National Australia Bank Limited v State of Queensland [2018] FCA 1624 | Case summary

Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), that the estate in fee simple in the Property described as Lot 4 on Registered Plan 730907, Title Reference 21021199 being the land situated at 20 Winston Crescent, Kirwan in the State of Queensland (Property) vest in the Applicant for the purpose of the Applicant exercising its powers as mortgagee under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and registered mortgage number 715553920 (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 Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) 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 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; and (ii) a notice pursuant to s 84 of the Property Law Act 1974 (Qld); (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 had the Trustee of the bankrupt estates of Robert Michael Pople and Christine Marie Pople (Mr and Mrs Pople) not disclaimed the Property, 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 Mr and Mrs Pople as secured by the Mortgage; and (iv) fourthly, in payment of any subsequent mortgages (if any). (e) must, after any sale of the Property, provide an account of its payments and receipts to: (i) the Trustee of the bankrupt estate of Mr and Mrs Pople; (ii) Mr and Mrs Pople; and (iii) the Registrar of the Court; (f) the Applicant must pay into Court the surplus, if any, arising from the sale of the Property.

LOGAN J: 1 This is yet another case where a lender, in this case, the National Australia Bank Limited (the Bank), having the benefit of a mortgage security, seeks relief under s 133(9) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) in circumstances where, prior to bankruptcy, an event of default had occurred in respect of an advance made to the bankrupt secured by that mortgage. 2 The pertinent facts may be succinctly stated. In 2013, the bankrupts, Robert Michael Pople and Christine Marie Pople (Mr and Ms Pople), entered into two loan agreements with the Bank. The monies advanced pursuant to those loan agreements, together with interest and other charges owed to the Bank under those loan agreements, were secured by a registered mortgage, number 715553920, over land at 20 Winston Crescent, Kirwan, in Queensland, being the land more particularly described as Lot 4 on Registered Plan 730907, Title Reference 21021199. 3 Mr Pople and Ms Pople first defaulted in respect of the loans in the period between 21 July 2016 and 20 January 2017. On 14 July 2017, after default had occurred, Mr Pople and Ms Pople presented a Debtor's Petition. Their trustee in bankruptcy became Ms Moira Carter of the firm BRI Ferrier. 4 On or about 8 August 2017, that bankruptcy trustee disclaimed the property, acting under s 133(1) of the Bankruptcy Act. The bankruptcy trustee has been given notice of the present application by the Bank's solicitors. She has informed those solicitors that she does not seek to be joined in her capacity as bankruptcy trustee as a party to this proceeding and does not contest the orders sought in the application. The State has been joined as a respondent and has appeared by a solicitor, submitting to such orders as the Court may make, save in respect of costs. Given the State's position, the Bank seeks no order in respect of costs against the State. 5 On any view of the effect of a disclaimer of a fee simple interest, pursuant to s 133 of the Bankruptcy Act, the State was a necessary party. Other cases in respect of applications of the present kind do not exhibit a uniform practice as to whether or not, additionally, the bankruptcy trustee must be joined as a respondent. Given the disclaimer, it is difficult to see why the bankruptcy trustee must be joined as a party, as opposed, prudently, to being given notice of an application by a mortgagee lender. However this may be, I am quite satisfied that each person who may have an interest in the application has either been served with it as a respondent party or given due notice of the application. The case is therefore one which is apt for determination at the first case management hearing. 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. 11 For these reasons, there will be an order in terms of the draft. That order will, though, include expressly that there be no costs order against the respondent in relation to this application. The order includes provision, if only out of an abundance of caution, for the payment of any surplus arising from the sale of the property into Court. The fate of any such surplus will then become the subject of a necessary application by such person, including, obviously enough, the State, as may assert an interest in that surplus. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

National Australia Bank Limited v State of Queensland

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