10 Section 133(1) of the Act provides that the trustee may disclaim property within the meaning of that section in writing. Regulation 6.10 of the Bankruptcy Regulations 1996 (Cth) sets out the requirements for the notice, relevantly that it identifies the bankrupt and the property, and specifies that the relevant contract is an unprofitable contract for the purposes of s 133(5A) of the Act. 11 The trustee sent a letter to the applicant dated 11 September 2020, titled "Notice of Disclaimer of Onerous Contract". The letter refers to the two loan agreements and notes that there is no realisable equity in the Property for the benefit of the bankrupt estate. The trustee gives notice to "disclaim an interest in the above mentioned property and associated mortgage contracts as a burden and onerous contract". 12 I am satisfied that the letter constitutes a disclaimer for the purposes of s 133 of the Act. 13 I am also satisfied that the applicant has a relevant interest in the Property within the meaning of s 133(9) of the Act. Its interest in the Property arises from the two mortgages registered over the Property. The relevant documentation is annexed to the affidavit of Mr Greenwell. 14 The Property is valued by the applicant at approximately $315,000 and is currently unoccupied. There are no other interests registered on the certificate of title. The first and second respondents were served with the originating application and have had the opportunity to be heard on it. 15 In the circumstances described above it is just and equitable to make the orders sought. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth.

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