FEDERAL COURT OF AUSTRALIA Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 File number: QUD 787 of 2016 Judge: EDELMAN J Date of judgment: 11 November 2016 Catchwords: BANKRUPTCY – Bankruptcy Act 1966 (Cth) s 133 – application by mortgagee for vesting of bankrupts' property in mortgagee for the purpose of sales – where trustee in bankruptcy does not register transfer of title – effect of disclaimer by trustee in bankruptcy Legislation: Bankruptcy Act 1966 (Cth) ss 58(2), 133133(1AA), 133(1), 133(1A), 133(2), 133(9), 133(10) Land Title Act 1994 (Qld) s 115 National Consumer Credit Protection Act 2009 (Cth) Sch 1 s 88 Property Law Act 1974 (Qld) s 84 Cases cited: National Australia Bank v New South Wales [2009] FCA 1066; (2009) 182 FCR 52 National Australia Bank Ltd v State of New South Wales [2014] FCA 298 Rams Mortgage Corporation Ltd v Skipworth (No 2) [2007] WASC 75; (2007) 210 FLR 11 Sandhurst Trustees Ltd v 72 Seventh Street Nominees Pty Ltd (In Liq) (1998) 45 NSWLR 556 Westpac Banking Corporation v State of Queensland [2016] FCA 269 Date of hearing: 11 November 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 19 Counsel for the Applicant: K Gothard Solicitor for the Applicant: Gadens Solicitor for the Respondent: S Amos of Crown Law ORDERS QUD 787 of 2016 IN THE MATTER OF ASHLEY GEOFFREY GINN (GINN) AND AMY ELIZABETH GAULT (ALSO KNOWN AS AMY ELIZABETH GINN) BETWEEN: COMMONWEALTH BANK OF AUSTRALIA (ABN 48 123 123 124) Applicant AND: STATE OF QUEENSLAND Respondent JUDGE: EDELMAN J DATE OF ORDER: 11 NOVEMBER 2016 THE COURT ORDERS THAT: 1. Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the estate in fee simple in the property described as Lot 2 on Survey Plan 172269, Title Reference 50545922 (Unit), vest in the applicant for the purpose of the applicant exercising its powers as mortgagee under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and registered mortgage number 709306800 (Unit Mortgage). 2. Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the estate in fee simple in the property described as Lot 8 on Survey Plan 141152, Title Reference 50424535 (Land), vest in the applicant for the purpose of the applicant exercising its powers as mortgagee under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and registered mortgage number 707593566 (Land Mortgage). 3. On the vesting of the Unit in the applicant pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) the applicant: (a) may, but is not bound to, deal with the Unit as if it were exercising its powers as mortgagee in possession under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and the Unit Mortgage, including exercising the right to sell the estate in fee simple of the Unit in exercise of its power of sale and all its other rights under the Unit Mortgage; (b) for the purpose of selling the estate in fee simple of the Unit in exercise of its power of sale, is not required to serve: (i) a notice of default or demand whether under s 88 of the National Credit Code, being Sch 1 to the National Consumer Credit Protection Act 2009 (Cth) or otherwise; and (ii) a notice of exercise of power of sale under s 84 of the Property Law Act 1974 (Qld); (c) is entitled to calculate the entirety of the debt secured and owing pursuant to the Unit Mortgage as including all monies that would have been secured by the Unit Mortgage had the trustee in bankruptcy of each of Amy Elizabeth Ginn (nee Gault) and Ashley Geoffrey Ginn (Mortgagors) not disclaimed the Unit, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Unit as if it were money secured by the Unit Mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Unit); (d) will apply the proceeds of sale from the Unit as follows: (i) first, in payment of any statutory charges affecting the Unit, which the relevant statute provides are payable in priority to the applicant; (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 the Mortgagors; (iv) fourthly, in payment of any subsequent mortgages (if any); and (v) the residue (if any) of the proceeds so received shall be paid into Court in this proceeding; (e) must, after any sale of the Unit, provide an account of its payments and receipts to: (i) David Lewis Clout as trustee of each of the bankrupt estates of the Mortgagors; (ii) each of the Mortgagors; and (iii) the Brisbane Registry of the Federal Court of Australia. 4. On the vesting of the Land in the applicant pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the applicant: (a) may, but is not bound to, deal with the Land as if it were exercising its powers as mortgagee in possession under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and the Land Mortgage, including exercising the right to sell the estate in fee simple of the Land in exercise of its power of sale and all its other rights under the Land Mortgage; (b) for the purpose of selling the estate in fee simple of the Land in exercise of its power of sale, is not required to serve: (i) a notice of default or demand whether under s 88 of the National Credit Code, being Sch 1 to the National Consumer Credit Protection Act 2009 (Cth) or otherwise; and (ii) a notice of exercise of power of sale under s 84 of the Property Law Act 1974 (Qld); (c) is entitled to calculate the entirety of the debt secured and owing pursuant to the Land Mortgage as including all monies that would have been secured by the Land Mortgage had the trustee in bankruptcy of each of the Mortgagors not disclaimed the Land, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Land as if it were money secured by the Land Mortgage (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Land); (d) will apply the proceeds of sale from the Land as follows: (i) first, in payment of any statutory charges affecting the Land, which the relevant statute provides are payable in priority to the applicant; (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 the Mortgagors; (iv) fourthly, in payment of any subsequent mortgages (if any); and (v) the residue (if any) of the proceeds so received shall be paid into Court in this proceeding; (e) must, after any sale of the Land, provide an account of its payments and receipts to: (i) David Lewis Clout as trustee of each of the bankrupt estates of the Mortgagors; (ii) each of the Mortgagors; and (iii) the Brisbane Registry of the Federal Court of Australia. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT EDELMAN J: 1 The Commonwealth Bank of Australia applies for orders under s 133(9) of the Bankruptcy Act 1966 (Cth) for real property which has been disclaimed by a trustee in bankruptcy to be vested in it so that it can exercise a power of sale. The trustee in bankruptcy was served with this application and was contacted by the solicitors for the Commonwealth Bank. He has indicated that he does not oppose the application and has no desire to be joined. The State of Queensland has filed a submitting notice. 2 For the reasons that follow, the usual orders under s 133(9) of the Bankruptcy Act should be made to provide for that vesting and sale. 3 Mr and Mrs Ginn were owners of two properties located as follows: (1) Unit 2, Le Jardine, 10 Hermitage Drive, Airlie Beach in the State of Queensland, more properly described as Lot 2 on Survey Plan 172269, Title Reference 50545922 (the Airlie Beach Unit); and (2) 25 Stonehaven Court (also known as Lot 8 Stonehaven Waterson Road), Airlie Beach in the State of Queensland, more properly described as Lot 8 on Survey Plan 141152, Title Reference 50424535 (the Airlie Beach Property). 4 On 1 March 2004 and 11 December 2005 respectively, Mr and Mrs Ginn executed a mortgage over the Airlie Beach Property and the Airlie Beach Unit in favour of the Commonwealth Bank. The mortgages were subsequently registered on the titles (respectively on 25 March 2004 and 20 January 2006). Each mortgage secured "the Amount Owing", being "all money which one or more of [Mr and Mrs Ginn] owe [the Commonwealth Bank], or will or may owe [the Commonwealth Bank] in the future, under a Secured Agreement and this mortgage or either of them". 5 On 11 November 2015, each mortgage secured a principal amount of $891,000.00 arising from two lines of credit, two investment home loans, and a home loan described as follows: (1) $20,000.00 under a Consumer Credit Contract Schedule for a Viridian Line of Credit (the 2003 Viridian Line of Credit); (2) $100,000.00 under an Investment Home Loan, the terms of which were contained in the Commonwealth Bank's "Usual Terms and Conditions for Consumer Mortgage Lending" document (the 2003 Investment Home Loan); (3) $240,000.00 under a Complete Home Loan, the terms of which were contained in the Commonwealth Bank's "Usual Terms and Conditions for Consumer Mortgage Lending" document (the 2003 Home Loan); (4) $460,000.00 under a Consumer Credit Contract Schedule for an Investment Home Loan (the 2005 Investment Home Loan); and (5) $71,000.00 under a Consumer Credit Contract Schedule for a Viridian Line of Credit (the 2007 Viridian Line of Credit). 6 Mr and Mrs Ginn defaulted under all of those loans by failing to make repayments from the following dates: (1) the 2003 Viridian Line of Credit since 17 November 2014; (2) the 2003 Investment Home Loan since 2 August 2015; (3) the 2003 Home Loan since 6 July 2015; (4) the 2005 Investment Home Loan since 22 July 2015; and (5) the 2007 Viridian Line of Credit since 31 January 2015. 7 On 17 August 2015, Mr and Mrs Ginn were declared bankrupt. A trustee in bankruptcy was appointed by a debtor's petition. 8 On 11 November 2015, the Commonwealth Bank sent letters of demand to Mr and Mrs Ginn. Then, on 1 December 2015, the Commonwealth Bank sent notices of default to Mr and Mrs Ginn. 9 Section 58(2) of the Bankruptcy Act provides: Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of that law have been complied with. 10 Counsel for the Commonwealth Bank submitted that the Land Title Act 1994 (Qld) (by which I assume counsel meant s 115) requires the transmission of property to be registered and enables the trustee of the estate of a bankrupt to be registered as the owner. If this is the case (which I do not need to decide), the effect of s 58(2) may be that the trustee only obtained equitable title to the Airlie Beach Property and the Airlie Beach Unit. The legal title would not vest in the trustee until registration (which has not occurred). 11 Section 133 of the Bankruptcy Act provides, relevantly, as follows: (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. (1A) Subject to this section, the trustee may at any time, by writing signed by him or her, disclaim any contract that forms part of the property of the bankrupt whether or not the trustee has endeavoured to assign the property or exercised any rights in relation to it. (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. 12 On 18 December 2015 the trustee disclaimed his title to the Airlie Beach Property and to the Airlie Beach Unit pursuant to s 133(1A) of the Bankruptcy Act. The trustee gave notice of this disclaimer to the Queensland Land Registry, and the disclaimer was notified on the title to each property. 13 In Westpac Banking Corporation v State of Queensland [2016] FCA 269, I considered some of the issues concerning disclaimer that arose from the interaction of s 58(2) and s 133 of the Bankruptcy Act. It was unnecessary to reach any final conclusions in that case concerning all the issues relating to these two provisions. It is also unnecessary to reach final conclusions in this case where the issues were not explored in detail in submissions. It suffices to say that there are at least two different ways of construing the effect of the disclaimer by the trustee. 14 One conception of s 133 is that the disclaimer operates to determine all the trustee's title and interests in relation to the bankrupt's property. However, if the trustee's title has not been registered then the only title which is determined is the equitable title of the trustee (recognised by s 58(2)). This might mean that the bankrupt remained the holder of a notional legal title and no escheat to the Crown would occur. 15 There is a second, competing, conception of the operation of s 133 where the property is not registered which I considered in Westpac Banking Corporation v State of Queensland [2016] FCA 269 [31]. This is that although the trustee had only equitable title in relation to the disclaimed property, the effect of the disclaimer was to disclaim rights which the trustee did not have. Section 133(2) of the Bankruptcy Act determines all rights and interests of the bankrupt in respect of the property disclaimed (the trustee's equitable title). This is also consistent with the provision in s 133(1) that the trustee may disclaim "the property" (which might mean all of the bankrupt's rights in relation to the property) notwithstanding that the trustee is not the registered owner. The trustee therefore disclaims all of the bankrupt's rights including those rights which arise from being the registered owner. This would seem to be what was meant in Sandhurst Trustees Ltd v 72 Seventh Street Nominees Pty Ltd (In Liq) (1998) 45 NSWLR 556, 565-566, where Bryson J explained that proof of legal ownership "has stepped outside or beyond the Torrens System; when the whole facts are seen they show that the person who, according to the register, is apparently the fee simple owner in truth is not". 16 On the assumption that the second conception is correct, the dominant view in the authorities is that the disclaimer by the trustee immediately caused all title to each of the Airlie Beach Property and the Airlie Beach Unit to escheat to the Crown (contra National Australia Bank v New South Wales [2009] FCA 1066; (2009) 182 FCR 52, 59 [21]-[23] (Rares J)). 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). 17 Sections 133(9) and 133(10) of the Bankruptcy Act provide as follows: (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. 18 It is clear that the Commonwealth Bank as a mortgagee has an interest in the title to each of the Airlie Beach Property and the Airlie Beach Unit despite disclaimer: National Australia Bank Ltd v State of New South Wales [2014] FCA 298 [10] (Perram J). The debt which those titles secure has been in default since 17 January 2014 and continues to be in default. As at today, the total debt outstanding which is secured by the mortgages is $986,682.22. The Commonwealth Bank is the only registered mortgagee and currently has vacant possession of both the Airlie Beach Property and the Airlie Beach Unit. 19 This application is therefore by the Commonwealth Bank as a person claiming an interest in respect of disclaimed property (ie in respect of the title to property which has been the subject of a disclaimer of rights). The Commonwealth Bank has a persisting interest as mortgagee, and it has a right of sale (even though the right of sale was not able to be exercised prior to the bankruptcies because no default notice had been issued). I am satisfied that it is just and equitable to make orders vesting the title to each of the Airlie Beach Property and the Airlie Beach Unit to enable the Commonwealth Bank to realise the debt which those properties secure. The orders proposed are in the usual terms, and are appropriate. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman. Associate: Dated: 11 November 2016