FEDERAL COURT OF AUSTRALIA Walsh v State of Queensland [2019] FCA 871 File number: QUD 204 of 2019 Judge: LOGAN J Date of judgment: 29 May 2019 Catchwords: BANKRUPTCY – disclaimer of real property under s 133 of the Bankruptcy Act 1966 (Cth) – application for order under s 133(9) for property to vest in the applicants – where trustee in bankruptcy disclaimed onerous real property – where applicants purported to buy the property from the bankrupt after he entered into bankruptcy – where contract had settled and mortgage had been discharged – where bankrupt personally received no funds – whether it is just and equitable for the Court to make a s 133(9) order. Legislation: Bankruptcy Act 1966 (Cth) ss 58, 133 Corporations Act 2001 (Cth) Companies Act 1961 (NSW) s 296 Land Title Act 1994 (Qld) ss 28, 29 Property Law Act 1974 (Qld) s 20 Cases cited: Australia and New Zealand Banking Group Ltd v Fairfield City Council (2016) 18 BPR 36,045 Australia and New Zealand Banking Group Ltd v State of Queensland [2018] FCA 464 Breskvar v Wall (1971) 126 CLR 376 Mabo v Queensland (No 2) (1992) 175 CLR 1 National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52 Re Tulloch Ltd (In Liquidation) (1978) 3 ACLR 808 Date of hearing: 29 May 2019 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 37 Counsel for the Applicants: Ms K A Gothard Solicitor for the Applicants: Statewide Conveyancing Solicitor for the Respondent: Department of Natural Resources, Mines & Energy ORDERS QUD 204 of 2019 BETWEEN: LOUISE ALEXIS WALSH First Applicant RYAN JOHN WALSH Second Applicant AND: STATE OF QUEENSLAND Respondent JUDGE: LOGAN J DATE OF ORDER: 29 MAY 2019 THE COURT ORDERS THAT: 1. Pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth), the estate in fee simple in the property located at 8 Macpherson Street, Moranbah in the State of Queensland more properly described as Lot 21 on Survey Plan 167238, Title Reference 50490386, vest in the applicants as joint tenants subject to: (a) any charges over the property (if any) imposed by statute including but not limited to unpaid land tax, rates and water; (b) the Suncorp-Metway Ltd Mortgage executed by the applicants on 29 November 2018 (and currently lodged, but under requisition, in the Titles Registry under dealing number 719211410). 2. No order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised From Transcript) LOGAN J: 1 These proceedings are a sequel to lamentable lapses in good conveyancing practice by certain firms of solicitors in this State. It may also be that they are a sequel to an absence of a requirement, as a condition of admission to practice as a legal practitioner, that applicants have studied satisfactorily the law with respect to bankruptcy. The latter is but an interrogative note flowing from the former. 2 The applicants are Louise Alexis Walsh and Ryan John Walsh. On 5 November 2018 they entered into a contract with one Steven John McWha to purchase a house and land located in Moranbah in Queensland, being land more particularly described as Lot 21 on Survey Plan 167238, Title Reference 50490386 (the land). The purchase price in respect of the land was $430,000. 3 On 22 November 2018, the applicants retained a firm of solicitors practising, as the current regulation of the solicitors' branch of the legal profession presently permits, under the name "Statewide Conveyancing Shop" (Statewide). The purpose of the retainer was for Statewide to act on their behalf in the conveyance of the land, pursuant to the contract. 4 On 27 November 2018, on behalf of the applicants, Statewide conducted a search of the freehold land register maintained by the Registrar of Titles under and for the purposes of the Land Title Act 1994 (Qld) (Land Title Act). That title search disclosed an administrative noting under dealing number 718907202 in respect of the land. Unfortunately, Statewide did not thereupon undertake any investigation to ascertain the contents of the administrative noting. 5 At the time, Mr McWha was a bankrupt. His trustee in bankruptcy had disclaimed an interest in the land. Further, in fulfilment of the obligation found in s 133(3) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), the bankruptcy trustee had given notice of that disclaimer in respect of the land to the Registrar of Titles. It was that notice from the bankruptcy trustee which had occasioned the placing of the administrative noting on the register by the Registrar of Titles. Section 29(2) of the Land Title Act provides that: The registrar may also record in the freehold land register anything that the registrar considers should be recorded so as to ensure that the register is an accurate, comprehensive and usable record of freehold land in the State. 6 The Registrar of Titles' recording by administrative noting of the fact of disclaimer by a trustee in bankruptcy was an obvious and appropriate sequel, apt for recording pursuant to s 29(2) of the Land Title Act, to the giving of notice to him by the bankruptcy trustee of the disclaimer of the bankruptcy trustee's interest in the land. 7 On 7 December 2018, Statewide received an email from the firm of solicitors acting for Mr McWha as purported vendor, Roberts Nehmer McKee Lawyers. Attached to that email was a copy of the dealing image for dealing number 718907202, the administrative noting that noted the disclaimer of the land. In their email of 7 December 2018 to Statewide, Roberts Nehmer McKee advised that they had sought clarification from Mr McWha's bankruptcy trustee that the trustee did not have any interest in the land and was not to be involved in the settlement process. More particularly, one Charity Steward, a "conveyancing paralegal" with Roberts Nehmer McKee Lawyers, advised Statewide in the email of 7 December 2018: Please find attached confirmation from the Trustee that they do not have an interest in this property. The bankruptcy trustee by an email of 6 December 2018, enclosed within Roberts Nehmer McKee's email of 7 December 2018, had advised that firm: I have disclaimed any interest in the property – confirmed. 8 Settlement pursuant to the contract for the sale of the land occurred on 12 December 2018 at 2.30 pm. At that time the proceeds of sale were distributed as follows: (a) $473.69 Hastings Deering Australia Ltd; (b) $1,556.13 Isaac Regional Council; (c) $774.72 Roberts Nehmer McKee; (d) $9,685.00 Moranbah Property Specialists; (e) $298,224.46 National Australia Bank (cheque provided from Suncorp); and (f) $112,973.96 National Australia Bank (cheque provided from applicants). 9 In exchange for these payments, the National Australia Bank provided a release of mortgage, dealing number 713555659, over the land. The applicants secured a transfer of land document executed by Mr McWha in Form 1 in respect of the land. Suncorp produced a mortgage in a form suitable for registration securing an advance of funds to the applicants to enable the purchase. 10 Suncorp was represented for the purpose of effecting the registration of its mortgage by First Mortgage Services, another firm of solicitors. On 16 January 2019, First Mortgage Services sought to register on the freehold land register a transfer of land, the release of the National Australia Bank's mortgage, and Suncorp's mortgage. On 25 January 2019, the Registrar of Titles requisitioned the transfer application. The Registrar of Titles did so on the basis that the land had been disclaimed, and that Mr McWha was a bankrupt and so not to be able to hold or deal with the land in his personal capacity. 11 The understanding of bankruptcy law voiced by the Registrar of Titles in that requisition stands in marked contrast to that of Statewide, Roberts Nehmer McKee, and, for that matter, First Mortgage Services. The effect of bankruptcy was to vest, subject to exceptions not here relevant, all of Mr McWha's property, including the land, in his bankruptcy trustee. In turn, s 133(1) of the Bankruptcy Act empowered the bankruptcy trustee to disclaim onerous property. As already noted, this is what the bankruptcy trustee had done. 12 It was only as a result of the requisition that Statewide, and through that firm the applicants, came to appreciate the consequence of a disclaimer under bankruptcy law and the subsequent recording of that disclaimer by the Registrar of Tiles after notification by the bankruptcy trustee. While the transfer of the land has been subject to requisition, it should be recorded that a search of the freehold land register discloses that the release of the mortgage to the National Australia Bank and Suncorp's mortgage have not been requisitioned. However, neither the release nor the new mortgage has yet been registered. 13 The upshot then of these most unfortunate events is that the applicants, with the benefit of funds advanced by Suncorp, have paid the purchase price under the contract for the land. A sequel to that is the moneys owed by Mr McWha to the National Australia Bank secured by mortgage have been paid out. Notably also, local government rates which would be a charge in respect of the land under statute have also been paid out. Nothing has been received by Mr McWha personally. In making that observation, I have noted that a modest sum was paid to Hastings Deering. I have not found it necessary, in order to resolve this case, to determine what may be the consequence of an absence of evidentiary particularity as to what occasioned that specific payment. 14 Section 133(9) of the Bankruptcy Act provides: 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. 15 There is a similar regime in the Corporations Act 2001 (Cth) (Corporations Act) to the Bankruptcy Act in respect of the disclaimer of onerous property. That present regime in the Corporations Act has a provenance which may be traced materially to s 296(2) of the Companies Act 1961 (NSW). In relation to that regime, Needham J, in Re Tulloch Ltd (In Liquidation) (1978) 3 ACLR 808 (Re Tulloch), observed at 813 that it was "not easy to give an entirely satisfactory meaning to s 296(2)". That observation was made against the background of a case where in respect of a company in liquidation, a disclaimer had been made, but there existed a registered mortgage. His Honour further stated at 813: The next question is what remains to the mortgagee … In order to release "the company and the property of the company from liability" it is certainly necessary to hold that the contractual provisions of the mortgage cease to apply … There can remain no personal covenant and, as the Crown would take not as a successor to the company but by operation of law, the various provisions of the mortgage would not apply to it. There being no obligation on the company to comply with the contractual covenants, there could be, it would seem, no default in complying with them which would permit the mortgagee to exercise its powers, eg, of sale. Where however, the default already exists, it would follow, in my opinion, that the right to sell vested in the mortgagee is one of the rights not affected by the disclaimer … 16 Needham J's view in Re Tulloch has become something of a root authority in both corporate and personal insolvency law in relation to the consequences of a disclaimer insofar as that affects the holder of a registered mortgage. It has been repeatedly applied both in this Court as well as in the State Courts, exercising Federal corporations jurisdiction: see the authorities collected by me in Australia and New Zealand Banking Group Ltd v State of Queensland [2018] FCA 464 (ANZ v Queensland) at [8]. In that case, and with particular reference to a view expressed by Rares J in National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52 (NAB v New South Wales) at [23], I observed at [11] – [12]: 11. Absent authority, I should have thought that because the authority for the disclaimer is found in the Bankruptcy Act, whatever effect the disclaimer might have under the doctrine of escheat must necessarily be subject to what is otherwise the operation of the Bankruptcy Act. As it happens, I have the benefit of the consideration by Rares J on that very same point in National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52 (National Australia Bank v State of New South Wales), where his Honour stated at [23]: 23. I think that the better view may be that by force of a disclaimer under the Bankruptcy Act (or Div 7A of Pt 5.6 of the Corporations Act) the title to the fee simple or other property does not escheat absolutely to the Crown in right of the State because the Court can make an order vesting that title in someone else. The Court's power to make such a vesting order is created by a law of the Commonwealth (s 133(9) of the Bankruptcy Act or s 568F(1) of the Corporations Act). By force of s 109 of the Constitution that law supplants any inconsistent automatic operation of a law of a State to the extent that some form of immediate and indefeasible escheat to the Crown in right of the State would otherwise have occurred. As I have observed, the ordinary incidents of an escheat are not readily seen as conformable with its suggested application to disclaimers. However, it is not necessary to express a final view, since this matter was not argued and I do not need to decide it. 12. His Honour's considered view accords with my initial impression. That view, I note, was also adopted by Bennett J in National Australia Bank Ltd v Victoria [2010] FCA 1230 at [12]. Her Honour's observation at [15], that the land concerned, "does not escheat absolutely to the Crown", such as to preclude the court's ability to make an order vesting the title in someone else, pursuant to s 133(9), is completely congruent with the views expressed by Rares J in National Australia Bank v State of New South Wales. 17 Consistent with the views expressed in ANZ v Queensland and NAB v New South Wales, the State has been joined as a respondent. The State appeared and signified that it did not oppose the applicants' application. I was also helpfully directed by the State's solicitor to provisions in the Land Title Act of relevance. 18 Section 133(9) of the Bankruptcy Act also states that the powers for which it provides, if they are to be exercised, should be exercised after hearing from such persons as the Court thinks fit. As to that, the applicant's evidence includes the following. On 9 April 2019, the bankruptcy trustee advised the applicants' solicitors that the she had no interest in the proceedings. On 11 April 2019, Roberts Nehmer McKee, on behalf of the bankrupt, advised that he did not intend to appear or wish to be heard on the application. On 2 May 2019, Gadens Lawyers, on behalf of the National Australia Bank, advised that that bank neither opposed nor consented to the relief sought, and did not consider an appearance by their client to be necessary. 19 Notice of the application has not been given to Suncorp. It seems to me that Suncorp has a community of interest with the applicants in the sense that the applicants seek an order which would place them on the register and it might be expected that, as a sequel, that would see Suncorp's mortgage placed on the register. I do not therefore regard the absence of notice to Suncorp in the particular circumstances of the present case as an impediment to the granting of relief. 20 The question becomes whether an order vesting the land in the applicants is, in terms of s 133(9) of the Bankruptcy Act, just and equitable? Neither the researches of Ms Gothard, who appeared for the applicants and made helpfully candid and comprehensive submissions, nor my own, have disclosed a case exactly on point. The earlier cases in relation to this intersection between insolvency law and land law have entailed applications by the holders of registered mortgages, exercising or seeking to vindicate the exercise of powers of sale. 21 In terms of conditions precedent, s 133(9) requires that the application materially be made by someone claiming an interest in the property. The applicants claim that they have entered into a contract and settled, for that matter, a contract with the registered proprietor in respect of the land. The land in question is freehold land held under the Land Titles Act. 22 The Land Titles Act is a contemporary manifestation in Queensland of the Torrens system, and as Barwick CJ notably observed in Breskvar v Wall (1971) 126 CLR 376 at 384, the Torrens system is a "system of title by registration". 23 Thus, materially, the Registrar of Titles is obliged by s 28(1) to record in the freehold land register particulars necessary to identify: (a) every lot brought under this Act; and (b) every interest registered in the register; and (c) the name of the person who holds, and the name of each person who has held, a registered interest; and (d) if the person who holds a registered interest is a minor – the minor's date of birth; and (e) all instruments registered in the register and when they were lodged and registered. 24 At the time of settlement, Mr McWha was, and remained, the registered proprietor on the face of the freehold land register. Also recorded at that time in the freehold land register was the administrative noting notifying the disclaimer. 25 In Australia and New Zealand Banking Group Ltd v Fairfield City Council (2016) 18 BPR 36,045 (ANZ v Fairfield) at [32] – [34], Emmett AJA made the following observations: 32. The Mortgage was registered under the Real Property Act. However, that registration did not operate as a transfer of the fee simple in the Property to the Bank, as it would in relation to a mortgage of old system land. Rather, by the operation of s 57 of the Real Property Act, the Mortgage took effect as a security. The third question that arises is what happens to the estate in fee simple in land of which a company in liquidation is the registered proprietor when its liquidator disclaims that estate. 33. There are substantial reasons for concluding that the Crown in right of New South Wales became entitled to the fee simple in the Property as bona vacantia by the doctrine of escheat, and that the Company became, by implication of law, a trustee of the Property for the Crown, subject to the Bank's rights as mortgagee under the Mortgage. That is to say, where escheat occurs, and freehold land reverts to the Crown, the Crown will ordinarily take the land subject to any mortgages or charges upon the land that may have been created. Where, following disclaimer, a company's name remains on the register kept under the Real Property Act, with nothing more entered than a notation of the disclaimer, the rights of a mortgagee under its security will not be destroyed or substantially impaired. 34. The Corporations Act, of course, is an Act of the Commonwealth Parliament and not of the New South Wales Parliament, albeit in the exercise of legislative power referred by the States. For that reason, it may be arguable that escheat of the Property was to the Crown in right of the Commonwealth, rather than the Crown in right of the State. However, it is the Crown in right of the State that alienates land in New South Wales. Notwithstanding that the disclaimer may be effective by reason of the Corporations Act, the Property became bona vacantia as a consequence of disclaimer. I would be disposed to conclude that, being land in New South Wales, the Property escheated to the Crown in right of New South Wales, subject to the Mortgage. It would follow that, if no liability to the Bank was secured by the Mortgage, the Crown in right of New South Wales would be entitled to any surplus generated by the sale under s 713 of the Local Government act. Accordingly, I had a reservation as to whether the Crown should have been joined as a contradictor. 26 His Honour's allowing that it is arguable that the consequence of the Corporations Act being an Act of the Commonwealth Parliament is that escheat of the property was to the Crown in right of the Commonwealth, would have like application to an argument based on a consequence of the Bankruptcy Act, which is likewise an Act of the Commonwealth Parliament. Emmett AJA's allowance that it may be arguable that the escheat went to the Commonwealth has some support in views expressed in a current edition of Professor B Edgeworth Butt's Land Law (7th ed Lawbook Company 2017) at [1.130]. 27 Ultimately, as is noted in that text, and apparent from [34] of ANZ v Fairfield, Emmett AJA's view was that the escheat went to the State, in that case, of New South Wales. 28 As to escheat, s 20 of the Property Law Act 1974 (Qld) (Property Law Act) relevantly provides: 20 Incidents of tenure on grant in fee simple (1) All tenures created by the Crown upon any grant of an estate in fee simple made after the commencement of this Act shall be taken to be in free and common socage without any incident of tenure for the benefit of the Crown. (2) Where any quit rent issues to the Crown out of any land, or the residue of any quit rent issues to the Crown out of any land in respect of which quit rent has been apportioned or redeemed, such land or residue is released from quit rent. (3) In respect of property of any person dying intestate on or after 16 April 1968 – (a) escheat is abolished; and (b) all such property, whether real or personal, shall, subject to this section, be distributed in the manner and to the person or persons provided by the Succession Act 1981, but subject to the provisions (including part 4) of that Act. (4) Subject to any other Act, property of any corporation dissolved after the commencement of this Act shall not escheat, but the Crown shall be entitled to and take as bona vacantia all such property, whether real or personal, as would apart from this Act be liable to escheat or pass to the Crown as bona vacantia. 29 Notably, in relation to an abolition of escheat in Queensland, that abolition is in respect of property of any person dying intestate on or after 16 April 1968. In respect of corporations, the provision that property of a dissolved corporation shall not escheat, but rather that the Crown shall be entitled to and take as bona vacantia is in respect of dissolved corporations. There is no provision in the Property Law Act which abolishes escheat in relation to persons who become bankrupt. 30 It would, in my view, be inconsistent with the views, expressed in Mabo v Queensland (No 2) (1992) 175 CLR 1 at 66 by Brennan J, and 114 – 115 by Deane and Gaudron JJ, to hold that the effect of an escheat was to vest the land in the Crown in right of the Commonwealth. Federation did not effect a vesting of unallocated land hitherto vested in the Crown in the colonies, in the Crown in right of the Commonwealth. I therefore respectfully agree with the view expressed in ANZ v Fairfield by Emmett AJA, that the effect of the disclaimer, subject to an order by a court of competent jurisdiction, is to escheat the land to the relevant State Crown, in this case the Crown in right of Queensland. 31 But the Crown in right of Queensland was not shown on the register kept under the Land Titles Act as the registered proprietor at the time of settlement; nor is it presently so recorded. What follows from views which I have expressed is that, even though the effect of the disclaimer was to escheat the land to the State, subject to such orders as this Court (or another court having jurisdiction in bankruptcy might make), I do not regard the administrative noting as removing Mr McWha as registered proprietor. Rather that administrative noting served to notify the world at large as to the existence of a disclaimer. That disclaimer does have a consequence in law for which s 133 of the Bankruptcy Act provides, but in relation to a system of title by registration, that particular consequence had not been carried fully into effect. To state that is not in any way to voice any criticism of the Registrar of Titles whose administrative noting of the disclaimer was, in my respectful view, entirely appropriate. 32 It is therefore at least arguable that the applicants had an equitable interest which would support a caveat in respect of the land. It is not necessary, in my view, to reach a concluded view on that subject because the jurisdiction conferred by s 133(9) of the Bankruptcy Act is dependent upon a person claiming an interest, not the vindication of that claim. Rather, upon an interest being claimed, the Court is empowered to make such orders as are just and equitable. 33 The question becomes, what orders are just and equitable? Of course it may be that the applicants have a cause of action either for breach of contract of retainer, or negligence, or both, as against Statewide. But that does not mean that it is not just and equitable to make an order which would vest the land in them, subject to particular strictures sufficient to protect statutory obligations to pay, if any, which act as a charge in respect of the land, and it seems to me also, subject to the recognition and registration of Suncorp's mortgage. 34 The jurisdiction to make such orders as are just and equitable, ought not, in my view, to be limited by any a priori assumptions as to its nature and extent. The Court is exercising a very particular bankruptcy jurisdiction. It is doing so in circumstances where, as I have already observed, a most lamentable ignorance of bankruptcy law is well evident. But it is not, in my view, just and equitable in the prevailing circumstances that the applicants should be left just to such remedies as they may have at common law against their solicitors. Nor, in my view, would it be just and equitable for there to be uncertainty as to the right of the National Australia Bank to retain the proceeds of sale paid to it so as to release the mortgage; nor would it be just and equitable that funds advanced by Suncorp upon the strength of a security which it thought was capable of registration should be subject to uncertainty in relation to whether that security can be registered. 35 Particularly influential also is that the bankrupt has not received personally anything from the proceeds of sale. Also influential is that, on the evidence, the "sale" which did occur has more likely than not realised a greater price for the land than that which might have been achieved had the National Australia Bank entered into possession and sought to sell the subject land. So much is evident from valuation evidence read on the application. 36 For these reasons then, it seems to me that the just and equitable order to make in the events which have transpired, which materially include: (a) Mr McWha's bankruptcy; (b) the disclaimer by his trustee of an interest in the land; (c) the subsequent purported sale for value of that land to the applicants; (d) the payment out of the sum owed to the National Australia Bank; and (e) the absence of any funds remaining in the hands of a bankrupt; is to order that the land vest in the applicants as joint tenants, subject to any charges over the property imposed by statute, including but not limited to unpaid land tax, rates and water charges, and subject to the mortgage granted to Suncorp by the applicants. 37 I note that the State does not seek an order in respect of its costs. That is a most generous concession by the State in the unfortunate circumstances in which the applicants have found themselves as a result of the conduct of their conveyancing solicitors. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate: Dated: 10 June 2019