Perpetual Trustees Victoria Limited v State of Queensland

RANGIAH J: 1 The applicant, Perpetual Trustees Victoria Limited, has applied pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) for an order that a property disclaimed by the second respondent, the trustee of the property of Gary Royston Simonite, vest in the applicant. 2 Mr Simonite was the registered proprietor in fee simple of land comprising Lot 153 on Registered Plan 194673, Title Reference 16576133, situated at 5 Nebraska Court, Oxenford, in Queensland ("the property"). On about 25 June 2007, Mr Simonite granted the applicant a mortgage, registered as mortgage no. 710804109, securing payment of all money owed under a loan agreement. 3 On 4 July 2007, the applicant advanced the sum of $548,000 to Mr Simonite pursuant to the loan agreement. Mr Simonite failed to make repayments in accordance with the loan agreement. On 12 December 2011, the applicant sent a default notice to Mr Simonite in accordance with s 88 of the National Credit Code and s 84 of the Property Law Act 1974 (Qld). Mr Simonite did not comply with the default notice. 4 On 16 April 2012, the second respondent was appointed as Mr Simonite's trustee in bankruptcy following the filing of a debtor's petition. On 5 June 2012, the second respondent disclaimed the property pursuant to s 133(1) of the Bankruptcy Act. 5 On 5 July 2012, the applicant obtained judgment for possession of the property in the District Court of Queensland. On 16 January 2016, the applicant obtained possession of the property. On 15 August 2016, the applicant entered into a contract for the sale of the property. Settlement is due on 22 September 2016. The purchase price is $710,000. 6 Mr Simonite is indebted to the applicant in the sum of approximately $819,427 under the loan agreement. Accordingly, the applicant will not realise sufficient funds from the sale of the property to discharge Mr Simonite's liabilities to the applicant in full. 7 Section 133 of the Bankruptcy Act provides a mechanism for a trustee in bankruptcy to disclaim property when it is burdened by onerous covenants or is unsaleable or not readily saleable. Section 133 provides relevantly: (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…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. (3) If a trustee disclaims property whose transfer must be registered under a law of the Commonwealth or of a State or Territory of the Commonwealth, the trustee must give notice of the disclaimer as soon as practicable to the officer who has the function of registering the transfer. … (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. … 8 The effect of a disclaimer by a trustee in bankruptcy is set out in s 133(2) of the Bankruptcy Act. There is some tension between the words in s 133(2) that terminate the bankrupts' "rights, interests and liabilities of his or her property or in respect of the properties claimed", on one hand, and the continued existence of the "rights or liabilities of any other person", on the other hand. 9 In considering the comparable terms of s 296(2) of the Companies Act 1961 (NSW), in Re Tulloch Ltd (in liq) and the Companies Act (1978) 3 ACLR 808 ("Re Tulloch"), Needham J observed that it is not easy to give an entirely satisfactory meaning to s 296(2). His Honour nevertheless concluded that the rights of a mortgagee continue notwithstanding the disclaimer of property. His Honour said at 813: The next question is what remains to the mortgagee. It was submitted on behalf of AGC that, upon disclaimer, contractual and statutory rights vested in the mortgagee disappeared. This submission was supported by counsel for the Crown. It is not easy to give an entirely satisfactory meaning to s 296(2). In order to release "the company and the property of the company from liability" it is certainly necessary to hold that the contractual provisions of the mortgage cease to apply. The words "property of the company" in that phrase, I think, refer to the property of the company other than that disclaimed. There can remain no personal covenant and, as the Crown would take not as a successor to the company but by operation of law, the various provisions of the mortgage would not apply to it. There being no obligation on the company to comply with the contractual covenants, there could be, it would seem, no default in complying with them which would permit the mortgagee to exercise its powers, eg, of sale. Where, however, the default already exists, it would follow, in my opinion, that the right to sell vested in the mortgagee is one of the rights not affected by the disclaimer by virtue of s 296(2). See also: Rams Mortgage Corporation Ltd v Skipworth (No 2) [2007] WASC 75 ("Rams v Skipworth (No 2)") at [15]-[19]; Re Woo; National Australia Bank Ltd v Leroy [2003] FCA 862 ("NAB v Leroy") at [5]-[7]; National Australia Bank Ltd v The State of Victoria [2010] FCA 1230 ("NAB v Victoria") at [10]-[12]; National Australia Bank Ltd v State of New South Wales [2015] FCA 289 at [11]. 10 In the absence of a vesting order under s 133(9) of the Bankruptcy Act, a mortgagee is precluded from taking action to realise the property the subject of the security after the disclaimer has occurred: Rams v Skipworth (No 2) at [28]-[30]; NAB v Victoria at [15]; National Australia Bank Ltd v State of New South Wales [2014] FCA 298 at [9]. 11 The State of Queensland has been joined as a party because upon the disclaimer, the second respondent's interests in the property escheated to the Crown subject to any charges upon the land: see Re Tulloch at 812-814; Rams v Skipworth (No 2) at [8], cf National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52 at [21]. It is the conventional view that the State should be joined in any application affecting title or the right of possession of disclaimed property: Menzies & Anor v Paccar Financial Pty Ltd (No 4) [2014] NSWCA 210 at [101]. 12 As to the question of whether title to disclaimed property escheats absolutely to the Crown, in National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52, Rares J said at [23]: I think that the better view may be that by force of a disclaimer under the Bankruptcy Act (or Div 7A of Pt 5.6 of the Corporations Act) the title to the fee simple or other property does not escheat absolutely to the Crown in right of the State because the Court can make an order vesting that title in someone else. The Court's power to make such a vesting order is created by a law of the Commonwealth (s 133(9) of the Bankruptcy Act or s 568F(1) of the Corporations Act). By force of s 109 of the Constitution of the Commonwealth that law supplants any inconsistent automatic operation of a law of a State to the extent that some form of immediate and indefeasible escheat to the Crown in right of the State would otherwise have occurred. As I have observed, the ordinary incidents of an escheat are not readily seen as conformable with its suggested application to disclaimers. However, it is not necessary to express a final view, since this matter was not argued and I do not need to decide it. 13 In NAB v Victoria at [15] Bennett J concluded that disclaimed property "does not escheat absolutely to the Crown such as to preclude the court's ability to make an order vesting the title on someone else pursuant to s 133(9)". 14 In order for the Court to make an order vesting property in an applicant pursuant to s 133(9) of the Bankruptcy Act the following must be established: (a) that there has been a disclaimer of the relevant property pursuant to s 133(1); (b) that the applicant claims an interest in the disclaimed property within s 133(9); (c) the applicant is entitled to the disclaimed property, or the Court considers it to be just and equitable that it should be vested in or delivered to the applicant. See National Australia Bank Ltd v State of New South Wales [2014] FCA 298 at [11]. 15 Section 133(3) of the Bankruptcy Act requires the second respondent to give notice of the disclaimer as soon as practicable to the officer who has the function of registering the transfer. The second respondent lodged a notice of the disclaimer with the Queensland Department of Environment and Resource Management on 5 June 2012. The notice was effective, and operated as a matter of law to disclaim the property. 16 The mortgagee of land under the Torrens System has been held to be a person "with an interest in" disclaimed property who is entitled to make an application for a vesting order and receive such an order: Re Tulloch at 814; NAB v Leroy at [7]; National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52 at [29]; NAB v Victoria at [12]. 17 The applicant's interest in the disclaimed property as mortgagee is apparent from evidence placed before the Court. The applicant holds a first registered mortgage over the property. The applicant's entitlement to the disclaimed property as mortgagee is also evident. Prior to the disclaimer, Mr Simonite had committed defaults under the loan agreement entitling the applicant to enforce its rights against the property. A significant sum of secured money remains outstanding to the applicant. The mortgage secures all amounts owing by Mr Simonite to the applicant under the loan agreement. 18 In National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52, Rares J said at [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 Ltd 8 ACLR at 814. 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. 19 The applicant has satisfied the relevant criteria in s 133(9). There is no opposition to the application. The respondents have filed and served submitting notices. The applicant is unable to sell the property pursuant to its powers under the mortgage, or to complete the contract of sale for the property entered into on 15 August 2016, unless orders are made under s 133(9). For these reasons it is appropriate that orders for the vesting of the property in the applicant should be made. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rangiah.