Mortgagee Allowed to Calculate Debt After Trustee Disclaimer

OUTCOME: Allowed

FEDERAL COURT OF AUSTRALIA

[NAME] v [NAME] [2016] FCA 269 File number: QUD 126 of 2016

Judge: [NAME] J

Date of judgment: 24 March 2016

Catchwords: REAL PROPERTY – default in payment by [NAME] upon loan secured by mortgage over property – bankruptcy of [NAME] – disclaimer of title to property by trustee in bankruptcy of [NAME] – application by lender for orders vesting title to the property in it for the purposes of sale – claim by current occupant of the property to a subsisting equitable interest arising from a resulting or constructive trust BANKRUPTCY – effect of disclaimer of property by trustee in bankruptcy when conveyance of legal title had not been obtained – operation of discretion to vest title under s 133(9) of the Bankruptcy Act 1966 (Cth) – manner of exercise of that power in circumstances of competing claims by mortgagee and person with rights in equity MORTGAGES – effect upon mortgage of disclaimer of title by trustee in bankruptcy – effect on mortgage of escheat of fee simple to the [NAME] in right of the State

Legislation: An Act for the better relief of the creditors against such as shall become bankrupts (1604) 1 [NAME] 1 c 15 Bankruptcy Act 1883 (46 & 47 Vict) c 52 Bankruptcy Act 1924 (Cth) Bankruptcy Act 1966 (Cth) ss 58(1)(a), 58(2), 116(2), 116(2)(a), 133, 133(9) Escheat (Procedure) Act 1887 (50 & 51 Vict c 53) Land Title Act 1994 (Qld) National Consumer Credit Protection Act 2009 (Cth) Sch 1; s 88 Property Law Act 1974 (Qld) s 84 Property Law Act 1974 (Qld) s 85(2) Residential Tenancies and Rooming Accommodation Act 2008 (Qld) s 317 Residential Tenancies and Rooming Accommodation Act 2008 (Qld) s 317

Cases cited: [NAME] v [NAME] (No 2) [2012] WASC 19 Boddington v Castelli (1853) 1 El & Bl 879; (1853) 118 ER 665 Commissioner of The [NAME] Federal Police v [COMPANY] (No 4) [2015] WASC 101 [NAME] v Water Corporation [2012] WASC 30; (2012) 261 FLR 185 [COMPANY] v [NAME] [NAME] [2001] NSWSC 1035 [COMPANY] v [NAME] [COMPANY] [2012] WASCA 216; (2012) 45 WAR 29 Lysaght v Edwards (1876) 2 Ch 499 [COMPANY] v New South Wales [2009] FCA 1066; (2009) 182 FCR 52 [COMPANY] v [NAME] (No 2) [2007] WASC 75; (2007) 210 FLR 11 [COMPANY] v 72 [COMPANY] (in liq) (1998) 45 NSWLR 556 Scott v Surman (1742) Willes 400; (1742) 125 ER 1235 [COMPANY] v Cauchi [2003] HCA 57; (2003) 217 CLR 315 Winch v Keeley (1787) 1 Term Rep 619; (1787) 99 ER 1284 [NAME], Restatement of the Law of Trusts ([NAME], [NAME], 1935) [NAME], Commentaries on the Laws of England ([COMPANY], [COMPANY], 1979 reprint) Vol 2 [NAME], Equity - A Course of Lectures (2nd ed, [COMPANY], [NAME], 1936) [NAME], W "The Fiction of the Constructive Trust" (2011) 64 Current Legal Problems 399 [NAME], The Digest of Justinian ([COMPANY], Pennsylvania, 1998) Vol 4

Date of hearing: Determined on the papers

Date of last submissions: 21 March 2016 (submitting notice filed by the First Respondent)

Registry: Queensland

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: General and Personal Insolvency

Category: Catchwords

Number of paragraphs: 50

Counsel for the Applicant: [redacted]

Solicitor for the Applicant: [redacted]

Solicitor for the First Respondent: [redacted]

Counsel for [RESPONDENT] Respondent: [redacted]

ORDERS QUD 126 of 2016

BETWEEN: [NAME] 33 [PHONE] Applicant

AND: [NAME] First Respondent

[NAME] [RESPONDENT] Respondent

JUDGE: [NAME] J DATE OF ORDER: 24 MARCH 2016

THE COURT DECLARES THAT:

1. The Applicant is entitled to calculate the entirety of the debt secured and owing (the Debt) pursuant to [NAME] mortgage numbers 711108694 and 711477087 (Mortgages) over the land described as Lot 29 on [NAME] No. 107777 in the [NAME], being all of the land contained in title reference 13836129 and situated at [ADDRESS], Broadbeach Waters in the [NAME] (Property) as and if there had there been no disclaimer of the Property by the [NAME] (Trustee) as trustee of [NAME] estate of Ms [NAME] (also known as [NAME]). THE COURT ORDERS THAT:

2. Upon payment of the sum of $570,000 in cleared funds by [RESPONDENT] Respondent, [NAME] to the Applicant on or before 6 April 2016, and in exchange for a registrable release of the Mortgages, the estate in fee simple in the land described as Lot 29 on [NAME] No. 107777 in the [NAME], being all of the land contained in title reference 13836129 and situated at [ADDRESS], Broadbeach Waters in the [NAME] (the Property) presently [NAME] in the name of [RESPONDENT] shall vest in [RESPONDENT] Respondent pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) and [RESPONDENT] Respondent will be liable for any statutory charges affecting the Property.

3. In the event [RESPONDENT] Respondent fails to make the payment in accordance with paragraph 2 of this order: (a) Pursuant to s 133(9) of the Bankruptcy Act 1966 (Cth) the estate in fee simple in the Property presently [NAME] in the name of [APPELLANT] shall, from 7 April 2016, vest in the Applicant for the purpose of the Applicant exercising its powers as mortgagee under the Land Title Act 1994 (Qld), Property Law Act 1974 (Qld) and under the Mortgages and subject to the following conditions: (i) for the purposes of any dealings with the Property, the Applicant may, (but is not bound to) act as if it were exercising its powers as mortgagee under the Land Title Act 1994 (Qld), Property Law Act 1974 (Qld) and under the Mortgages except that the Applicant is not required to serve: A. a default notice under s 88 of the National Credit Code, being schedule 1 to the National Consumer Credit Protection Act 2009 (Cth); B. a notice of default under s 84 of the Property Law Act 1974 (Qld); and C. a notice to vacate under s 317 of the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) on [RESPONDENT] Respondent or any other occupant/s (if any) of the Property; (ii) the proceeds of sale from the Property shall be applied as follows: A. first, in payment of any statutory charges affecting the Property which the relevant statute provides are payable in priority to the mortgagee; B. secondly, in payment of all costs, charges and expenses properly incurred by the Applicant as incident to the sale, or any attempted sale, or otherwise; C. thirdly, in discharge of the Debt owed to the Applicant; D. fourthly, in payment of any subsequent mortgages (if any), and the residue (if any) of the proceeds so received shall be paid into Court in this proceeding; (iii) after any sale of the Property by the Applicant, the Applicant must deliver to the [NAME] (Trustee) as trustee of [NAME] estate of Ms [RESPONDENT] and the First and [RESPONDENT] Respondents a notice in a form substantially similar to that prescribed in s 85(2) of the Property Law Act 1974 (Qld). (b) [RESPONDENT] Respondent, [NAME] must deliver the Property to the Applicant by: (i) on or before 15 April 2016 delivering up vacant possession of the Property to the Applicant; and (ii) on or before 15 April 2016 delivering to the Applicant's solicitors a signed withdrawal in respect of any caveats lodged over the Property; and (iii) signing any other documents reasonably required by the Applicant to enable any transfer of the Property to a purchaser pursuant to a sale by the Applicant pursuant to the Mortgages and pursuant to any order made in this proceeding, and shall not interfere with the [COMPANY]'s exercise of its rights under this order and the Land Title Act 1994 (Qld), Property Law Act 1974 (Qld) and under the Mortgages; (c) The Applicant's costs of and incidental to this proceeding are to be treated as reasonable enforcement expenses under its Mortgages over the Property and are to be payable from the proceeds of sale of the Property on the indemnity basis pursuant to clause B1 (b) of [NAME] mortgage number 711477087 over the Property.

4. An affidavit by a solicitor for the Applicant filed in these proceedings, as to compliance or non-compliance by [RESPONDENT] Respondent with paragraph 2 of this order, shall be sufficient evidence of such compliance or non-compliance. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT Introduction [1] [NAME]'s mortgage and loan [5] [NAME] [NAME] interest in relation to the Property [7] The interest in relation to the Property claimed by Ms [NAME] [15] Ms [NAME] bankruptcy [18] Disclaimer by the Official Trustee [27] The discretion under s 133(9) of the Bankruptcy Act [37] The declaration sought by [NAME] [45] Conclusion [47]

[NAME] J:

Introduction 1 On 12 February 2016, the applicant, [NAME], brought this application seeking orders vesting title in it to a property at [ADDRESS], Broadbeach Waters, Queensland (the Property). [NAME] holds a first and [RESPONDENT] [NAME] mortgage over the Property. The [NAME] of the Property, and mortgagor, had become [NAME]. She was in default in her loan repayments secured by [NAME]'s mortgage. The [NAME]'s trustee in bankruptcy, the Official Trustee, disclaimed any title to the Property. So the title was said to have escheated to the [NAME], the first respondent. [NAME] sought orders under s 133(9) vesting the title to the Property in it for the purpose of sale to recoup the loan secured by its [NAME] mortgage. 2 On 8 and 9 March 2016, I held directions hearings in this matter. There were immediate complications. One complication was that the de facto partner of the [NAME], [NAME] [NAME], claimed an equitable interest in relation to the Property. A [RESPONDENT] complication, which was not raised at the directions hearings but which I address below and which does not appear to present any obstacle, is that a third party claims to have a call option in relation to the Property. I expressed the preliminary view to the parties that if the evidence which was filed was as it had been described, then it may be that the person in whom title should be ordered to vest would be [NAME] [NAME], not [NAME]. However, [NAME] [NAME] title would remain subject to [NAME]'s [NAME] mortgage. 3 After the directions hearing on 9 March 2016, the District Registrar mediated the dispute between the parties. A settlement agreement was reached. The parties proposed orders by consent. The primary orders sought are effectively to vest title to the Property in [NAME] [NAME] upon discharge of [NAME]'s mortgages. As I explained to the parties at the directions hearings, those orders cannot be made unless I am satisfied that the foreshadowed evidence, and the legal authority, supports my preliminary view. 4 The parties have now filed evidence and submissions. The [NAME] filed a submitted appearance on 21 March 2016. Based on that evidence and those submissions I am satisfied on a preliminary basis that the orders sought should be made. The reservation is that although [NAME] submitted that a potentially interested third party, Ms [NAME], was served with this application and that she did not respond, it is arguable that she was a necessary and proper party to be heard. In circumstances in which I have reached the conclusion sought by the parties, but by legal reasoning which is not identical to that submitted by [NAME], it is appropriate to defer making any orders for seven days to provide Ms [NAME] any time within which to make any further submissions, or apply to be joined, before final orders are made. However, as I have explained, it is difficult to see any basis upon which she could resist these orders but she should be given an opportunity if she wishes, to address any of the matters in these reasons.

[NAME]'s mortgage and loan 5 [NAME] holds a first [NAME] mortgage over the Property. The [NAME] of the Property is [NAME], who is also referred to in some of the material before the Court as [NAME]. [NAME] was given notice of this application. She did not file a notice of appearance. At the Court's direction for reasons related to overlapping proceedings in a different court, she attended at a directions hearing concerning this application. At that directions hearing she confirmed, for reasons which will become apparent later in these reasons, that she has no interest in this application. 6 On 14 January 2008, [NAME] advanced monies to Ms [NAME] under a Loan Agreement. The debt owing pursuant to the Loan Agreement are secured by a first and [RESPONDENT] [NAME] mortgage over the Property. As at 8 February 2016, [NAME] certified the debt to be $576,696.70, excluding recent accrued interest and costs.

[NAME] [RESPONDENT] interest in relation to the Property 7 [RESPONDENT] respondent, [NAME] [RESPONDENT], is the current occupant of the Property. He is the former de facto partner of Ms [NAME]. Some of his evidence on this application concerned his interest in relation to the Property. [NAME] [NAME] uncontradicted evidence is as follows. 8 The Property was purchased on 26 January 2006 for $512,000. Ms [NAME] became the [NAME]. She contributed $100,000 to the purchase price. [NAME] [NAME] contributed $15,000 to the purchase price. The remainder was funded by a [COMPANY] loan to Ms [NAME]. 9 [NAME] [NAME] says that he and Ms [NAME] lived in the Property from the time of settlement on 17 March 2006. He paid approximately 80% of the mortgage repayments. He also made major improvements to the property including adding two bedrooms and two bathrooms, a lounge room, and ducted air conditioning. There is considerable work that remains to complete the renovations. 10 On 22 February 2013, [NAME] [NAME] lodged a caveat over the Property to protect his asserted interest as "an interest pursuant to constructive and/or resulting Trust by reason of the common intention of the Caveator and the Caveatee and by reason of the Caveator's contribution to the conservation, preservation and improvement of the property". 11 Ms [NAME] loan was refinanced and after [NAME] became the financier, the loan was increased. [NAME] has varied the terms of the loan on a number of occasions. 12 In August 2014, [NAME] [NAME] separated from Ms [NAME]. They entered an agreement on 16 August 2014. The terms of the agreement are not clear but it appears to have the following effects: (1) [NAME] [NAME] have possession of the Property subject to his payment of the loan secured by [NAME]'s mortgage and payment of rates; (2) [NAME] [NAME] pay Ms [NAME] $32,600 (although later referred to as $35,000); (3) [NAME] [NAME] complete the renovations to the Property by 30 November 2015; (4) The Property be sold by 30 November 2015; (5) [NAME] [NAME] repay any shortfall by which the loan exceeds the proceeds from the sale of the Property; and (6) Any surplus funds from sale are to be paid to [NAME] [NAME]. 13 It is unnecessary to descend into detail concerning the nature of [NAME] [NAME] interest in relation to the Property in circumstances in which there was no dispute that he had a beneficial interest. It is also undesirable to descend into detail of the precise legal position in circumstances in which I received no submissions on this point. It suffices to say that I am satisfied that [NAME] [NAME] payment of $15,000 of the purchase price gave him a beneficial interest in the proportion 15/512 under a resulting trust: see discussion of the nature of this interest in my decision in [NAME] v [NAME] (No 2) [2012] WASC 19 [88]-[103]. I am also satisfied that [NAME] [NAME] had an interest, which might attract the description of a constructive trust, by which Ms [NAME] held her [NAME] title subject to [NAME] [NAME] right of possession, and power of sale including rights to surplus proceeds from sale. As I explain below, for reasons of historical continuity that underlie the Bankruptcy Act 1966 I describe [NAME] [NAME] interest as an interest under a constructive trust. However, there is a strong argument that [NAME] [NAME] interest is better understood as an equitable right to performance commensurate with the terms of the contract, and not [COMPANY]: [COMPANY] v Cauchi [2003] HCA 57; (2003) 217 CLR 315, 332-333 [53] (Gleeson CJ, [NAME] and [NAME] JJ); [NAME], W "The Fiction of the Constructive Trust" (2011) 64 Current Legal Problems 399. [COMPANY] v [NAME] [COMPANY] [2012] WASCA 216; (2012) 45 WAR 29, 59 [129] ([NAME]). 14 [NAME] [NAME] rights under the agreement are subject to the antecedent rights of [NAME] as [NAME] mortgagee. There is also no evidence (or allegation) that [NAME] had any notice of [NAME] [NAME] interest under a resulting trust at the time that [NAME] [NAME] its (now indefeasible) interests as mortgagee.

The interest in relation to the Property claimed by Ms [NAME] 15 On 24 November 2015, Ms [NAME] emailed [NAME] to ask about the mortgage repayments that are owing. She asserted that the Property did not form part of Ms [NAME] bankruptcy and that she ([NAME]) held a call option over the Property. She enclosed a Call Option Deed dated 1 May 2015. It appears to be signed by herself and Ms [NAME] as the [NAME] of the Property. The Call Option Deed purported to give Ms [NAME] the option to purchase the Property for a price which was equal to or more than $560,000. [NAME] did not consent to Ms [NAME] entering the Call Option Deed with Ms [NAME]. It also appears that [NAME] [NAME] did not consent to Ms [NAME] entering the Call Option Deed. Any rights of Ms [NAME] would be subject to rights of [NAME] as [NAME] mortgagee and the pre-existing rights of [NAME] [NAME] as a beneficiary of a constructive and resulting trust. 16 Correspondence ensued between Ms [NAME] and [NAME]. Ms [NAME] asked [NAME] if she could make the mortgage repayments, perform renovations to the Property, and subsequently settle with the [COMPANY] for $560,000. Alternatively, she sought to purchase the Property from the [COMPANY], without the renovations, for $480,000. The solicitors for [NAME] responded and explained that [NAME] was not the [NAME] and also was not prepared to release its mortgage until the debt of $576,794 (as it was then) was paid. 17 Ms [NAME] was served by [NAME] with this application. She did not enter an appearance. Her potential interest in these proceedings was not mentioned at any of the directions hearings where I explored the issues in this matter. However, her correspondence with [NAME] suggests that she may have been an interested party. As I explain in my conclusion, orders should not be entered for seven days to permit her any opportunity to be heard.

Ms [NAME] bankruptcy 18 On 14 July 2015, Ms [NAME] became [NAME] by her debtor's petition. She has not been discharged. Her trustee is the Official Trustee. The Official Trustee was served with this application but, for reasons concerning disclaimer (set out below), understandably did not seek to appear. 19 The effect of Ms [NAME] bankruptcy under s 58(1)(a) of the Bankruptcy Act is that her title to the Property vested in the Official Trustee. However, s 58(2) has the effect that the title only "vests in equity" in the Official Trustee until there is a formal conveyance of title on the Register to the Official Trustee. It does not appear that the Official Trustee ever took a conveyance of the title from Ms [NAME]. 20 Since 1604, the rights to property held by a trustee in bankruptcy, such as the Official Trustee, have been subject to any rights of a third party under [COMPANY]: see [NAME] v Water Corporation [2012] WASC 30; (2012) 261 FLR 185, 197 [66]-[69] referring to Winch v Keeley (1787) 1 Term Rep 619, 623; (1787) 99 ER 1284, 1286 (Buller J); Scott v Surman (1742) Willes 400, 402; (1742) 125 ER 1235, 1236 (Willes CJ); Boddington v Castelli (1853) 1 El & Bl 879, 885; (1853) 118 ER 665, 667 ([NAME]). 21 The same preservation of trust rights of [NAME] was consistently preserved in English legislation over four centuries from An Act for the better relief of the creditors against such as shall become bankrupts (1604) 1 [NAME] 1 c 15 and, in Australia, it was included when the Bankruptcy Act 1924 (Cth) was enacted based upon the report of the Clyne Committee and the model of the Bankruptcy Act 1883 (46 & 47 Vict) c 52. It can also be observed that the term "constructive trust" was in strong currency at that time to describe specifically enforceable equitable rights arising from a contract in relation to land: Lysaght v Edwards (1876) 2 Ch 499, 506 ([NAME]). The preservation of trust rights was also maintained in the 1966 Bankruptcy Act as is evident in ss 5 and 116(2) of the Bankruptcy Act. Section 5 provides that the "property of [NAME]" (other than in ss 58(3) and 58(4)) means the property divisible among [NAME]'s creditors and any rights and powers in relation to that property if he or she had not become a [NAME]. Section 116 provides as follows: 116 Property divisible among creditors (1) Subject to this Act: (a) all property that belonged to, or was vested in, a [NAME] at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and (b) the capacity to exercise, and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by [NAME] for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge; and (c) property that is vested in the trustee of [NAME]'s estate by or under an order under section 139D or 139DA; and (d) money that is paid to the trustee of [NAME]'s estate under an order under section 139E or 139EA; and (e) money that is paid to the trustee of [NAME]'s estate under an order under paragraph 128K(1)(b); and (f) money that is paid to the trustee of [NAME]'s estate under a section 139ZQ notice that relates to a transaction that is void against the trustee under section 128C; and (g) money that is paid to the trustee of [NAME]'s estate under an order under section 139ZU; is property divisible amongst the creditors of [NAME]. (2) Subsection (1) does not extend to the following property: (a) property held by [NAME] in trust for [NAME]; ... 22 However, [NAME] submitted that a beneficial interest of a third party under [COMPANY] is lost upon bankruptcy if [NAME] also happens to hold a beneficial interest under the same trust. [NAME]'s submission is that if the word "[NAME]" is to have any work to do in s 116(2), it must confine the exclusion in s 116(2)(a) to cases where [NAME] is not a beneficiary. That was said to be because: (1) a trustee cannot be the sole beneficiary of [COMPANY]; there must always be "[NAME]" who is a beneficiary of [COMPANY]; and (2) if s 116(2) were read to apply the exclusion to every case where [NAME] is a beneficiary, even if [NAME] is one too, then the effect is that s 116(2) will apply to every trust a [NAME] holds. The word "[NAME]" would be redundant. 23 The error in this submission is its premiss. The word "[NAME]" is not redundant if s 116(2) applies to every case in which [NAME] holds property on trust. If a [NAME] held property on trust for herself and [NAME] then the effect of the word "[NAME]" is to exclude [NAME]'s beneficial interest from the operation of s 116(2)(a). It can be accepted that there may be difficulties of theory with the notion of a person owing duties to himself or herself as both trustee and one of a number of beneficiaries. On one view, the person has an unencumbered part interest and holds the remainder on trust for others. But there are many cases where a person has been described as both trustee and beneficiary where other beneficiaries exist. And many statutes have been drafted on the premiss that this is possible. 24 [NAME] relied upon the decision of [NAME] in [COMPANY] v [NAME] [NAME] [2001] NSWSC 1035. In that case, his Honour referred to s 116(2)(a) and then said: This reference to "[NAME]" makes it necessary to consider whether, when the chose in action became vested in [NAME] [NAME] upon completion under the agreement of 13 March 1992, that chose in action could properly be said to have been held in trust exclusively for persons who did not include [NAME] [NAME] [NAME] himself. 25 The reference by his Honour to "exclusively for [other] persons" was unlikely to have been intended to suggest that a person would lose equitable rights upon bankruptcy if [NAME] also happened to have equitable rights under the same trust. The question being considered in that passage in [NAME] was simply whether [NAME] [NAME] [NAME]'s right of reimbursement or indemnity from trust property was excluded from the property divisible amongst his creditors. His Honour held that it was excluded. 26 The effect of [NAME]'s bankruptcy was not to extinguish [NAME] [NAME] rights as a beneficiary under a resulting trust. Nor did it extinguish his rights as a beneficiary of a "constructive trust" who, not being a volunteer, was entitled to orders compelling performance of the 16 August 2014 Agreement: see [NAME] (No 77) [COMPANY] v [NAME] (1989) 24 FCR 105, 121 (Ryan and Gummow JJ).

Disclaimer by the Official Trustee 27 On 1 October 2015, the Official Trustee disclaimed the trustee's interest in relation to the Property pursuant to s 133 of the Bankruptcy Act. That section provides as follows: 133 Disclaimer of onerous property … (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 [NAME], that he or she has not become the [NAME] 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 [NAME] 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 [NAME] 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 [NAME] and his or her property and the trustee from liability, affect the rights or liabilities of any other person. 28 [NAME] submitted that the effect of the disclaimer by the Official Trustee is that the title to the Property reverted to the [NAME] in right of the [NAME] by escheat. There is doubt about this conclusion. 29 The first difficulty is that the Official Trustee never obtained a formal conveyance of the title. The Register was not altered. As I have explained, this meant that the effect of the Bankruptcy Act was that the title to the Property only "vested in equity" in the Official Trustee. 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 [NAME] and enables the trustee of the estate of a [NAME] to be [NAME] as the owner of any such property that is part of the property of [NAME], 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. 30 On one view, the Official Trustee's disclaimer could only have been of the equitable interest in the Property created by the Bankruptcy Act. Equitable rights are not estates and cannot be equated with common law title: [NAME], Equity - A Course of Lectures (2nd ed, [NAME]: [COMPANY], 1936)

17. As [NAME] recognised in s 2 of the first Restatement of the Law of Trusts, in a definition repeated by the [NAME] ever since, the equitable right under [COMPANY] operates as an encumbrance on the legal title "subjecting the person by whom the property is held to equitable duties to deal with the property for the benefit of [NAME]": [NAME], Restatement of the Law of Trusts ([NAME], [NAME], 1935). On this view, the disclaimer of the equitable interest might simply remove an encumbrance from the legal title. But this does not mean that the legal title would be unaffected: see Commissioner of The [NAME] Federal Police v [COMPANY] (No 4) [2015] WASC 101 [346]. 31 However, the effect of s 133(1) of the Bankruptcy Act appears to permit the Official Trustee to "disclaim" a title which the Official Trustee never held. This seems to be the effect of the words permitting disclaimer "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 [NAME], that he or she has not become the [NAME] owner of that property, by writing signed by him or her". The "notwithstanding" clause would not be necessary if the Official Trustee were only disclaiming an equitable right. Further, if this were not the effect of s 133(1) then a possible alternative would be that [NAME] would continue to hold title to property, either onerous or valuable, despite the bankruptcy and outside any of the [COMPANY] exceptions in the Bankruptcy Act. That would be inconsistent with the scheme and purpose of the Bankruptcy Act and would give rise to further questions such as whether the [NAME] held the title on an implied statutory trust for the [NAME] in right of the Commonwealth or, subject to the interaction with the Land Titles Act 1994 (Qld), the State. 32 On the assumption that the Official Trustee disclaimed the [NAME] title, there are then very difficult questions concerning the effect of that disclaimer in the period prior to any court order under s 133(9) of the Bankruptcy Act. This issue was considered in [COMPANY] v New South Wales [2009] FCA 1066; (2009) 182 FCR 52 where, after a characteristically lucid discussion of the history of escheat of land, [NAME] observed (60-61 [28]) that "the question of where the title goes after a disclaimer is as clear as mud". The position has been confused and debated for two millennia since it was one of the marks of contrast between the Sabinian and Proculian schools. The [NAME] considered that an abandoned thing became res nullius at once, and capable of occupatio (ownership by first possession). The [NAME] took a different view. They were possibly motivated by the distribution of largesse at election time where coins thrown to the crowd were intended to be delivered to uncertain persons rather than abandoned (see Inst II.1.46). The Proculian view was that the owner did not lose ownership until [NAME] took control. The Sabinian view prevailed: D 41.7.2.1; D 47.2.43.5 ([NAME], A The Digest of Justinian ([COMPANY], Pennsylvania, 1998) Vol 4). The consequences have caused various difficulties in various pockets of the law for nearly two millennia. 33 In [COMPANY], [NAME] referred to three difficulties in a context similar to this case with the view that disclaimer caused an escheat to the State. The first difficulty, as [NAME] observed, is that historically escheat did not occur automatically without an act of the superior tenant or Sovereign, or later by inquiry: see [NAME], Commentaries on the Laws of England ([COMPANY], [COMPANY], 1979 reprint) Vol 2, 244-245; Escheat (Procedure) Act 1887 (50 & 51 Vict c 53). 34 [RESPONDENT] difficulty is the system of [NAME] title. In [RESPONDENT] v 72 [COMPANY] (in liq) (1998) 45 NSWLR 556, 565 [NAME] J held that the doctrine of disclaimer and escheat operated outside the [NAME] system so that "the person who, according to the register, is apparently the fee simple owner in truth is not". In [COMPANY] v New South Wales, [NAME] suggested that the better view may be that after a disclaimer under the Bankruptcy Act the title to the fee simple does not escheat absolutely to the [NAME] in right of the State because the Court has power to make a vesting order (59 [23]). However, the difficult question still remains of the status of the title in the period prior to a vesting order. 35 The third difficulty is whether an escheat should be to the [NAME] in right of the State or to the [NAME] in right of the Commonwealth, particularly in circumstances in which disclaimers and vesting orders operate, as in this case, under a law of the Commonwealth, the Bankruptcy Act. There were no submissions made in this case concerning the relationship between the Land Title Act 1994 (Qld) and the Bankruptcy Act, particular s 133(9). 36 Ultimately, four matters mean that it is unnecessary to consider these fascinating issues. The first is my conclusion that the title to the fee simple had been disclaimed. [RESPONDENT] is the lack of any event affecting the title between the date of disclaimer, 1 October 2015, and the date of this decision. The third is the lack of any opposition by the [NAME] to the proposed orders. And the fourth matter is my conclusion that s 133(9) of the Bankruptcy Act empowers this Court to make the orders sought irrespective of where the title to the fee simple is currently vested, and my further conclusion that the orders sought are appropriate.

The discretion under s 133(9) of the Bankruptcy Act 37 Sections 133(9) to 133(13) of the Bankruptcy Act relevantly provides: (9) [ADDRESS] 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 [NAME] for that purpose without any conveyance, transfer or assignment. (11) Where: (a) the property to which such an order relates is property the transfer of which is required by a law of the Commonwealth or of a State or Territory of the Commonwealth to be [NAME]; and (b) that law enables the registration of such an order; the property, notwithstanding that it vests in equity in the [NAME], does not vest in that person at law until the requirements of that law have been complied with. (12) A person aggrieved by the operation of a disclaimer under this section shall be deemed to be a creditor of [NAME] to the extent of any loss he or she has suffered by reason of the disclaimer and may prove the loss as a debt in the bankruptcy. (13) In this section: mortgage includes charge. mortgagee includes the person entitled to the benefit of a charge. 38 Section 133 empowers this Court to make an order if "it seems to the Court to be just and equitable" that the fee simple to the Property should be vested in a person. In this case, the two possible persons in whom it may be just and equitable for the fee simple to the Property to be vested are [NAME] or [NAME] [NAME]. The disclaimer did not affect [NAME]'s rights as a [NAME] mortgagee. Nor did it extinguish the equitable rights that [NAME] [NAME] had as the beneficiary of a constructive and a resulting trust: [COMPANY] v [NAME] (No 2) [2007] WASC 75; (2007) 210 FLR 11, 15 [11] ([NAME] J). 39 At the time of disclaimer, Ms [NAME] was in default under the loan agreement. The defaults included: (a) the Loan Account being arrears in the amount of $1,448.36; (b) failure to pay outgoings in respect of the Property (outstanding rates and water charges); and (c) various dealings with the Property without [NAME]'s consent. 40 [NAME] submitted that the consequence of the disclaimer is that [NAME] is unable to take action to realise its security. Hence, as I have explained, [NAME] filed this application initially seeking orders vesting the Property in [NAME] so that it could exercise its rights as a [NAME] mortgagee. [NAME] also sought orders requiring [NAME] [NAME] to deliver possession of the Property to [NAME]. [NAME]'s application was served on [NAME] [NAME], the [NAME], Ms [NAME], the Official Trustee, and Ms [NAME]. The [NAME] has now filed a submitting appearance. 41 At a directions hearing on 18 February 2016, I expressed concern with the orders sought by [NAME] given the effect that they may have on [NAME] [NAME] equitable rights. Immediately following the directions hearing, [NAME] and [NAME] [NAME] participated in a court ordered mediation. At that mediation they entered a settlement agreement to which the [NAME] consented. The Settlement Deed provided, in clause 2, as follows:

2. Proceedings (a) By 4.30pm on 7 March 2016 [NAME] [NAME] will: (i) provide the solicitors for the [COMPANY], [APPELLANT], care of [NAME] at email address [EMAIL] a copy of an unconditional written offer of finance for the amount of $570,000 which has been accepted and executed by [NAME] [NAME]; and (ii) pay any outstanding statutory charges concerning the Property. (b) In the event that [NAME] [NAME] does not comply with sub-paragraph (a) above then he agrees and hereby consents to an order being made in the Proceeding in the terms of paragraphs 1, 3(a), 3(b) and 3(c) of the order annexed to this Deed and marked 'A'. (c) In the event that [NAME] [NAME] does comply with sub-paragraph (a) above, he agrees and hereby consents to an order being made in the Proceeding in the entirety of the form annexed to this Deed and marked 'A'. 42 [NAME] submits that [NAME] [NAME] failed to comply with paragraph 2(a) of the Settlement Deed because (i) he provided only a conditional offer of finance, and (ii) he failed to pay outstanding statutory charges concerning the Property. These matters can be put to one side because [NAME], in written submissions, waived its rights to rely on this non-compliance. 43 If the settlement goes ahead, the effect of the Settlement Deed would be either of two consequences. First, that the Property will vest in [NAME] [NAME] if he pays [NAME] the sum of $570,000 by 6 April 2016 in exchange for the release of the mortgages held by [NAME]. Alternatively, if [NAME] [NAME] does not pay $570,000 by 6 April 2016, the Property will vest in [NAME] and [NAME] [NAME] will be required to deliver vacant possession to [NAME]. 44 In reaching a conclusion as to the circumstances in which it is just and equitable to make a vesting order I place weight on the relative rights of [NAME] as a mortgagee and [NAME] [NAME] as the person with current possession of the fee simple and rights under a constructive and a resulting trust. I also place weight on the agreement that they have reached for a proposed vesting order which will give effect to a fair mutual balancing of those rights. In [NAME] [NAME] submissions he explained that his "offer of $570,000" was made as part of a negotiation with [NAME] based on "a figure that is above what [[NAME]] may achieve should the property be sold in its present state". If [NAME] [NAME] makes the required payment which will cause [NAME] to discharge its mortgage, I am satisfied that it would be just and equitable for the title to the Property to vest in him. If he does not, then [NAME]'s rights as mortgagee could be seriously prejudiced. It would then be appropriate for [NAME] to be put in the position of a [NAME] owner for the purposes of sale of the Property in order to recover its secured debt.

The declaration sought by [NAME] 45 [NAME] also sought a declaration as follows: The Applicant is entitled to calculate the entirety of the debt secured and owing (the Debt) pursuant to [NAME] mortgage numbers 711108694 and 711477087 (Mortgages) over the land described as Lot 29 on [NAME] No. 107777 in the [NAME], being all of the land contained in title reference 13836129 and situated at [ADDRESS], Broadbeach Waters in the [NAME] (Property) as and if there had there been no disclaimer of the Property by the [NAME] (Trustee) as trustee of [NAME] estate of Ms [NAME] (also known as [NAME]). 46 That declaration is appropriate in circumstances in which a contingency of my orders may be that [NAME] [NAME] fails to discharge [NAME]'s mortgage and the Property needs to be sold by [NAME]. In [COMPANY] v New South Wales (61 [29]) [NAME] held that: Here, by force of s 133(2) the effect of the trustee's disclaimer on 29 October 2008 appears to have determined any ongoing charge on the land for subsequent liabilities that would otherwise have continued to accrue, such as future (unpaid) interest on the debt secured by the mortgage. I agree with Needham J's conclusion that a mortgagee of [NAME] title land is entitled to be granted a vesting order: [COMPANY] 3 ACLR at 814. I am of opinion that the land should be vested under s 133(9) in the [COMPANY] for the purpose for which it originally was mortgaged, namely to secure payment to the [COMPANY] 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 [COMPANY] will be able to prove for it as an unsecured creditor in the bankrupts' estate. (Italics added).

Conclusion 47 Orders should be made in the terms of the proposed order, with one qualification emphasised. The qualification is that the effect of s 133(11) of the Bankruptcy Act is that the vesting order made by this Court under s 133(9) does not take effect at law until registration. In order for the legal title to vest in [NAME] [NAME] or [NAME], steps must be taken to procure registration of the title that this Court has ordered to vest. 48 The parties agreed that no order as to costs should be made in the event that a vesting order is made in terms of the proposed orders, subject to [NAME] [NAME] making the payment of $570,000 by 6 April 2016. However, if that payment is not made, and if the title to the Property vests in [NAME], then the parties agreed, and it is appropriate, that [NAME]'s costs of and incidental to this proceeding should be ordered to be treated as reasonable enforcement expenses under its Mortgages over the Property and are to be payable from the proceeds of sale of the Property on the indemnity basis pursuant to clause B1 (b) of [NAME] mortgage number 711477087 over the Property. 49 The orders sought by [NAME] [NAME] and [NAME] should be made. However, those orders should not be entered for 7 days. [NAME] says that Ms [NAME] was served with this application, and she did not respond, it is arguable that she was a necessary and proper party to be heard. 50 Finally, at the conclusion of [NAME] [NAME] submissions he sought "a court ruling" that $5693.62 that he paid to [NAME], pursuant to a letter of demand on 20 November 2015, was not validly paid. He asked that this amount be deducted from the "settlement amount" of $570,000. That is not a matter raised by this application. If [NAME] [NAME] seeks restitution of that amount then he will need to bring separate proceedings. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the [NAME] [NAME].

Associate: Dated: 24 March 2016