FEDERAL COURT OF AUSTRALIA Commonwealth Bank of Australia v State of Queensland [2020] FCA 582 File number: QUD 48 of 2020 Judge: REEVES J Date of Judgment: 31 March 2020 Date of Publication of Reasons: 1 May 2020 Catchwords: BANKRUPTCY AND INSOLVENCY – application for a vesting order under s 133(9) of the Bankruptcy Act 1966 (Cth) – where the property has been disclaimed by the trustee in bankruptcy – where the property is held as a tenant in common of real property – where the applicant has an interest in the property – whether it is just and equitable to make the order – application granted Legislation: Bankruptcy Act 1966 (Cth) Bankruptcy Regulations 1996 (Cth) Cases cited: Australia and New Zealand Banking Group Ltd v State of Queensland [2018] FCA 464 Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 Commonwealth Bank of Australia v State of Queensland [2019] FCA 2217 National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52; [2009] FCA 1066 National Australia Bank Limited v State of New South Wales [2014] FCA 298 National Australia Bank Ltd v State of Victoria (2010) 118 ALD 527; [2010] FCA 1230 Westpac Banking Corporation v State of Victoria [2019] FCA 1549 Date of hearing: Determined on the papers Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 21 Counsel for the Applicant: Mr JJT Dudley Solicitor for the Applicant: HWL Ebsworth Lawyers Solicitor for the Respondent: Department of Natural Resources & Mines Table of Corrections 5 May 2020 "Bank" is inserted after "Commonwealth" in the MNC 5 May 2020 "Counsel for the Applicant: Mr JJT Dudley" has been inserted in the appearances ORDERS QUD 48 of 2020 BETWEEN: COMMONWEALTH BANK OF AUSTRALIA ABN 48 123 123 124 Applicant AND: STATE OF QUEENSLAND Respondent JUDGE: REEVES J DATE OF ORDER: 31 MARCH 2020 THE COURT ORDERS THAT: 1. Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the half interest of the estate in fee simple disclaimed by the Trustee in Bankruptcy of Cameron John McCrohon (Bankrupt), being a half interest as a tenant in common of real property at 18 Archer Street, Biloela in the State of Queensland (Lot 28 on Crown Plan B744112, Title Reference 30557103) ("Property", with the interest as disclaimed by the Trustee in Bankruptcy of Cameron John McCrohon described as "Bankrupt Estate's Interest") vest in the applicant for the purposes of the applicant exercising its powers under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and registered mortgages numbered 700896372 and 712148236 (Mortgages). 2. On vesting of the Bankrupt Estate's Interest in the applicant pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the applicant, as against the Bankrupt Estate's Interest (but not in any way affecting the half interest of Michelle Terese Danielle Nutley): (a) is permitted to act as if exercising its powers as mortgagee in possession including its exercise of power of sale as mortgagee over the Bankrupt Estate's Interest under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and the Mortgages; (b) for the purpose of selling the estate in fee simple of the Bankrupt Estate's Interest in exercise of its power of sale, is not required to serve a notice of default or demand under s 84 of the Property Law Act 1974 (Qld) or a notice of default or demand under s 88 of Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth), or otherwise; (c) is entitled to calculate the entirety of the debt secured and owing pursuant to its Mortgages as including all monies that would have been secured by the Mortgages had the trustee in bankruptcy of Cameron John McCrohon not disclaimed the Bankrupt Estate's Interest, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Bankrupt Estate's Interest as if it were money secured by the Mortgages (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Bankrupt Estate's Interest), and to thereafter account to the respondent; (d) will apply the proceeds of sale from the Bankrupt Estate's Interest as follows: (i) First, in payment of statutory charges affecting the Bankrupt Estate's Interest by which any relevant statute provides are payable in priority to the Mortgages. (ii) Secondly, in payment of costs, charges and expenses properly incurred as an incident to any sale or any attempted sale, or otherwise. (iii) Thirdly, in discharge of the debt owing to the applicant secured by the Mortgages over the Bankrupt Estate's Interest in the Property. (iv) Fourthly, after the sale of the Bankrupt Estate's Interest, the applicant is to pay any surplus pertaining to the Bankrupt Estate's Interest in the Property into this Court and to give written notice within seven days to the trustee in bankruptcy of the bankrupt estate of Cameron John McCrohon, to Michelle Terese Danielle McCrohon (also known as Michelle Terese Danielle Nutley), to the State of Queensland and to the Registrar of this Court. 3. Save as provided for in order 2(c) above, 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 REEVES J: 1 This is an application made by the Commonwealth Bank of Australia (the Bank) for orders under s 133(9) of the Bankruptcy Act 1966 (Cth) (the Act) vesting it with real property in circumstances where the property has been disclaimed by the trustee in bankruptcy. The parties have agreed that the application should be heard on the papers. 2 Mr Cameron McCrohon was declared bankrupt on 12 June 2019 upon lodgement of a debtor's petition under the Act. On that day Mr Morgan Lane of Worrells was appointed as Mr McCrohon's trustee in bankruptcy (the Trustee). 3 At the time of his bankruptcy, Mr McCrohon held a half interest in an estate in fee simple in a property located at 18 Archer Street, Biloela, Queensland (the property). He held that interest as a tenant in common with his wife Mrs Michelle McCrohon (also known as Michelle Nutley). Mrs McCrohon is not a bankrupt. 4 The Bank holds two registered mortgages over the property, each granted by Mr McCrohon and Mrs McCrohon as tenants in common. The first is registered mortgage number 700896372, registered in the Bank's favour on 9 October 1995 (the first mortgage). The first mortgage was initially granted to secure a loan of $78,080. However, by a Consumer Credit Contract dated 14 March 2013, it was subsequently extended to secure a "No Fee Home Loan" by the Bank to Mr and Mrs McCrohon in the sum of $150,000 (the home loan). 5 The second is registered mortgage number 712148236, registered in the Bank's favour on 7 January 2009 (the second mortgage). The second mortgage secured a "Better Business Loan" of $134,000 and was subsequently extended to secure an overdraft for $50,000 advanced in 2014 to Tynosa Pty Ltd as trustee for the McCrohon Family Trust. Mr and Mrs McCrohon were the directors of Tynosa Pty Ltd at all relevant times. 6 The first and second mortgages (together, the Mortgages) were in standard terms and contained clauses permitting the Bank to take possession of, and sell, the property in the event of default. They each contained an "all moneys" clause, securing all monies owing, or which might become owing. 7 On 4 July 2019, shortly after Mr McCrohon became bankrupt, the Bank issued to Mr McCrohon and Mrs McCrohon separately, as the directors of Tynosa Pty Ltd, notices of default and demand for the outstanding amounts payable under the business loan and overdraft, then totalling $176,870.18 and comprised of: (a) $125,923.66 in relation to the business loan; and (b) $50,946.52 in relation to the overdraft. 8 The default involved the non-payment of arrears with respect to the business loan and the overdraft. Mr McCrohon and Mrs McCrohon remain in default in respect of both obligations. They are also in default of the home loan. The Bank has vacant possession of the property and proposes to exercise its power of sale as mortgagee but has not yet taken steps to enforce the Mortgages. 9 On 9 July 2019, the Trustee issued to the Bank a notice of disclaimer of onerous property in respect of the property pursuant to s 133(1) of the Act. 10 Section 133 of the Act relevantly provides: (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. 11 This section operates in circumstances where a Trustee in bankruptcy validly disclaims property. Such a disclaimer may be made by the Trustee at any time "by writing signed by him or her". Although the notice of disclaimer in this instance purports to be signed "for" the Trustee, as opposed to personally, I consider the notice is sufficient as it complies with reg 6.10 of the Bankruptcy Regulations 1996 (Cth). The disclaimer has also been recorded by way of administrative noting on the Titles Register. I am therefore satisfied that the property has been duly disclaimed and that an application may be made under s 133(9). 12 Before turning to that subsection it should be noted that the operation of a disclaimer under s 133(2) above and its interaction with the doctrine of escheat has been the subject of extensive judicial consideration by this Court (see, for example, Commonwealth Bank of Australia v State of Queensland, in the matter of Ginn [2016] FCA 1337 (Ginn) per Edelman J, Australia and New Zealand Banking Group Ltd v State of Queensland [2018] FCA 464 per Logan J and National Australia Bank Ltd v State of New South Wales (2009) 182 FCR 52; [2009] FCA 1066 per Rares J). It is unnecessary to consider that doctrine in this application as it does not arise. 13 As can be seen above, s 133(9) prescribes two preconditions for the granting of a vesting order in favour of the Bank. First, the Bank must have an interest in the property. Secondly, the Court must hear from such persons as it thinks fit in respect of the application. If these preconditions are met, the Court may order the vesting of the property in the Bank if it considers that would be just and equitable, and it may do so on such terms as it considers just and equitable. 14 It is uncontentious that the Bank, as the registered mortgagee of the Mortgages, has an interest in the property sufficient to ground an order under s 133(9). This is uncontested by the State of Queensland, which has not provided submissions and consents to the proposed orders. I am therefore satisfied that the first precondition has been met. 15 The second precondition relates to the persons from whom this Court should hear in respect of the application. In this matter, since Mrs McCrohon is a tenant in common of the property she falls into this category. In instances where property is held by another person as a tenant in common with a bankrupt, it is recognised that on the sequestration of the bankrupt's estate, the bankrupt's interest in the property is severed such that the trustee acquires the bankrupt's interest as a tenant in common (see Westpac Banking Corporation v State of Victoria [2019] FCA 1549 at [2] per Kerr J and National Australia Bank Ltd v State of Victoria (2010) 118 ALD 527; [2010] FCA 1230 at [6] per Bennett J). 16 In Commonwealth Bank of Australia v State of Queensland [2019] FCA 2217 Logan J held that s 133(9) does not require that a tenant in common be joined as a party to such applications, only that the court "not make orders until after hearing such persons as it thinks fit" (at [16]). At the very least, his Honour considered it necessary that a tenant in common be given notice of the application. However, his Honour had already noted that their nonappearance "after notice is no impediment to the making of orders" (at [15]). 17 Mrs McCrohon has been served with the application and informed of her right to appear. In a subsequent email to the Bank Mrs McCrohon indicated that she does not oppose the application and that if the Bank intends to sell the property "to pay off [Mr McCrohon's] debt or whatever then fine". 18 It is not necessary to hear from the Trustee as the effect of the disclaimer is such that it divests the Trustee of any entitlement to, or interest in, the property. However, for completeness, I note the Trustee was provided with a copy of this application and indicated by subsequent email to the Bank that he does not wish to be heard. For these reasons I am satisfied that I have heard from all of the persons who may have an interest in the vesting order sought by the Bank. 19 I am therefore satisfied that the two preconditions imposed by s 133 have been met. The final question is whether it is just and equitable to vest the property in the Bank, and if so, on what conditions. 20 Since the Mortgages secure a substantial debt which is owed to the Bank, I consider it just and equitable to make the orders it has sought in circumstances where it would otherwise be unable to recover that debt (see Ginn at [19] and National Australia Bank Limited v State of New South Wales [2014] FCA 298 at [12]). 21 As for the question of the conditions, I have considered the orders sought by the Bank which it claims are of the "usual" kind and, without rehearsing them in detail, I am satisfied that they are appropriate. Accordingly, the orders I will make are as follows: 1. Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the half interest of the estate in fee simple disclaimed by the Trustee in Bankruptcy of Cameron John McCrohon (Bankrupt), being a half interest as a tenant in common of real property at 18 Archer Street, Biloela in the State of Queensland (Lot 28 on Crown Plan B744112, Title Reference 30557103) ("Property", with the interest as disclaimed by the Trustee in Bankruptcy of Cameron John McCrohon described as "Bankrupt Estate's Interest") vest in the applicant for the purposes of the applicant exercising its powers under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and registered mortgages numbered 700896372 and 712148236 (Mortgages). 2. On vesting of the Bankrupt Estate's Interest in the applicant pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth), the applicant, as against the Bankrupt Estate's Interest (but not in any way affecting the half interest of Michelle Terese Danielle Nutley): (a) is permitted to act as if exercising its powers as mortgagee in possession including its exercise of power of sale as mortgagee over the Bankrupt Estate's Interest under the Land Title Act 1994 (Qld), the Property Law Act 1974 (Qld) and the Mortgages; (b) for the purpose of selling the estate in fee simple of the Bankrupt Estate's Interest in exercise of its power of sale, is not required to serve a notice of default or demand under s 84 of the Property Law Act 1974 (Qld) or a notice of default or demand under s 88 of Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth), or otherwise; (c) is entitled to calculate the entirety of the debt secured and owing pursuant to its Mortgages as including all monies that would have been secured by the Mortgages had the trustee in bankruptcy of Cameron John McCrohon not disclaimed the Bankrupt Estate's Interest, and to deduct and retain for its own absolute use and property such amount from any proceeds of sale of the Bankrupt Estate's Interest as if it were money secured by the Mortgages (including costs of this application and all costs properly incurred in selling, and incidental to the sale of, the Bankrupt Estate's Interest), and to thereafter account to the respondent; (d) will apply the proceeds of sale from the Bankrupt Estate's Interest as follows: (i) First, in payment of statutory charges affecting the Bankrupt Estate's Interest by which any relevant statute provides are payable in priority to the Mortgages. (ii) Secondly, in payment of costs, charges and expenses properly incurred as an incident to any sale or any attempted sale, or otherwise. (iii) Thirdly, in discharge of the debt owing to the applicant secured by the Mortgages over the Bankrupt Estate's Interest in the Property. (iv) Fourthly, after the sale of the Bankrupt Estate's Interest, the applicant is to pay any surplus pertaining to the Bankrupt Estate's Interest in the Property into this Court and to give written notice within seven days to the trustee in bankruptcy of the bankrupt estate of Cameron John McCrohon, to Michelle Terese Danielle McCrohon (also known as Michelle Terese Danielle Nutley), to the State of Queensland and to the Registrar of this Court. 3. Save as provided for in order 2(c) above, no order as to costs. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves. Associate: Dated: 1 May 2020