National Australia Bank Limited v State of Queensland

Introduction 1 This application is made pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) (the Act) for orders that certain real property be vested in the applicant, the National Australia Bank (the Bank), for the purposes of selling the same so as to recover money the payment of which had been or remains secured by the land. 2 Unusually, this application involves three separate parcels of land which have different owners, although all of the owners are bankrupt. The real properties the subject of the proceeding are: (a) 5 Bauhinia Street, Boyne Island in the State of Queensland (First Boyne Island Property); (b) 34 Bauhinia Street, Boyne Island in the State of Queensland (Second Boyne Island Property); and (c) 14 Jumbuck Court, Glen Eden in the State of Queensland (Glen Eden Property). I will refer to those properties collectively as "the Properties". 3 The Bank has established, through its solicitors, that the application has been duly served upon the State of Queensland and upon the trustee in bankruptcy of the several owners of the property, being Mr Morgan Lane of Worrells. Neither the State of Queensland nor Mr Lane intend to contest the orders now sought by the Bank.

Background facts 4 The ownership of the three properties in question is interlinked to some extent although the underlying reasons as to why that is so are not clear.

First Boyne Island Property 5 The First Boyne Island Property was owned by Mr Cameron and Miss Hinchcliffe as the registered owners of the fee simple. On 20 March 2012 they executed a mortgage (First Boyne Island Property mortgage) in favour of the Bank which was registered on 13 April 2012 and allocated the dealing number 714410970. That mortgage secures the repayment of a home loan advanced by the Bank to Mr Cameron and Miss Hinchcliffe in the sum of $695,000 pursuant to a loan agreement. 6 The evidence establishes that Mr Cameron and Miss Hinchcliffe are in default under the loan agreement and under the First Boyne Island Property mortgage.

Second Boyne Island Property 7 Mr Cameron and Mr Hill were the owners of the fee simple of the Second Boyne Island Property. They obtained a loan from the Bank in the sum of $595,000 and, on 17 December 2010 they executed a mortgage (Second Boyne Island Property mortgage) in favour of the Bank which was registered on 21 January 2011 and allocated dealing number 713676939. 8 The Bank has also established that Mr Cameron and Mr Hill have defaulted on the loan agreement with the Bank and are in default under the Second Boyne Island Property mortgage.

Glen Eden Property 9 Mr Hill alone was the holder of the fee simple of the Glen Eden Property. He apparently acquired it by the use of a home loan from the Bank in the sum of $100,000 pursuant to a loan agreement. On 30 April 2012 he executed a mortgage (the Glen Eden Property mortgage) in favour of the Bank which was registered on 23 May 2012 and allocated dealing number 714477827. 10 The Bank has also established that Mr Hill is in default under the Glen Eden Property mortgage as he has ceased making the scheduled repayments of the home loan which the Glen Eden Property mortgage secures.

Bankruptcy 11 On 31 October 2018 Mr Cameron presented a debtor's petition, his estate was sequestrated and Mr Lane was appointed to administer it. 12 Similarly, on 2 November 2018 Miss Hinchcliffe presented a debtor's petition. Her estate was also sequestrated and Mr Lane appointed as her trustee in bankruptcy. 13 Finally, on 27 June 2019 Mr Hill presented his debtor's petition. Upon the sequestration order being made Mr Lane was appointed as the trustee in bankruptcy to administer that estate as well.

Default notices 14 On this application the Bank has established that it has sent to each of the borrowers and mortgagors notices of default in respect of the loan and the mortgages. Those notices related to the First Boyne Island Property, the Second Boyne Island Property and the Glen Eden Property. None of those notices have been complied with and the defaults contained in them have not been rectified.

Disclaimer by trustee 15 The Bank has also established that Mr Lane, as trustee in bankruptcy of the estates of Mr Cameron, Miss Hinchcliffe and Mr Hill, has disclaimed any interest in the various real properties the subject of these proceedings.

Consideration 16 The consequence of the disclaimer under s 133 of the Act by the trustee of the real property has the following consequences: (a) The bankrupt's rights, interests and liabilities in the property are taken to have been terminated. This is so regardless of whether the trustee in bankruptcy has had legal title to the property transferred to him or her. The effect of s 133 is to terminate both the legal and equitable interests of the erstwhile owners: Westpac Banking Corporation v State of Queensland [2016] FCA 269, [31]; ING Bank (Australia) Limited v State of Queensland [2017] FCA 411 (ING Bank v State of Queensland). (b) The bankrupt's fee simple estate escheats to the Crown in the right of the State. Despite that, the current view is that the fee simple interest which is subject to an existing mortgage has a continued existence notwithstanding the occurrence of the disclaimer and escheatment: National Australia Bank Limited v State of New South Wales [2014] FCA 298, [8]-[9]; ING Bank v State of Queensland, [23]-[26]. (c) However, neither the disclaimer nor the subsequent escheatment affects the rights or liabilities of third persons save to the extent that is necessary in order to release the bankrupt's property and the trustees from liability. In particular, the rights of registered mortgagees remain substantially unaffected. (d) In the absence of a vesting order, as is sought by the Bank in these proceedings, a mortgagee may be precluded from taking action to realise the secured property. That is because it has no rights as against the bankrupt as registered owner and it has no right to enforce the security as against the Crown.

Vesting property in the Bank 17 The power of this Court to make an order vesting a fee simple interest in the Bank is afforded by s 133(9) which provides: (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. 18 It is now beyond doubt that a mortgagee of Torrens System land such as the Bank in this case is within the definition of "a person claiming an interest in…. disclaimed property" within the meaning of s 133(9).

Whether it is just and equitable for the property to be transferred to the Bank 19 The Bank is owed substantial sums pursuant to the various loan agreements. It is now owed $615,672.07 by Mr Cameron and Miss Hinchcliffe in respect of their loan and mortgage. It is owed $537,239.21 by Mr Cameron and Mr Hill pursuant to the loan agreement and the mortgage granted to them. Further, it is owed $83,244.57 by Mr Hill pursuant to his loan and the mortgage securing the Glen Eden Property. 20 In the absence of the making of the vesting orders sought, there is doubt as to whether the Bank is entitled to exercise of its powers under the mortgage or its rights under the Property Law Act 1974 (Qld): cf Re Middle Harbour Investments Ltd (in liq) [1977] 2 NSWLR 652; ING Bank v State of Queensland, [30]-[31]. 21 No other entity or person has any superior interest to the property or to the proceeds of its realisation than the Bank. 22 In the absence of any competing interest it should be now well accepted that a mortgagee in the position of the Bank in the present circumstances is usually entitled to a vesting order to enable it to recover monies secured by a validly registered mortgage. In this case such orders should be made. 23 The Bank seeks to be relieved of the obligation to comply with the requirements of the Property Law Act as if it were a mortgagee exercising a power of sale. That issue was considered in ING Bank v State of Queensland at [32] in the following manner: 32 One other issue is whether the Bank ought to be relieved of the statutory obligations under the Property Law Act 1974 (Qld) in relation to its exercise of the power of sale and, in particular, the obligation under s 85 of that Act requiring the mortgagee "to take reasonable care to ensure that the property is sold at the market value". Although it is likely that a financial institution of the standing of the Bank would abide by these standards, it would appear that holding it to those obligations is not appropriate in the circumstances of an application of this nature. First, it is questionable that the actions of the Bank in selling the Property would fall within the scope of that section because any sale will not occur in the exercise of the power of sale under the instrument of mortgage but merely as a sale by the owner of the fee simple. Secondly, although there is no evidence before the Court as to the current value of the land, it can be expected that were it thought that there would be any excess proceeds from its sale after the mortgage debt is paid out, it would not have been disclaimed by the trustees. Third, it can also be expected that the Bank has an interest in maximizing the realization of its security given that only a relatively small part of the loan had been paid off by the time of the default and that the present indebtedness on the account is well in excess of the amount initially borrowed. It should be observed, however, that were it to become the practice of mortgagees to utilize the process provided for by s 133 of the Act to effectively sacrifice any value in the secured property above the amount of the mortgage debt, it is likely that the Court would impose conditions which ensured that reasonable attempts were made to sell the property at the market price. 24 The observations in that passage have not been called into question and they are obviously correct. 25 It should also be now recognised that, on an application under s 133 of the Bankruptcy Act the courts will grant, as a usual order, relief from the requirements to comply with legislation imposing on the secured lender the obligations of a mortgagee. The ancillary orders, such as those made in this proceeding, including the obligation on the Bank to provide an account to the Crown in respect of the receipts and payments arising from the sale of the secured properties, are sufficient to secure the interests of any residual interest which might be held by any other person: Commonwealth Bank of Australia v State of Queensland [2016] FCA 1337, [19]; Australia and New Zealand Banking Group Limited v State of Queensland [2016] FCA 1221.

Conclusion 26 It follows that the applicant has established its entitlement to the relief sought in the form of the orders which appear at the front of these reasons. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington.