National Australia Bank Ltd v Leroy & Ors, in the matter of Woo & Ors

REASONS FOR JUDGMENT (revised from transcript) HIS HONOUR: 1 In this matter, the applicant bank seeks an order, pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) ("the Act"), that a property in Regent Street Chippendale, an inner suburb of Sydney, vest in the applicant as tenant in common in equal shares with the third respondent. 2 The applicant had a mortgage over the property to secure loans which it had made to the second and third respondents, who are the registered proprietors of the property as joint tenants. The second and third respondents defaulted on their obligations under the loans and on 27 June 2001 the second respondent was made bankrupt. On 9 October 2002 the Trustee in Bankruptcy for the first respondent disclaimed the property under s 133(3) of the Act.

3 Section 133 provides that: '(1AA) Where any part of the property of a 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; … (1) the trustee may … [on certain formalities] … disclaim the property.' The disclaimer then operates to put an end to the rights, interests and liabilities of the bankrupt in relation to the disclaimed property. 4 Subsection 133(9) provides that: '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, … a person entitled to it or a person in whom...it seems to the Court to be just and equitable that it should be vested...' 5 The Trustee disclaimed the property as being "burdened with onerous covenants". The State of New South Wales has also been joined as a party because, upon the disclaimer, the second respondent's interest in the property estreated to the Crown subject to any charges to the claim: see Re Tulloch Ltd (In Liquidation) (1978) 3 ACLR 808. 6 The only other person or body that might have an interest in the property, apart from various governmental bodies that might have a charge for unpaid rates, is an institutional lender with an equitable mortgage over the property, which is protected by way of a caveat but which ranks after the mortgage held by the applicant. The caveator, like those governmental bodies, has been notified of the instant application and, like those bodies, has not sought to be heard. 7 It is clear from the terms of s 133(9) that the Court may make a vesting order on the application of a person "claiming an interest in" the disclaimed property. There is no reason to think that a registered mortgagee's interest in mortgaged land is not an interest that would qualify as such within the meaning of s 133(9), and in Re Tulloch, supra, it was held so to be. The applicant brought to the Court's attention an earlier authority, Re Weiland (Deceased) (1944-45) 13 ABC 220. In that case, a mortgagee was held not entitled to a vesting order under s 104(6) of the Bankruptcy Act 1924-1933 unless, upon the trustee's disclaimer, she became entitled to both the legal and beneficial estate in the land. On a construction of the relevant sections of the Victorian land transfer legislation, the legal estate in the mortgaged land was held to remain in the mortgagor until a transfer on sale or an order of foreclosure had been registered. The mortgagee was held to be disentitled to the vesting order because she was not at the relevant time entitled to the land by an order of foreclosure. It is clear that Clyne J approached the matter on the basis that the applicant was required to: '... prove that she is entitled not only to the beneficial estate in the land which as a consequence of the disclaimer the trustee became divested of, but also to the legal estate in the land which the bankrupt retained.' 8 In Re Tulloch, supra, Needham J declined to follow Re Weiland in the context of a consideration of s 296 of the Companies Act 1961 (NSW) which dealt with a like situation in relation to a company in liquidation. Section 296(6) provided that: 'The Court may, on the application of a person who either claims any interest in any disclaimed property or is under any liability not discharged by this Act in respect of any disclaimed property...make an order for the vesting of the property in...any person entitled thereto, or to whom it seems just that the property should be delivered by way of compensation for [any undischarged liability in respect of any disclaimed property].' 9 Needham J held that: 'A mortgagee of Torrens land it is both entitled to make application for a vesting order and to receive such an order.' 10 His Honour preferred a decision of Paine J in Re Hopgood 18 ABC 133, which had held that the words "any person entitled thereto" in s 104(6) of the Bankruptcy Act, as it then stood, were not restricted as Clyne J had held, and applied to a mortgagee of Torrens title land. Whatever may have been the case if s 133(9) were limited to making a vesting order in favour of "a person entitled to it", the section as it now stands is not so limited and the broader terms of the subsection are, in my view, clearly apt to encompass the position of the registered mortgagee under Torrens title legislation. 11 There is no reason why the Court should exercise its discretion against making the order sought. A significant sum of money remains outstanding to the applicant and it is right and proper that it should have the opportunity to take reasonable steps to recover the monies which it has provided to the second respondent and which remain outstanding. 12 It seems to me that I also have power to tidy up, as it were, a splitting of the jointure to a half share of which, strictly, the applicant might be thought entitled, and to obviate the need for an application to the Supreme Court of New South Wales to convert the jointure into a tenancy in common. I will exercise that power. 13 Accordingly, I order that the property having folio identified 26/SP56081, known as 407/71-75 Regent Street, Chippendale, New South Wales, vest in the applicant as tenant in common in equal shares with the third respondent. 14 There is no question that the Trustee personally should be responsible for costs. On the other hand, if there is any way of burdening the bankrupt's estate with an order for costs, I think that should be done. I will give the applicant the opportunity within 48 hours to bring into chambers the form of any appropriate costs orders that, on reflection, for which it wishes to apply. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick.