National Australia Bank Limited v State of South Australia [2015] FCA 240 | Case summary

REASONS FOR JUDGMENT 1 This is an application by the National Australia Bank Limited (NAB) pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) (the Act) for orders which, if made, would vest in it certain real property previously held by Mr Andrew William Siegmann. 2 Mr Siegmann is the registered proprietor of the whole of the land comprised in Certificate of Title, Volume 5632 Folio 496, being land situated at and known as 7 Dalziel Street, Whyalla Playford in the State of South Australia (the Property). 3 On 5 December 2008, Mr Siegmann mortgaged the Property to the NAB. The mortgage was registered and was given dealing number 11093725 (the Mortgage). The Mortgage incorporates the terms of the memorandum of common provisions lodged at the Lands Titles Office in South Australia, being memorandum number 10823296. 4 There were two loans which were secured by the Mortgage. On or about 5 December 2008, the NAB provided financial accommodation to Mr and Mrs Siegmann in the form of a Plain and Simple Home Loan - With 5 Years Interest Only Payments Account No. 83-057-7116 in the sum of $112,200 pursuant to the terms of a Term Loan Facility Agreement Details dated 2 December 2008 and Term Loan Facility Agreement General Terms dated 25 August 2008 (the first home loan). 5 Also on or about 5 December 2008, the NAB provided financial accommodation to Mr and Mrs Siegmann in the form of a Homeside Homeplus Home Loan - With Principal and Interest Repayments Account No. 83-087-6677 in the sum of $153,800 pursuant to the terms of an agreement comprising the Term Loan Facility Agreement Details dated 2 December 2008 and the Term Loan Facility Agreement General Terms dated 25 August 2008 (the second home loan). 6 On 14 November 2013, Mr Siegmann was made bankrupt pursuant to a sequestration order made by the Federal Circuit Court of Australia in BRG 927 of 2013. David James Hambleton of Rodgers Reid was appointed the trustee in bankruptcy of Mr Siegmann's bankrupt estate (the Trustee). The Trustee disclaimed the Property in a letter dated 23 January 2014 which was sent to the NAB by the Trustee, which enclosed a copy of the Disclaimer of Onerous Property. Relevantly, the Trustee stated: I have determined that the property is onerous as it is reasonable to expect that the costs, charges and expenses that I would incur in realising the property would exceed the proceeds of realising the property. 7 Baycorp Collections PDL (Australia) Pty Ltd (ACN 119 478 778) (Baycorp) lodged an application to register a charge over the Property. The charge related to a judgment for costs which Baycorp had obtained against Mr Siegmann in the Magistrates' Court of South Australia, apparently in the sum of $264.00. On 10 July 2013, the Magistrates' Court ordered that the property be charged with the payment of that debt, including interest and costs, pursuant to s 8 of the Enforcement of Judgments Act 1991 (SA). Baycorp's application was registered and given dealing number 11993552 (the Charge). Baycorp is the second respondent in the proceedings. 8 As at 27 November 2014, Mr and Mrs Siegmann were indebted to the NAB in the sum of $109,458.15 pursuant to the first home loan and in the sum of $145,985.83 pursuant to the second home loan. 9 According to a valuation report obtained by the NAB and dated 14 October 2014, the estimated market value of the Property is $230,000. 10 Both the first and second respondents filed submitting notices in the proceedings, save as to costs. 11 When the hearing commenced on 5 February 2015, it emerged that Mrs Siegmann might have an interest in the proceeding and wished to be heard. I adjourned the hearing to enable the applicant to notify her of its application (see National Australia Bank Limited v State of South Australia [2015] FCA 48). Mrs Siegmann has not indicated any wish to participate in the proceeding. 12 The NAB informed the Court that if orders were made vesting the Property in it, it intended to take possession of and sell the Property. Further, based on the estimated market value of the Property, the NAB does not expect to realise sufficient moneys of the sale of the property to fully discharge the liabilities of Mr and Mrs Siegmann under the two home loans and the Mortgage. 13 The NAB undertook, upon the sale of the Property, to prepare and serve accounts as provided for in the originating application and, once the debt to the NAB had been repaid, to pay any surplus into Court. 14 Subsections 133(1AA), (1) and (2) of the Act deal relevantly with the power of a trustee to disclaim property and the effect of such disclaimer. They are in the following terms: (1AA) Where any part of the property of the bankrupt consists of: (a) land of any tenure burdened with onerous covenants; or (b) property (including land) that is unsaleable or is not readily saleable; subsection (1) applies. … (1) Subject to this section, the trustee may, notwithstanding that he or she has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation to it and notwithstanding, in the case of property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered, that he or she has not become the registered owner of that property, by writing signed by him or her, at any time disclaim the property. … (2) A disclaimer under subsection (1) or (1A) operates to determine forthwith the rights, interests and liabilities of the bankrupt and his or her property in or in respect of the property disclaimed, and discharges the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him or her, but does not, except so far as is necessary for the purpose of releasing the bankrupt and his or her property and the trustee from liability, affect the rights or liabilities of any other person. 15 In National Australia Bank Limited v State of New South Wales [2014] FCA 298 at [8] Perram J noted "the apparent tension" in the text of s 133 between the determination forthwith of the rights, interests and liabilities of the bankrupt as opposed to the continued existence of the rights or liabilities of other persons. His Honour noted that, despite that tension, the courts had not been troubled by it. His Honour cited a series of decisions in which it has been held that the rights of other persons and, in particular, the rights of a mortgagee continued to have sufficient existence to grant an application such as this. 16 His Honour also noted that the immediate consequence of a disclaimer such as that which has been made here is that the relevant property is escheated to the Crown in right of the relevant State, here being South Australia. This means that the immediate consequence of the escheatment is that the NAB, as mortgagee, does not presently have the rights it would have had against Mr Siegmann but for his bankruptcy and the NAB currently has no right to enforce its security against the State of South Australia. 17 Subsections 133(9), (10) and (11) of the Act provide as follows: (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. (11) Where: (a) the property to which such an order relates is property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be registered; and (b) that law enables the registration of such an order; the property, notwithstanding that it vests in equity in the person named in the order, does not vest in that person at law until the requirements of that law have been complied with. 18 In National Australia Bank Limited v State of New South Wales [2014] FCA 298, Perram J at [10] also referred to a series of cases which stand for the proposition that a mortgagee of Torrens title land is a person "claiming an interest in" disclaimed property within the meaning of s 133(9). 19 In my view, the NAB is entitled to a vesting order if it is shown: (a) that a disclaimer to the Property has occurred within the meaning of s 133 of the Act; (b) the NAB has an interest in the disclaimed property within the meaning of s 133(9) of the Act; and (c) the NAB is entitled to the disclaimed property or that the Court considers it to be just and equitable that it should be so vested or delivered. 20 All three requirements are satisfied here. First, the Property has been disclaimed under s 133. As noted above, the Trustee's disclaimer contains a statement of determination that the Property is onerous because it is reasonable to expect that the costs, charges and expenses that the Trustee would incur in realising the Property would exceed the proceeds of realising the Property. Mr White, who appeared with Mr Elliott for NAB, acknowledged that this statement did not precisely match the terms of s 133(1AA), but he submitted, and I accept, that the statement substantially complies with that provision. I also accept Mr White's submission that it is significant that there is no prescribed form in relation to s 133(1AA) (by way of contrast, see Regulation 6.10 of the Bankruptcy Regulations 1996 (Cth), which prescribes certain matters for the purposes of a notice under ss 133(1) or (1A)). Mr White also helpfully drew the Court's attention to the decision of Fisher J in the High Court of New Zealand in Rural Banking and Finance Corporation of New Zealand Ltd v Official Assignee [1991] 2 NZLR 351 in respect of s 75 of the Insolvency Act 1967 (NZ) (which dealt with the disclaimer of property which is "unsaleable or not readily saleable"). The Court there accepted that the relevant requirements were met where the only property which the Official Assignee could attempt to sell was the fee simple subject to mortgages and that because the sums owing under the mortgages far exceeded the market value of the relevant properties, "no one could be expected to buy them in that state". The properties therefore qualified as "unsaleable or not readily saleable" (at 354). 21 Secondly, the NAB, as mortgagee of the Property, also has an interest in it within the meaning of s 133(9). 22 Finally, I consider that it is just and equitable for the Property to be vested in the NAB. That is because, unless the vesting order is made, the NAB will be deprived of the benefit of its security where it has a total secured debt of $255,443.98. As was the case in National Australia Bank Limited v State of New South Wales [2009] FCA 1066; (2009) 182 FCR 52 at [29] per Rares J, I consider that the land should be vested under s 133(9) in the NAB "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" (see also National Australia Bank Limited v Victoria [2010] FCA 1230; (2010) 118 ALD 527 at [12]). 23 As noted above, having regard to the estimated market value of the Property, the NAB does not expect to realise sufficient moneys from the sale of the Property to fully discharge the total debt to it. Nevertheless, it is appropriate that the orders require the NAB, in accordance with its preferred undertaking, to prepare and serve accounts as provided for in the originating application and to repay any surplus funds into Court after the debt to the NAB has been repaid. 24 As also noted above, Baycorp has a registered charge over the Property. There may be an issue as to whether a charging order made pursuant to s 8 of the Enforcement of Judgments Act 1991 (SA) creates an interest in the property for the purposes of s 133(9) of the Bankruptcy Act (see Andersons Solicitors v Schigulski [2004] SASC 21; (2004) 88 SASR 1 at [12] per Mullighan J and Hammerton v Gleeson [2009] SASC 79 at [21]-[26] per Sulan J). It is unnecessary to take that matter any further in the circumstances here. I am satisfied that both the State of South Australia and Baycorp are aware of the proceedings and were provided with draft copies of the NAB's originating application and the supporting affidavit by Mr Edward Grieve. The State of South Australia filed a submitting notice on 24 December 2014. Baycorp filed a submitting notice on 30 January 2015. As provided for in rule 12.01 of the Federal Court Rules 2011, a submitting notice is filed where a party does not want to contest the relief sought in the originating application. In any event, I consider that Baycorp's interests are protected by a condition that the NAB provide accounts to, inter alia, Baycorp, and to pay any surplus as may be achieved from the sale of the property into Court. 25 In these circumstances, I am satisfied that the parties with a known interest in the Property have been notified of the present application and that the Court should exercise its discretion to make the orders sought by the NAB. 26 Orders will be made accordingly. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.

National Australia Bank Limited v State of South Australia

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