FEDERAL COURT OF AUSTRALIA Biermann v The State of New South Wales [2011] FCA 51 Citation: Biermann v The State of New South Wales [2011] FCA 51 Parties: DIETER BIERMANN and URSULA BIERMANN v THE STATE OF NEW SOUTH WALES File number(s): NSD 1783 of 2010 Judge: JAGOT J Date of judgment: 2 February 2011 Catchwords: BANKRUPTCY AND INSOLVENCY – effect of disclaimer of trustee in bankruptcy on rights of third parties Legislation: Bankruptcy Act 1966 (Cth) Cases cited: National Australia Bank Limited v The State of Victoria [2010] FCA 1230 Date of hearing: 2 February 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 13 Counsel for the Applicants: Mr P Cutler Solicitor for the Applicants: Pope and Spinks Lawyers Counsel for the Respondent: The respondent did not appear IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1783 of 2010 BETWEEN: DIETER BIERMANN First Applicant URSULA BIERMANN Second Applicant AND: THE STATE OF NEW SOUTH WALES Respondent JUDGE: JAGOT J DATE OF ORDER: 2 FEBRUARY 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the title of the property situated at 289 Conadilly Street, Gunnedah NSW (being Lot 42 in DP 222836) (the Gunnedah property) vest in the applicants. 2. After the sale of the Gunnedah property, the applicants must deliver to the trustee of the bankrupt estate of Steven James Coughlin accounts of how the proceeds of the sale are dealt with, together with the whole of the proceeds of sale remaining (if any) after first deducting from the proceeds all moneys due to the applicants as mortgagees, including all costs properly incurred and incidental to the sale. 3. There be no order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1783 of 2010 BETWEEN: DIETER BIERMANN First Applicant URSULA BIERMANN Second Applicant AND: THE STATE OF NEW SOUTH WALES Respondent JUDGE: JAGOT J DATE: 2 FEBRUARY 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an application seeking an order pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) (the Act) vesting title of the property situated at 289 Conadilly Street, Gunnedah, New South Wales (being Lot 42 in DP222836) (the Gunnedah property) in the applicants. 2 The application is made in the following circumstances. 3 Section 133(9) of the Act provides that: [t]he 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. 4 Under s 133(10): [s]ubject 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. 5 The application is supported by an affidavit of Ursula Biermann, the second-named applicant. Ms Biermann's affidavit establishes the following sequence of events. On 6 March 2009 a sequestration order was made against Steven James Coughlin in the Federal Magistrates Court of Australia. According to Ms Biermann there was an unsuccessful application for review of that order. 6 The trustee in bankruptcy of Mr Coughlin's estate is G.S. Turner. Mr Coughlin was the registered proprietor of the Gunnedah property. According to Ms Biermann's affidavit, on 7 September 2006 she and her husband lent Mr Coughlin the sum of $112,000 (the loan). Security for the loan was provided by a first registered mortgage over the Gunnedah property. Mr Coughlin defaulted in making repayments. 7 The certificate of title for the Gunnedah property shows as one of the dealings a registered mortgage to the applicants, Dieter Biermann and Ursula Charlotte Biermann. The Gunnedah property is a noodle bar located in the main street of Gunnedah. According to Ms Biermann the property is currently occupied, but to the best of her knowledge there is no current lease. Ms Biermann has had some contact with the tenant, who indicated that she was still paying rent to Mr Coughlin. 8 Mr Coughlin's trustee in bankruptcy, by a letter dated 30 March 2010, disclaimed the Gunnedah property. The trustee stated that: pursuant to section 133(1AA) of the Bankruptcy Act 1966 I hereby disclaim any interest in the land comprised in Folio Identifier 42/222836. 9 Under ss 133(1AA) and 133(1) of the Act a trustee may disclaim onerous property, the effect of which is that the property vests in the State of New South Wales (the State), the respondent in this proceeding. 10 Mr Cutler, for the applicants, has drawn my attention to the decision of Bennett J in National Australia Bank Limited v The State of Victoria [2010] FCA 1230 (NAB v Victoria). In that decision her Honour noted that while the question of the effect of a trustee's disclaimer is of "some interest and complexity", the practical effect for a person in the position of the applicants (that is, a person having the benefit of a mortgage over the land disclaimed) is that they cannot deal with the land because the bankrupt's interest in it has been fully discharged by the disclaimer of the trustee in bankruptcy. However, as Bennett J also observed in the same case, the disclaimer by the trustee in bankruptcy does not affect the rights and liabilities of third parties (the third parties in this case being the applicants). Bennett J concluded that the mortgagees in the case of NAB v Victoria retained their rights and interest in the land notwithstanding the trustee's disclaimer and the vesting of the land in the Crown, the combined effect of which was that the mortgagee could take no action because the Crown had no obligation under the mortgages. In those circumstances, Bennett J determined that s 133(9) was enlivened and made an order for the vesting of the properties in the mortgagee. 11 Orders to the same effect are sought in this case. Ms Biermann's affidavit discloses that the amounts owing under the loan far exceed the estimated current value of the Gunnedah property. The applicants are registered mortgagees, and the trustee's disclaimer leaves them in the same difficult position in which the NAB found itself in NAB v Victoria. The trustee in bankruptcy through his solicitors, MP Lawyers, has said as follows by a letter dated 31 January 2011: [w]e are instructed to confirm that the Trustee for the bankrupt estate of Mr Coughlin does not oppose Orders 1 and 2 of the orders to be sought in the Application dated 20 December 2010 and filed in the Federal Court of Australia. 12 Accordingly, the trustee in bankruptcy has no objection to the making of the vesting order sought. 13 Similarly, there is on the Court's file a submitting appearance by the respondent, the State (the owner of the Gunnedah property by reason of the trustee's disclaimer), indicating that it submits to any order of the Court, save as to costs. In circumstances where Mr Coughlin's interests in the Gunnedah property have been divested by the trustee's disclaimer, and where there is evidence before me that the amounts of money owing to the applicants as registered mortgagees far exceed the value of the Gunnedah property, I am satisfied that it is just and equitable for a vesting order to be made as sought. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 4 February 2011