St George - A Division of Westpac Banking Corporation v State of Western Australia - [2020] FCA 397 - FCA 2020 case summary

Judgment (6 paragraphs)

[1]

The estate in fee simple in the property described as Lot 47 on Strata Plan 55659 in the Local Government of Bayswater, being the property contained in Certificate of Title Volume 2709 Folio 247 and situated at Unit 47, 49 Sixth Avenue, Maylands in the State of Western Australia, vest in the applicant as mortgagee in possession for the purposes of the applicant exercising its powers as mortgagee under the Property Law Act 1969 (WA), the Transfer of Land Act 1893 (WA) and registered mortgage number K901093 (Mortgage).
The estate in fee simple in the property described as Lot 1509 on Registered Plan No. 210932 in the Local Government of Port Hedland, being the property contained in Certificate of Title Volume 307 Folio 60A and situated at 83 Athol Street, Port Hedland in the State of Western Australia, vest in the applicant as mortgagee in possession for the purposes of the applicant exercising its powers as mortgagee under the Property Law Act 1969 (WA), the Transfer of Land Act 1893 (WA) and the Mortgage.
On the vesting of the interests in the properties described in orders 1 and 2 above (Properties) in the applicant pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the applicant: (a) may deal with the Properties pursuant to its powers as mortgagee under the Property Law Act 1969 (WA), the Transfer of Land Act 1893 (WA) and the Mortgage, including exercising the right to sell the estate in fee simple of the Properties 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 in the Properties, is deemed to have served: (i) any further notice of default or demand whether under s 88 of the National Credit Code, being Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) or otherwise; or (ii) any further notice pursuant to s 106 of the Transfer of Land Act 1893 (WA). (c) must, for the purposes of giving effect to the sale of the Properties pursuant to order 3(a), lodge with the Registrar of Titles at the Western Australian Land Information Authority: (i) a sealed copy of these orders; and (ii) transfers of the Properties as mortgagee exercising its power of sale (Form T4); (d) 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 in Bankruptcy of the bankrupt estate of Lorraine Joy Butson not disclaimed the Properties, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Properties as money secured by the Mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Properties); (e) must apply the proceeds of sale from the Properties as follows: (i) first, in payment of any statutory costs and charges affecting the Properties; (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 Ms Lorraine Joy Butson; and (iv) fourthly, in payment of any subsequent mortgages (if any); (f) must, after any sale of the Properties, provide an account of its payments and receipts relating to each of the Properties to: (i) Ms Jennifer Elizabeth Low as Trustee of the bankrupt estate of Ms Lorraine Joy Butson; (ii) Ms Lorraine Joy Butson; (iii) the Registrar of the Court; and (iv) the First Respondent; and (g) must pay into Court the surplus, if any, arising from the sale of the Properties.

Effect of bankruptcy and disclaimer 13 Pursuant to s 58(1)(a) of the Bankruptcy Act the effect of the making of the bankruptcy order with respect to Ms Butson's estate was that all of the right, title and interest in her estate vested in the Official Trustee and then the Trustee. 14 However, Ms Butson's interests in the Properties were fee simple interests in land. The effect of s 58(2) of the Bankruptcy Act is that legal title to fee simple interests in land does not vest in the trustee in bankruptcy on the making of the bankruptcy orders. In order for a trustee in bankruptcy to secure legal title to those interests, it is necessary to cause the land to be registered in their own name. 15 This is provided for by s 234 of the Transfer of Land Act 1893 (WA). That provision entitles every person who, as trustee, is the representative of a bankrupt estate to be registered as the proprietor of property. However, the requirements of the Transfer of Land Act must be complied with, and unless that occurs, the trustee in bankruptcy has only equitable title to the property. 16 The Trustee did not seek to be registered as the proprietor of the Properties. 17 Rather, as noted above, the Trustee disclaimed any interest in the Properties. 18 Section 133(1) of the Bankruptcy Act affords trustees in bankruptcy the opportunity to disclaim the burden of onerous property. That section provides: (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. 19 The reference in that section to 'property' includes a reference to any land which is burdened with 'onerous covenants' (s 133(1AA) of the Bankruptcy Act). The notices of disclaimer issued by the Trustee were addressed to the Bank, Ms Butson, the Official Receiver and Landgate (for the attention of the Registrar of Titles), and appear to have been properly issued in writing under s 133(1) of the Bankruptcy Act. 20 The effect of a disclaimer in circumstances where a trustee in bankruptcy has not become the registered proprietor was summarised by Derrington J in Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt) [2017] FCA 696 as follows: [16] The Notices of Disclaimer referred to above were effective compliance with the requirements of s 133(1) with the consequence that they 'determined the rights, interests and liabilities of the bankrupts and the bankruptcy trustees in, or in respect of the property as from the date on which the disclaimer was made' (see s 133(2) of the Bankruptcy Act). [17] The delivery of the Notice of Disclaimer to the Registrar of Titles had two separate but cumulative effects. First, the equitable title to the fee simple interests in the properties was divested from the bankruptcy trustees and became vested in the Crown via the doctrine of escheat. Second, the legal interest in the fee simple in the two properties divested from Mr and Mrs McFarlane and became vested in the Crown. Although the exact manner in which s 133(1) operates to divest both the equitable interest from the bankruptcy trustees and the legal title from the bankrupt is not entirely clear; (Westpac Banking Corporation v State of Queensland [2016] FCA 269; [30]-[31]; Commonwealth Bank of Australia v State of Queensland; In the matter of Ginn [2016] FCA 1337; ING Bank (Australia) Limited v State of Queensland [2017] FCA 411; [17]-[20]); the position appears to be now too well established for there to be any real doubt about it. Perhaps the most acceptable explanation is that s 133(1) enables a bankruptcy trustee to disclaim the totality of ownership, rights, titles and interests in relation to the Torrens System land owned by the bankrupt and that is so notwithstanding that legal title to that land has not vested in the bankruptcy trustee. [18] Although the effect of the complete disclaimer of all interest in the fee simple of the relevant properties might have been thought to have had the effect that the fee simple was extinguished by reason of the merger of a dominant and subservient interest; (Purefoy v Rogers (1671) 2 WmsSaund 380; 85 ER 118; ING Bank (Australia) Ltd v State of Queensland (2017) FCA 411; [22]); the currently prevailing view is that, despite the disclaimer, the fee simple which is subject to the mortgagee's charge, continues to exist. Support for this proposition can be found in the explanation of Perram J in National Australia Bank Limited v State of New South Wales [2014] FCA 298 where his Honour said: 8. Mr Hynes, of counsel, who appeared for the Bank, drew to my attention the apparent tension in the text of s 133 between the determination forthwith of the rights, interests and liabilities of the bankrupt, on the one hand, and the continued existence of the rights or liabilities of other persons, on the other. In a purely theoretical space there is a tension between extinguishing a set of rights which is attached to another set of rights which are not extinguished. The courts, however, have not been troubled by this anomaly. In a series of decisions it has been held that the rights of other persons, and in particular, the rights of mortgagees continue to have sufficient existence to ground an application such as the present one made by the Bank: see, for example, Re Tulloch Ltd (in liquidation) (1978) 3 ACLR 808 at 813 (sic), per Needham J. That reasoning is regarded as orthodox: see National Australia Bank Ltd v Leroy [2003] FCA 862 at [5]-[7]; Rams Mortgage Corp Ltd v Skipworth (No 2) (2007) ALR 799 at [15]-[19]; National Australia Bank Ltd v New South Wales [2009] FCA 1066; (2009) 182 FCR 52 at [29]; and National Australia Bank Ltd v Victoria [2010] FCA 1230; (2010) 118 ALD 527 at [10]-[12]. 9. The immediate consequence of the disclaimer of the onerous property by the Bank was that the Paruna Place property escheated to the Crown in right of New South Wales: see Re Tulloch; NAB v Leroy at [5]; Rams v Skipworth at [8]. It has been said of the operation of s 133 that the Crown holds the property in fee simple and that only the interest of the proprietor goes out of existence on the escheat. The immediate consequence of the escheatment is therefore that the Bank does not presently have the rights it would have had against Mr Elters but for his bankruptcy and presently has no right to enforce its security against the State of New South Wales. … [19] Consequently, it appears that despite the escheatment to the Crown, the preserving effect of s 133(2) has the result that the fee simple interest remains in existence albeit vested in the Crown, such that third party's security interests in the fee simple of the land remain unaffected. 21 See also Commonwealth Bank of Australia v State of Queensland; in the matter of Ginn [2016] FCA 1337 at [16], where Edelman J described the view stated by Perram J in National Australia Bank Limited v State of New South Wales [2014] FCA 298 (cited by Derrington J in the above extract) as the 'dominant view'. Justice Edelman continued: [16] … However, on any view, in this process a pre-existing charge is not extinguished. A fee simple interest remains subject to a charge even after disclaimer and escheat: Rams Mortgage Corporation Ltd v Skipworth (No 2) [2007] WASC 75; (2007) 210 FLR 11, 15 [10] (E M Heenan J, citing Sandhurst Trustees, 564 (Bryson J)); National Australia Bank Ltd v State of New South Wales [2014] FCA 298 [8] (Perram J). 22 I respectfully adopt the position as explained in Commonwealth Bank of Australia v State of Queensland; in the matter of Ginn and Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane. It follows that the Trustee's notices of disclaimer determined the interests of both Ms Butson and the Trustee with respect to the Properties, but the Bank's rights under the Mortgage remain unaffected by the disclaimer such that the Bank is a party who is entitled to make an application to this Court under s 133(9) of the Bankruptcy Act.

Orders 24 The Trustee has indicated through correspondence with MinterEllison that she does not oppose the orders sought and is willing to withdraw the caveats previously lodged by her over the Properties to facilitate a sale if the orders are made. 25 The Bank and the State are largely in agreement as to the nature of the orders that should be made. Indeed the orders are of a form described as 'usual' by Edelman J in Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn at [19]. As is standard, the Bank seeks that the Properties vest in it so that it can exercise its powers of sale as mortgagee in possession. The exercise of such rights does not require the Bank to be the registered proprietor of the Properties. The order in this regard is appropriate. 26 The only issue upon which the parties do not agree is what should happen to any surplus proceeds of sale. The Bank seeks an order that any surplus be paid into Court, so that rights to the surplus can be determined if and when the issue arises. It refers to a number of cases where such an order has been made: Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn; and Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of King [2016] FCA 1338 (Edelman J). See also Commonwealth Bank of Australia v State of Queensland [2018] FCA 1041 (Rangiah J); and National Australia Bank Limited v State of Queensland [2018] FCA 1624 (Logan J). 27 On the other hand, the State seeks an order that any surplus proceeds be paid to the Trustee for distribution. I accept that there has been, in a number of authorities, some suggestion that any excess might revert to the trustee in bankruptcy: see the orders in Australia and New Zealand Banking Group Limited, in the matter of Hawks (bankrupts) v State of Queensland [2018] FCA 1982 (Griffiths J); National Australia Bank Limited v The State of Queensland [2018] FCA 2020 (Burley J); and AMP Bank Limited v State of New South Wales [2014] FCA 1437 (Rares J). 28 In circumstances where the Trustee has expressly disclaimed the Properties, there is room for different views as to whether any surplus should be paid to the Trustee. The Bank's submissions do not address the authorities where the court ordered that there be payment of any surplus to the trustee. However, the Trustee was in the best position to assess the question of whether there might be any surplus proceeds at the time of the disclaimer. Having made such an assessment, the Trustee chose to disclaim both Properties. Accordingly, I am of the view that the question is most likely to be academic. 29 Under the orders the Bank is in any event to account to the Registrar of this Court. Therefore, I consider that it is appropriate that any surplus proceeds be paid into Court. Any issue as to the dispersal of the surplus might then be ventilated fully. The State says that such a course may impose too high a costs burden on the Trustee as it may be necessary to initiate or be involved in a further hearing. However, the extent of the Trustee's involvement in any further hearing is a matter for the Trustee to consider, having regard to the quantum of any relevant surplus once known. 30 It follows that I will make orders in terms as sought by the Bank, with minor edits as to form only. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Banks-Smith.

St George - A Division of Westpac Banking Corporation v State of Western Australia

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Judgment (6 paragraphs)

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