Federal Court of Australia Commonwealth Bank of Australia v State of Victoria [2021] FCA 705 File number: VID 294 of 2021 Judgment of: ANASTASSIOU J Date of judgment: 23 June 2021 Date of publication of reasons: 25 June 2021 Catchwords: BANKRUPTCY – disclaimer of property by trustees in bankruptcy pursuant to s 133(1) of the Bankruptcy Act 1966 (Cth) – mortgagee bank making an application under s 133(9) of the Act to have property vested in it to recover its debt – whether Court considers it just and equitable for order vesting property to be made – application granted Legislation: Bankruptcy Act 1966 (Cth), s 133 Cases cited: ING Bank (Australia) Limited v State of Queensland, in the matter of Watson [2017] FCA 411 National Australia Bank Ltd v New South Wales [2009] FCA 1066 National Australia Bank Ltd v State of New South Wales [2014] FCA 298 Re Tulloch Ltd (1978) 3 ACLR 808 Westpac Banking Corporation v State of Victoria [2019] FCA 1549 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 20 Date of hearing: 23 June 2021 Solicitor for the Applicant: Ms A. Gaber of Gadens ORDERS VID 294 of 2021 BETWEEN: COMMONWEALTH BANK OF AUSTRALIA ABN 48 123 123 124 Applicant AND: STATE OF VICTORIA Respondent order made by: ANASTASSIOU J DATE OF ORDER: 23 June 2021 THE COURT ORDERS THAT: 1. Pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth), an order that the estate in fee simple in the land described in certificate of title volume 11186 folio 416 situated at and known as Unit 305, Floor 3, 32 Bray Street, South Yarra in the State of Victoria vest in the Applicant for the purpose of the Applicant exercising its powers as mortgagee under the Transfer of Land Act 1958 (Vic), and registered mortgage AH130178X. 2. Pursuant to section 133(9) of the Bankruptcy Act 1966 (Cth), an order that the estate in fee simple in the land described in certificate of title volume 11186 folio 460 situated at and known as Unit 601, Floor 6, 32 Bray Street, South Yarra in the State of Victoria vest in the Applicant for the purpose of the Applicant exercising its powers as mortgagee under the Transfer of Land Act 1958 (Vic), and registered mortgage AH220045S. 3. There be 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 (Delivered ex tempore, revised from transcript) ANASTASSIOU J: 1 By originating application filed on 2 June 2021, the Commonwealth Bank of Australia (CBA) seeks orders that certain freehold land, described in certificate of title volume 11186 folio 416 situated at Unit 305, Floor 3, 32 Bray Street, South Yarra in the State of Victoria (the First Property) and certificate of title volume 11186 folio 460 situated at Unit 601, Floor 6, 32 Bray Street, South Yarra in the State of Victoria (the Second Property), be vested in CBA pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth). CBA seeks these orders in its capacity as a registered mortgagee of each of the First Property and Second Property under the Transfer of Land Act 1958 (Vic). 2 The orders will enable CBA to enforce its rights as mortgagee pursuant to the First Mortgage and Second Mortgage, as defined below. In particular, the orders are required to enable CBA to sell the First Property and Second Property. The First Property is currently being offered for sale by CBA. The Second Property was sold on 17 April 2021 and settlement was due on 17 May 2021, though had to be postponed due to a caveat lodged by the Registrar of Titles. That caveat was lodged to protect the interests of the State of Victoria, in which both the First Property and Second Property are now vested as a result of a disclaimer of the properties by the Trustee in bankruptcy for the former registered proprietor, Mr Radenko Andric. The Registrar of Titles has also lodged a caveat in respect of the First Property. 3 CBA's application is supported by an affidavit of Mark Patrick Hanrahan sworn on 1 June 2021 (the Hanrahan Affidavit), an affidavit of Sarah Jane Rogers sworn on 22 June 2021 (the Rogers Affidavit) and written submissions dated 22 June 2021. 4 The Respondent has informed the Court that it neither consents to nor objects to CBA's application. CBA has served its application on the Trustee who continues to hold a caveat over the First Property, and South East Water Corporation who holds a caveat over both the First Property and Second Property. Neither of those third parties object to this application and they have not expressed an interest in being heard. 5 For the reasons that follow, I will make orders vesting the First Property and Second Property in CBA. Background 6 On 16 March 2010, Mr Andric executed a mortgage over the First Property in favour of CBA. This mortgage was registered on 29 March 2010 in dealing number AHI130178X (First Mortgage). The First Mortgage was security for a loan advanced by CBA to Mr Andric pursuant to a loan agreement dated 10 March 2010 (First Loan Agreement). 7 On 29 April 2010, Mr Andric executed a mortgage over the Second Property in favour of CBA. This mortgage was registered on 14 May 2010 in dealing number AH220045S (Second Mortgage). The Second Mortgage was security for a loan advanced by CBA to Mr Andric pursuant to a loan agreement dated 26 March 2010 (Second Loan Agreement). 8 From 6 August 2018 and 4 November 2015, respectively, Mr Andric was in default under the First and Second Mortgage. A demand for default under the First Mortgage was issued on 7 August 2018 and expired unsatisfied. A similar demand was issued on 6 November 2015 for default under the Second Mortgage and also expired unsatisfied. 9 On 19 September 2019, the estate of Mr Andric was sequestrated under the Act and David Charles Quin was appointed as Trustee of his bankrupt estate. The Trustee did not take steps to be the registered proprietor of the First Property or the Second Property. 10 On 9 December 2020, Gadens (as solicitors for CBA), issued notices to vacate in respect of the First Property and Second Property. The First Property and Second Property were vacated on 21 January 2020 and 16 January 2020, respectively. On 21 July 2020, Mr Andric authorised CBA to gain access to, and take possession of, the First Property and the Second Property. 11 On 17 August 2020, the Trustee disclaimed the First Property and the Second Property because there was no equity in either of the properties. On 14 December 2020, as a result of the Trustee's disclaimer pursuant to s 133(1) of the Act, the Registrar of Titles registered a Registrar's Caveat over the title of the First Property and Second Property. 12 On 15 January 2021, CBA entered vacant possession of the First Property and Second Property. As explained earlier, the First Property is currently being offered for sale by CBA and the Second Property was sold on 17 April 2021. Consideration 13 The rights of the Trustee to disclaim the First Property and Second Property are contained in s 133(1) of the Act. Section 133(1) provides that: 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. 14 Where a person is made bankrupt, the equitable title to the property will vest in the trustee: s 58(1) of the Act. Until the trustee becomes the legal registered proprietor, legal title remains with the bankrupt proprietor who holds the legal interest on trust for the trustee. In ING Bank (Australia) Limited v state of Queensland [2017] FCA 411, Derrington J discussed the trustee's entitlement to disclaim the totality of rights in relation to the land at [19]-[20]: There is nothing unusual in this construction of s 133(1). After all, by reason of the making of the sequestration order, the equitable title to the Property vested in the trustee who then beneficially held all of the right, title and interest in it. In effect, the substantive ownership of the rights to the Property belonged to the trustee and not to the bankrupt. To the extent to which the bankrupt held any residual legal interest in the Property by reason of the operation of the Torrens system registration, it held that interest, at best, as a "bare trustee" with the only entitlement to deal with it by doing what is necessary to cause it to be transferred to the trustee in bankruptcy (Byrnes v Kendle (2011) 243 CLR 253). Even then, the entitlements of the bankrupt as the holder of the legal title are diminished by the provisions usually found in Torrens system legislation whereby a trustee in bankruptcy is entitled to cause the transmission of the legal title to themselves without the consent of the legal holder. See, for instance s 115 of the Land Title Act 1991 (Qld). The necessary conclusion from the above is that, on the proper construction of s 133(1) of the Bankruptcy Act, a trustee in bankruptcy is able to disclaim the totality of the ownership rights, titles and interests in relation to Torrens system land owned by the bankrupt at the date of bankruptcy even though no transfer of the title to the trustee has been effected on the relevant register of title. The enabling effect of s 133(1) permits the trustee to disclaim both the equitable ownership and rights which have vested in the trustee as well as the legal title which remained in the bankrupt. [Emphasis added] 15 Pursuant to s 133(2) of the Act, the effect of the Trustee's disclaimer is such that the Trustee is discharged from all personal liability in respect of the properties disclaimed and Mr Andric's rights, interests and liabilities are terminated. Section 133(2) does not affect the rights or liabilities of any other person. It follows that the Trustee's disclaimer of the First Property and Second Property does not affect CBA's rights under its mortgages. 16 The consequence of the Trustee's disclaimer is that Mr Andric's fee simple estate is escheated to the Crown in the right of the State: ING Bank at [22] (Derrington J). Pursuant to s 133(9) of the Act, a person claiming an interest in disclaimed property is entitled to apply to the Court for an order vesting the property in him or her. The Court may make such an order where it considers it is just and equitable to do so. CBA, as a registered mortgagee, is entitled to apply for a vesting order under s 133(9) of the Act. 17 There are a number of authorities which support the proposition that a registered mortgagee has the requisite interest and is entitled to a vesting order pursuant to s 133(9). 18 In Re Tulloch Ltd (1978) 3 ACLR 808 at 814, Needham J concluded that a mortgagee of Torrens title land is entitled to be granted a vested order. Agreeing with this proposition, Rares J in National Australia Bank Ltd v New South Wales [2009] FCA 1066 held at [29]: .…I am of opinion that the land should be vested under s 133(9) in the bank for the purpose for which it originally was mortgaged, namely to secure payment to the bank of all principal, interest and other moneys due to it notwithstanding the effect of the disclaimer. If, after a sale, there is a shortfall the bank will be able to prove for it as an unsecured creditor in the bankrupts' estate. 19 I am satisfied that CBA, which holds as mortgagee an interest in the land, is a person with an interest in the disclaimed property. Apart from the present application, there are "no further steps" CBA can take to "make good its security position" and without the vesting order, CBA will be deprived of the benefit of its security: see National Australia Bank Ltd v State of New South Wales [2014] FCA 298 at [12] (Perram J); Westpac Banking Corporation v State of Victoria [2019] FCA 1549 at [19] (Kerr J). There is no apparent reason why CBA should not have the First Property and Second Property vested in it. Disposition 20 Accordingly, I consider it just and equitable that vesting orders be made. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anastassiou. Associate: Dated: 25 June 2021