Westpac Banking Corporation v State of Western Australia, in the matter of Conco Construction Services Pty Ltd

Counsel for the First Respondent: Ms JJE Perera

Solicitor for the First Respondent: State Solicitor's Office

Counsel for the Second, Third, Fourth and Fifth Respondents: The second, third, fourth and fifth respondents filed submitting notices

Counsel for the Sixth Respondent: The sixth respondent filed a submitting notice save as to costs

BETWEEN: WESTPAC BANKING CORPORATION (ACN 007 457 141) Applicant

AND: STATE OF WESTERN AUSTRALIA First Respondent

SCOTTISH PACIFIC BUSINESS FINANCE PTY LIMITED (ACN 008 636 388) Third Respondent TL COMMERCIAL FINANCE PTY LIMITED (ACN 071 702 264) Fourth Respondent CRESTLINK NOMINEES PTY LTD (ACN 643 985 880) Fifth Respondent REGISTRAR OF TITLES Sixth Respondent

order made by: JACKSON J DATE OF ORDER: 12 october 2022

1. Pursuant to s 568F of the Corporations Act 2001 (Cth), the estate in fee simple in the property known as Unit 12, 11 Mordaunt Circuit, Canning Vale WA 6155, which is more particularly described as Lot 7 on Survey-Strata Plan 72987 and being the whole of the land comprised in Certificate of Title Volume 2922 Folio 813 (Property) shall vest in the applicant for the purposes of the applicant exercising its powers as mortgagee under the Transfer of Land Act 1893 (WA) and registered mortgage number N629176 (Mortgage), subject to the following conditions: (a) for the purposes of any dealings with the Property the applicant may (but is not bound to) act as if it were exercising its power as mortgagee and as mortgagee in possession under the Transfer of Land Act 1893 (WA) and under the Mortgage, except that it is: (i) deemed to have served any additional default notices under s 88 of the National Credit Code (being Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)); and (ii) deemed to have served any additional default notices pursuant to s 106 Transfer of Land Act 1893 (WA); (b) the applicant 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 second respondent, being the liquidator of Conco Construction Services Pty Ltd (ACN 604 480 757) a company in liquidation (Company), not disclaimed the Property, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Property as if it were money secured by the Mortgage (including the costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Property); (c) the proceeds of sale from the Property shall be applied as follows: (i) first, in payment of any statutory charges affecting the Property which the relevant statute provides are payable in priority to the applicant (in its capacity as a mortgagee); (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 as secured by the Mortgage (including its costs of this application); (iv) fourthly, in payment of any subsequent mortgages or caveats (if any); and (v) the residue (if any) of the proceeds so received must be paid to the liquidator of the Company or, if when any surplus funds become available a liquidator has ceased to be appointed to the Company, the surplus proceeds must be paid into the Court; and (d) the applicant must, after any sale of the Property, provide an account of its payments and receipts to: (i) the first respondent; (ii) the second respondent; and (iii) the Registrar of the Court.
2. On any sale of the Property pursuant to these orders the applicant must lodge with the Registrar of Titles at the Western Australian Land Information Authority (Landgate): (a) a sealed copy of these orders; (b) a transfer of the Property as mortgagee exercising its power of sale (Form T4); and (c) any duplicate Certificate of Title for the Property currently in the possession of the mortgagee.
3. No order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKSON J: 1 The applicant, Westpac Banking Corporation, seeks a vesting order and related orders pursuant to s 568F of the Corporations Act 2001 (Cth) in respect of a property in Canning Vale, Western Australia. Conco Construction Services Pty Ltd, a company in liquidation, is the registered proprietor of that property. The property has been disclaimed by the liquidator of the company. 2 The respondents to this application are the State of Western Australia; the liquidator of Conco; three companies holding caveats over the property; and the Western Australian Registrar of Titles. All of the respondents other than the State have filed submitting notices. The State raises issues as to notification of all respondents, and also makes submissions as to how any surplus funds should be dealt with if the vesting order is made. 3 For the following reasons, orders largely in the terms sought by Westpac will be made.

Events leading up to disclaimer 4 On 2 May 2017, Westpac and Conco entered into a written loan agreement that was secured by a mortgage over the Canning Vale property. 5 Westpac advanced the amount of the loan on 19 May 2017. The mortgage was registered with the Registrar of Titles on 23 May 2017. A title search also shows caveats lodged by each of the third, fourth and fifth respondents. 6 Conco defaulted on the loan agreement with Westpac and on 28 February 2020, Westpac served default notices, with which Conco did not comply. 7 On 25 November 2020, the Supreme Court of Victoria ordered that Conco be wound up and the second respondent, Mr Tang, was appointed liquidator. As at that time, Conco owed Westpac $129,892.69. No part of the amount owing has since been paid. As at 19 January 2022, the amount remaining due and owing was $142,019.80. 8 On 5 February 2021 the liquidator of Conco disclaimed any interest in the Canning Vale property under s 568 of the Corporations Act. His notice of disclaimer lodged with the Australian Securities and Investments Commission put the basis as being that it was reasonable to expect that the costs, charges and expenses that would be incurred in realising the property would exceed the proceeds of realising it. 9 On 19 July 2021, Westpac obtained a valuation of the Canning Vale property that estimated its value at $180,000.00. While that is higher than the amount that was owing in January of this year, Westpac submits that after legal fees and costs associated with the sale of the property, there is unlikely to be any significant surplus. 10 The Canning Vale property is vacant and Westpac has been in possession of the property since 15 July 2021. 11 The State suggested in its written submissions that there was insufficient or no evidence to indicate that the third, fourth, fifth and sixth respondents were issued with notices under s 568A(1). However the State did not submit that the apparent lack of notification of disclaimer prevents the Court from exercising its powers under s 568F. 12 According to an affidavit of Shani Claassen sworn 17 June 2022, any lack of notice has since been rectified. On 17 June 2022 a notice of disclaimer of onerous property was sent on behalf of the liquidator to the third, fourth and fifth respondents. Therefore, in relation to those respondents, this issue falls away. 13 As for the sixth respondent, the Registrar of Titles, it has been served with the papers in this proceeding and has filed a submitting appearance by way of the State Solicitor for Western Australia, who is also the legal representative of the State. I am satisfied that any failure by the liquidator to comply with s 568A(1)(d), which specifically required service of the notice of disclaimer on the Registrar of Titles, does not invalidate the disclaimer or provide any reason for the Court not to act on it. The State and the Registrar of Titles made no submission to the contrary.

Remedy sought 14 Westpac seeks orders that will have the effect that the estate in fee simple in the Canning Vale 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. 15 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 Canning Vale property), and to use the proceeds of sale as if it were money secured by the mortgage. 16 Another order sought outlines the priority of the payment of the proceeds of any sale of the property. It includes an order that after discharging the debt owed to it, and discharging any other debts owed under any other mortgages and caveats, Westpac must pay any surplus funds to the liquidator of Conco or, if the liquidator has ceased to be appointed, into court. 17 There is also an order sought requiring Westpac to provide an account of its payments and receipts in respect of the Canning Vale property to the State, the liquidator and the registrar of the Court. No order is sought as to costs.

Principles 18 Section 568(1) of the Corporations Act relevantly provides: Subject to this section, a liquidator of a company may at any time, on the company's behalf, by signed writing disclaim property of the company that consists of: (a) land burdened with onerous covenants; or … (e) property where it is reasonable to expect that the costs, charges and expenses that would be incurred in realising the property would exceed the proceeds of realising the property; or whether or not: (g) … the liquidator has tried to sell the property, has taken possession of it or exercised an act of ownership in relation to it… 19 Section 568F of the Corporations Act provides: (1) The Court may order that disclaimed property vest in, or be delivered to: (a) a person entitled to the property; or (b) a person in or to whom it seems to the Court appropriate that the property be vested or delivered; or (c) a person as trustee for a person of a kind referred to in paragraph (a) or (b). (2) The Court may make an order under subsection (1): (a) on the application of a person who claims an interest in the property, or is under a liability in respect of the property that this Act has not discharged; and (b) after hearing such persons as it thinks appropriate. (3) Subject to subsection (4), where an order is made under subsection (1) vesting property, the property vests immediately, for the purposes of the order, without any conveyance, transfer or assignment. (4) Where: (a) a law of the Commonwealth or of a State or Territory requires the transfer of property vested by an order under subsection (1) to be registered; and (b) that law enables the order to be registered; the property vests in equity because of the order but does not vest at law until that law has been complied with. 20 The effect of the liquidator disclaiming the Canning Vale property is that the fee simple escheated to the Crown in right of the State, subject to any existing mortgages or charges: Tonic Pty Ltd v State of South Australia [2019] FCA 1361 at [8] (Charlesworth J). Although there is no personal covenant upon which Westpac as mortgagee can take action against the Crown, the escheat does not erase the rights that have accrued from the mortgagor's default. However the disclaimer does mean that in the absence of a vesting order, the mortgagee will not be able to take any action to realise the security. See AFSH Nominees Pty Ltd v State of Western Australia [2022] FCA 1168 at [15]-[21] (Colvin J) applying, among other authorities, Bank of Queensland Limited v State of Western Australia [2020] FCA 442 at [36] (McKerracher J). The mortgagee, as a person claiming an interest in the property, may make application for the vesting order: s 568F(2)(a). 21 In Sullivan v Energy Services International Pty Ltd (in liq) [2002] NSWSC 937 at [37]-[40] Young CJ in Eq traced the legislative history of the provision. The relevant standard for a vesting order was originally that it seem 'just' to the Court, in 1981 the relevant adjective was changed to 'proper' (in the Companies Code), and in s 568F it must seem to the Court that it is 'appropriate' that the property be vested. There is no reason to think that these changes in wording changed the substance of the standard to be applied. Also, there are obvious parallels between s 568F and the cognate provision of the Bankruptcy Act 1966 (Cth), s 133(9), where the standard is that it be 'just and equitable' that the property vest in the person: see e.g. AFSH Nominees at [20].

Consideration 22 I am satisfied that the conditions necessary to enliven the Court's discretion to make a vesting order under s 568F(1)(b) of the Corporations Act are fulfilled in this case. The Canning Vale property has been disclaimed under s 568, and Westpac, as the mortgagee of the property, has an interest in it and has made an application for a vesting order within the meaning of s 568F(2)(a). There is no indication on the evidence that there are any other persons who would have an interest so that they should be heard by the Court. 23 As to whether the order is appropriate, if the vesting order is not made, Westpac will lose the benefit of its security under the loan agreement in circumstances where there is still approximately $140,000 owing under it. Defaults have occurred and default notices have been served. Had the property not been disclaimed, Westpac would have been able to exercise its rights as mortgagee. It is consistent with the purpose of the provision, which is that a disclaimer should cause as little disturbance to the rights and liabilities of third parties as possible (see Sullivan at [37]), to make the orders necessary for Westpac to exercise those rights. It therefore seems to me that it is appropriate that a vesting order be made in favour of Westpac so that it might realise its security, so far as that is possible. See e.g. Stacks Managed Investments Limited, in the matter of Premium Mortgage Income Fund [2008] FCA 12 at [14]-[16]. 24 Unlike s 133 of the Bankruptcy Act, s 568F does not expressly contemplate that a vesting order may be made on terms or subject to conditions. But it is common to make orders imposing terms and conditions of the kind Westpac seeks here, and it is reasonably ancillary to the Court's power to make a vesting order for such terms and conditions to be imposed. Subject to the question of the destination of surplus funds, it is appropriate to make orders essentially in the terms sought by Westpac. A further order sought by the State providing for registration of any sale of the property pursuant to these orders is also appropriate.

Destination of any surplus funds 25 Westpac submits that it is appropriate for any surplus funds to be paid to the liquidator, and seeks orders to that effect, save that if the liquidator's appointment has ceased at the time when any surplus funds become available, the surplus should be paid into Court. 26 The State effectively agrees that any surplus funds should be paid to the liquidator but submits that if the liquidator's appointment has ceased at the time when those funds become available, or if any of those surplus funds remain after the liquidator has paid all creditors, any residue should be paid to it. It submits that if the application had not been made, the Canning Vale property would have remained vested in the Crown in right of the State, and the State is in the position to take a flexible approach to the distribution of surplus funds to any creditors whose debts have not been satisfied by the end of the liquidation. It also points out that Westpac's proposed approach would require court resources to manage the funds, and that any time and resources used to facilitate any distribution from such funds may be disproportionate to their quantum. 27 The State's submission is not persuasive. It makes that submission in this case even though it has failed to find favour in several recent cases, including Westpac Banking Corporation v State of Western Australia [2021] FCA 1097 at [27]-[30]; Australia and New Zealand Banking Group Limited v State of Western Australia, in the matter of Aman [2022] FCA 191 at [83]-[87] (Banks-Smith J); and Australia and New Zealand Banking Group Limited v State of Western Australia, in the matter of Raleigh [2022] FCA 639 at [35]-[41] (Banks-Smith J). The State points to no feature of this case that distinguishes it from the circumstances in those cases and for the reasons given in those cases, the State's submissions are again rejected. 28 I note that in AFSH Nominees at [28] Colvin J accepted a submission by the State that it was appropriate to order that the Court holds any surplus proceeds and that two years after receipt of those proceeds, they must be paid to the Crown in right of the State. However since no party submits that a further order of that kind is appropriate in this case, I do not consider it appropriate to make it here. The Court will in any event have power to make an order to distribute any surplus in those circumstances if they arise and if it is appropriate to do so at the time. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.