Muir v Mid Murray Fire Protection Pty Ltd

[2014] VSC 547

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2014 05626

SUSAN MUIR	Plaintiff
v
MID MURRAY FIRE PROTECTION PTY LTD (ACN 056 171 852) (IN LIQUIDATION)	Defendant

---

JUDGE:	GARDINER AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	24 October 2014
DATE OF JUDGMENT:	24 October 2014
CASE MAY BE CITED AS:	Muir v Mid Murray Fire Protection Pty Ltd
MEDIUM NEUTRAL CITATION:	[2014] VSC 547	First Revision: 27 October 2014

---

CORPORATIONS - External administration – Disclaimer of property by liquidator pursuant to s 568A of Corporations Act (2001) (Cth) – Application for vesting order pursuant to s 568F to effect sale of property subject to mortgage – Application granted.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr T.W. J. Greenway	Harrick Lawyers
No appearance for the Defendant

HIS HONOUR:

1. By an originating motion filed 17 October 2014 the plaintiff (‘Mrs Muir’) makes application pursuant to s 568F(1) of the Corporations Act  2001 (Cth) (‘the Act’) for an order that the property situated at 51 Kilkerrin Drive, Moama, New South Wales (‘the property’) be vested in her upon payment by her of the sum of $520,000.00 to the Australian and New Zealand Banking Group Limited (‘ANZ’). Mrs Muir also seeks an ancillary order that the Prothonotary of the Court be authorised to sign the transfer of the property and the other documents necessary to effect the transfer of the legal and beneficial title of the property to Mrs Muir. The application is supported by an affidavit of Mrs Muir sworn 14 October 2014.

1. The purpose of the application is to facilitate a sale of the property to Mrs Muir by ANZ which has a registered mortgage over the property.

1. Notice of the application has been served on the defendant, a company in liquidation, by providing copies of the originating motion, the affidavit in support of it and the associated exhibits.  The liquidator, Christopher Chamberlain has no objection to the application.  ANZ has been provided with notice of the application by provision of copies of the originating motion, affidavit in support and exhibits.  This was effected by providing such documents to the solicitors acting on behalf of ANZ in the transaction by which Mrs Muir will take title to the property upon payment of the sum mentioned.  Those solicitors, Gadens, have not responded to the service of such material but as the proposed transaction is clearly in ANZ’s interest I assume that it would not oppose the making of the orders sought. 

Factual Background

1. The property is Mrs Muir’s family home at which she resides with her husband, Keith Muir. The defendant, Mid Murray Fire Protection Pty Ltd (In Liquidation) (‘Mid Murray’) is the registered proprietor of the property. Mr Muir is the sole director and shareholder of Mid Murray. 

1. In March 2012, Mid Murray granted a mortgage over the property in favour of ANZ as security for various borrowings made by it.  Those facilities included a fixed rate home loan facility, an overdraft facility, a business loan and an indemnity guarantee facility. 

1. At about that time, Mr Muir entered into a written guarantee and indemnity to guarantee the repayment of the moneys owing under the facilities given by ANZ. 

1. On 12 July 2013, Mid Murray went into liquidation and Mr Chamberlain was appointed as liquidator. 

1. On 11 September 2013, the liquidator disclaimed a number of Mid Murray’s properties by giving a Form 525 ‘Notice of Disclaimer of Onerous Property’ pursuant to s 568A(1) of the Act. The property was one of the properties disclaimed. The basis of the disclaimer was said to be that the properties were:

Property where it is reasonable to expect that the costs, charges and expenses that would be incurred in realising the property would exceed the proceeds of realising the property. 

1. Section 568F of the Act provides relevantly:

(1)The Court may order that disclaimed property vest in, or be delivered to:

(a)       a person entitled to the property; or

(b)a person in or to whom it seems to the Court appropriate that the property be vested or delivered; or

(c)a person as trustee for a person of a kind referred to in paragraph (a) or (b).

(2)       The Court may make an order under subsection (1):

(a)on the application of a person who claims an interest in the property, or is under a liability in respect of the property that this Act has not discharged; and

(b)       after hearing such persons as it thinks appropriate.

(3)Subject to subsection (4), where an order is made under subsection (1) vesting property, the property vests immediately, for the purposes of the order, without any conveyance, transfer or assignment. 

(4)       Where:

(a)a law of the Commonwealth or of a State or Territory requires the transfer of property vested by an order under subsection (1) to be registered; and

(b)that  law enables the order to be registered; the property vests in equity because of the order but does not vest at law until that law has been complied with.

1. By September 2013, Mid Murray was in default under the loan agreements and indebted to ANZ in the sum of $1,669,566.94.  Mr Muir was similarly indebted to ANZ pursuant to the guarantee and indemnity. 

1. On 24 April 2014, ANZ commenced proceedings in the Supreme Court of New South Wales against Mr Muir seeking repayment of the facilities and possession of the property and against Mrs Muir for possession of the property.

1. Mrs Muir has since been in negotiations with ANZ to purchase the property from Mid Murray and avoid the need for a mortgagee sale.  The property has been valued at the request of ANZ at a market value of $540,000.00 and a forced sale value, i.e. mortgagee sale, for $485,000.00. 

1. It is not at all clear what becomes of the title to property after real property has been disclaimed by a liquidator under s 568A. It may arguably vest in the Crown, in this case the Crown in the right of the State of New South Wales. This question was the subject of consideration by Rares J in the context of an application under s 133 of the Bankruptcy Act 1966 (Cth) in National Bank of Australia v New South Wales.[1] Section 133 is substantively very similar in operation to the disclaimer provisions of the Act (Division 7A of Part 5.6, ss 568 - 568F). At paragraphs [23] and following Rares J analysed the position. He stated:

   [1][2009] FCA 1066.

23I 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.

…

26Since s 133(9) proceeds on the basis that the court retains jurisdiction to vest property that has been disclaimed under s 133(1) in a person either actually entitled to it, or in whom it would be just and equitable to vest it, the concept that somehow, in the meantime, the property escheated to the Crown does not fit easily into the statutory scheme. Escheat has the consequence that the radical title merges in the Crown which is then free to regrant the land as it pleases. Yet, s 133(9) expressly denies that the Crown has such a title, because the court, not the Crown, proceeding judicially can determine that the property vest otherwise than in the Crown. In providing for a trustee in bankruptcy (or a corporation by the act of its liquidator) to disclaim property and for the court to have jurisdiction to vest that property in another person, the Parliament necessarily intended that no escheat would occur automatically on a disclaimer.

27In addition, ss 13H(1) and (2) and 13J of the RP Act [Real Property Act 1900 (NSW)] are directed to creating an estate in fee simple held by or in the name of the State. That is not necessarily inconsistent with the Crown, in the case of a disclaimer, before any order is made under s 133(9) of the Bankruptcy Act or s 568F of the Corporations Act, holding the land in trust for statutory purposes, namely pending the determination of the court as to the person in whom the property should vest.  Trusts can exist for statutory purposes, as opposed to being confined to trusts for persons:  Fouche v Superannuation Fund Board (1952) 88 CLR 609 at 640641 per Dixon, McTiernan and Fullagar JJ; Bathurst City Council v PWC Properties Pty Limited (1998) 195 CLR 566 at 592 [67] per Gaudron, McHugh, Gummow, Hayne and Callinan JJ.

28However, as all judges since Jessel MR have recognised, the question of where the title goes after a disclaimer is as clear as mud. The device of treating the title as going to the Crown in right of the State (or Territory) in which the property is located may be convenient, so long as it respects the source whence it derives, namely (in a bankruptcy) s 133 of the Bankruptcy Act (or Div 7A of Pt 5.6 of the Corporations Act) and the intention of the Parliament of the Commonwealth that this title in the Crown is not absolute or by escheat.  This result can be accommodated by its limited interaction with Torrens title legislation, and the special position created with the (temporary) repository of the title, namely the Crown, pending the final decision of the court as to the person in whom the title will vest:  cf Figgins 196 CLR at 262-264 [22]-[27]. This is an incident of the conferral of jurisdiction on the court to decide these questions. It is not appropriate to read provisions conferring jurisdiction on or granting powers to a court by making implications or imposing limitations which are not to be found in the express words of the legislation: Owners of the Ship ‘Shin Kobe Maru’ v Empire Shipping Co Inc (1994) 181 CLR 404 at 421 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ.

29Here, 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 Torrens title land is entitled to be granted a vesting order: Re Tulloch Ltd 8 ACLR at 814. 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.

30I propose to order that the legal title of the land vest in the bank so that it may sell the estate in fee simple to a purchaser subject to conditions. I am of opinion that on a sale the bank be entitled to retain, from the proceeds of sale, all moneys to which it would have been entitled assuming that there had been no disclaimer had it sold exercising its power of sale, to the intent that the land will answer as secure for all interest, fees and other moneys that would have been secured by the mortgage.  The bank should be entitled to deduct those sums from the proceeds of sale as if there had not been a disclaimer and the mortgage had continued to secure the debts and liabilities of the bankrupts or their estates. The bank should apply the sale proceeds in the manner provided in s 58(3) of the RP Act accounting to the trustee in bankruptcy for any surplus namely:

“The purchase money to arise from the sale of any such land, estate, or interest, shall be applied, first, in payment of the expenses occasioned by such sale; secondly, in payment of the moneys which may then be due or owing to the mortgagee, chargee or covenant chargee; thirdly, in payment of subsequent mortgages, charges or covenant charges (if any) in the order of their priority; and the surplus (if any) shall be paid to the mortgagor, charger or covenant charger, as the case may be.”

1. Rares J’s analysis is compelling and I consider it has application in these circumstances. The Court retains a discretion under s 568F to vest property which has been disclaimed in: ‘... a person in or to whom it seems to the Court appropriate that the property be vested or delivered …’. The party which, after the disclaimer, for practical purposes holds the only real interest in the property is ANZ and it will receive a price for the property which is more than the mortgagee or forced sale price. If Mrs Muir pays the agreed sum at settlement, she would be an ‘appropriate person that the property be vested’.

1. I considered when reviewing the material in this application whether it would be necessary to join the Crown in the right of the State of New South Wales as a party, but I consider that while this might be technically necessary,[2]  I cannot imagine what interest the Crown would wish to put up if it were joined and heard on this application. The Crown’s rights would always be subject to the rights of ANZ as mortgagee.  In Menzies v Paccar Financial Pty Ltd (No.4),[3] the New South Wales Court of Appeal considering a similar application as to whether the Crown should be joined stated at [103]:

103In Ross v Lane Cove Council, Leeming JA observed (at [61]) that the concern underlying the default position is to ensure that natural justice is done. If natural justice can be afforded without joining a person whose rights may be affected, joinder is not always necessary. His Honour pointed out that Uniform Civil Procedure Rules 2005 (NSW) r 6.23, which states that proceedings are not to be defeated merely because of the non-joinder of any person as a party, is merely a modern formulation of the Chancery practice, which did not insist on joinder if there was no prejudice. Leeming JA gave as an example (at [62]) a case where an owners corporation under a strata scheme was directly affected by proposed orders for the demolition of a staircase, but the practical impact on the owners corporation was low and it not only knew of the proposed orders but had passed a resolution supporting them: Woollahra Municipal Council v Sahade [2012] NSWLEC 76.

[2]See Menzies v Paccar Financial Pty Ltd (No.4) [2014] NSWCA 210, at [101] et seq.

[3]Ibid [104].

1. As I have said, even if it were assumed that upon the escheat of the property to the Crown, it would still be subject to the mortgage to ANZ by reason of its security over the property.  Adopting a practical approach, I see no reason to require that the Crown be joined as a party.  It will only delay the matter and add to the legal costs for no apparent good purpose. 

1. I consider that the application should be granted.  The liquidator of Mid Murray, no doubt because its unsecured creditors would not receive any benefit from doing so, did not effect a sale of the property apparently because after the costs of sale, together with the secured debt, there would have been no surplus available to unsecured creditors.  Instead, they disclaimed the property which remained subject to the ANZ mortgage.  What is occurring is the avoidance of a mortgagee sale of the property with all the costs and risks that that involves for ANZ. Instead, there will be a sale of the property for a price which exceeds its value on a forced sale basis.

1. I will make orders in terms of the orders which have been proposed by counsel for Mrs Muir with some minor amendments.