Westpac Banking Corporation v State of Western Australia

JACKSON J: 1 The applicant, Westpac Banking Corporation, seeks a vesting order and related orders pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) in respect of a property of two bankrupts in Rockingham, Western Australia which has been disclaimed. 2 The respondents are the State of Western Australia, Andrew Reginald Yeo in his capacity as the trustee in bankruptcy of Zachary Matthew Moran and Danielle Moran, the Western Australian Registrar of Titles, Jodie Metcalfe (the current occupant of the property), and Industrial Progress Corporation Pty Ltd, which holds a caveat over the Rockingham property. None of the respondents opposed the orders sought, although the State raised a question about the proper parties to the application. 3 For the following reasons, the orders that Westpac seeks will be granted (with minor amendments).

Background 4 The registered proprietors of the property are Mr and Mrs Moran as joint tenants. 5 On 6 September 2006, Mr and Mrs Moran entered into two loan agreements with St George Bank Ltd. The first loan agreement was for an advance of $350,000 and the second loan agreement was for an advance of $654,000. Both loan amounts were secured by mortgages against both the Rockingham property the subject of the present application, and another property in Dawesville, Western Australia. 6 St George Bank advanced the amounts due under both agreements on 14 September 2006. The mortgage over the Rockingham property was registered on 15 September 2006. 7 On 25 February 2008, the first loan account was varied to advance a further $70,000 to Mr and Mrs Moran, which advance was made on 28 February 2008. 8 On or about 18 February 2010, the Australian Prudential Regulation Authority authorised the transfer of all of the business of St George Bank Ltd to Westpac with effect from 1 March 2010, pursuant to s 18 of the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth). 9 On 30 March 2016, Industrial Progress Corporation lodged a caveat over the Rockingham property. The nature of the interest is recorded as a '[c]harge contained in an agreement' between Mr and Mrs Moran and Industrial Progress Corporation which was entered into on 18 March 2013. The agreement itself is not in evidence. 10 On 5 June 2017, Mrs Moran was declared bankrupt by debtor's petition, and on 6 June 2017, Mr Moran was also declared bankrupt in the same manner. Mr Yeo, along with Gess Michael Rambaldi were appointed as Mr and Mrs Moran's trustees in bankruptcy. 11 In December 2017, the Dawesville property was sold and the proceeds of sale were applied to the debt owed to Westpac in discharge of the mortgage over that property. However, the proceeds were not sufficient to satisfy the debt in full, and so Mr and Mrs Moran were still liable to pay the remaining amounts due. 12 Mr and Mrs Moran defaulted on both the varied first loan agreement and the second loan agreement. On 26 November 2019, the solicitors for Westpac sent default notices to each of Mr and Mrs Moran in respect of both loan accounts. Mr Yeo and Mr Rambaldi were also sent a copy of the default notice on that day. 13 On 20 May 2020, Mr Yeo disclaimed the Rockingham property on the basis that it was not commercially viable to realise pursuant to s 133(1AA) and s 133(1) of the Bankruptcy Act. 14 However, it appears that the Rockingham property is occupied by Jodie Metcalf. Ms Metcalf was advised by letter of Westpac's claim to the property on 22 May 2020, but did not reply to the letter. Westpac has not received any rent from Ms Metcalf in respect of her occupation of the Rockingham property. Ms Metcalf has, however, been served with a copy of the present application. At a hearing on 10 August 2021, on Westpac's application, I ordered that Ms Metcalf be joined to this proceeding as a party who may wish to be heard and may be affected by its outcome. She has been served with all relevant documents in the proceeding, but has not participated in any way. 15 Likewise, the State raised the issue of whether Industrial Progress Corporation needed to be joined, given that it has a registered caveat over the Rockingham property. Industrial Progress Corporation had also been made aware of the proceeding, and in correspondence with the solicitors for Westpac, it indicated that it did not object to or intend to participate in the proceedings, unless a costs order was sought against it. Although Westpac initially argued that it was not necessary to formally join Industrial Progress Corporation, at a hearing on 6 October 2021, on Westpac's application, I made orders joining the company as a respondent. It too has been served with all relevant documents in the proceeding, and has filed a submitting notice. 16 The bankruptcies of Mr and Mrs Moran were discharged in June 2020. However, those discharges did not affect the right of Westpac to realise or otherwise deal with its security: Bankruptcy Act s 153(3). As at 3 February 2021, the total amount outstanding under the varied first loan agreement was $449,108.84. Under the second loan agreement, the amount due was $292,602.05. Therefore, the total amount outstanding under both agreements is $741,710.89. Westpac obtained a 'desktop valuation' dated 14 October 2020 which appears to value the Rockingham property at $473,080. It is therefore likely that there will be no excess proceeds if Westpac sells the property in satisfaction of the debts.

Remedy sought 17 Westpac seeks orders that will have the effect that the estate in fee simple in the Rockingham property will vest in it, permitting (but not requiring) it to exercise its powers as mortgagee under the Transfer of Land Act 1893 (WA) and under the mortgage itself. 18 The orders sought include orders deeming Westpac to have served certain default notices required by statute. There is an order entitling Westpac to calculate the entirety of the debt secured and owing under the mortgage as including all monies that would have been secured but for the disclaimer (including the costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Rockingham property), and to use the proceeds of sale as if it were money secured by the mortgage. Another order outlines the priority of the payment of the proceeds of any sale of the property, and includes an order that Westpac pay any surplus funds into court after the debt owing to it is discharged. There is also an order requiring Westpac to provide an account of its payments and receipts in respect of the Rockingham property to the State, Mr Yeo and a registrar of the court. No order is sought as to costs.

Principles 19 The effect of the trustee in bankruptcy disclaiming the Rockingham property is that the fee simple escheated to the Crown in right of the State of Western Australia: see Re Tulloch Ltd (in liq) (1978) 3 ACLR 808. This occurred in respect of both the legal title which Mr and Mrs Moran held as registered proprietors and the equitable interest of their trustees in bankruptcy: see Australia and New Zealand Banking Group Limited v State of Queensland, in the matter of McFarlane (a Bankrupt) [2017] FCA 696 at [14]-[20]. Hence, Westpac's rights against Mr and Mrs Moran as mortgagors of the Rockingham property no longer allow it to enforce the mortgage over the property, and it has no right to enforce the mortgage against the State: National Australia Bank Limited v New South Wales [2014] FCA 298 (NAB v NSW) at [9]. Accordingly, Westpac will not be able to take action to realise its security unless it is granted the vesting orders. 20 Section 133 of the Bankruptcy Act relevantly provides: 133 Disclaimer of onerous property (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. … (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. … 21 In a series of decisions it has been held that the rights of mortgagees, such as Westpac in this case, continue to have sufficient existence to ground an application for vesting orders: see NAB v NSW at [8] and the cases cited there. In NAB v NSW at [11], Perram J described the conditions that must be met by an applicant such as Westpac to be entitled to the relevant vesting order: (a) that a disclaimer to relevant property has occurred within the meaning of s 133; (b) that the applicant has an interest in the disclaimed property within the meaning of s 133(9); and (c) that the applicant 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. 22 I am satisfied that all three conditions are satisfied in this case. The Rockingham property has been disclaimed under s 133, and Westpac, as the mortgagee of the property, has an interest in it within the meaning of s 133(9). Furthermore, if the vesting order is not made, Westpac will lose the benefit of its security under the loan agreements in circumstances where there is still approximately $740,000 owing under them. It is therefore just and equitable that a vesting order be made in favour of Westpac so that it might realise its security, so far as that is possible.

Conclusion 23 There is no apparent reason why Westpac should not have the Rockingham property vested in it, and I will accordingly make the orders in the terms sought, including, subject to one point I raise below, the ancillary orders relating to the priority of the distribution of the proceeds. 24 The point that needs to be raised concerns the destination of any residue proceeds after the discharge of the debts. Westpac submits that, while it is highly unlikely that there will be any surplus funds, it is appropriate for any surplus funds to be paid into court because there may be competing interests between the trustee in bankruptcy and the State if the surplus funds were to be held by either of those parties. The State submits that any surplus funds should be paid to the trustee in bankruptcy, or to the Crown if the trustee has ceased to be appointed at the time when any surplus funds become available. It submits that the costs to creditors and the resources of the court to manage the funds if they are paid into court may be disproportionate to the quantum of any surplus funds. In the event that the trustee has ceased to be appointed, it submits that the funds ought to be paid to the Crown because the property would have remained vested in the Crown had the application not been made, and the State is in a position to take a flexible approach to the distribution of surplus funds. 25 While it is likely to be purely academic because there will be no surplus funds, I agree with the State that if there are any funds left over, they should be paid to the trustee in bankruptcy for distribution to any remaining creditors. The function of the trustee in bankruptcy is to distribute any funds remaining in the bankrupt estates, including any surplus from the sale of the Rockingham property, and any interest he holds in competition with any other party arises for the purpose of or in the course of the discharge of that function. However, should the trustee no longer be in office at the time when the surplus funds become available, I am not persuaded that the Crown is the appropriate ultimate destination of the funds. I expressed a view on this subject in Westpac Banking Corporation v State of Western Australia [2021] FCA 1097 at [27]-[30]. The State's submissions provide no reason to depart from that view in this case. In the event that there are any surplus funds with no trustee in bankruptcy to receive them, it is appropriate that they be paid into court. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.