Re Wakefield, W.H. & Anor v Ex parte Fitzroy Finance Co. Pty Ltd

[1989] FCA 414

Re: WILLIAM HUBERT WAKEFIELD and DORA JESSIE WAKEFIELD
Ex Parte: FITZROY FINANCE CO. PTY LTD
No. QLD Part X 169 of 1985
FED No. 414
Torrens System - Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Pincus J.(1)

CATCHWORDS

Torrens System - Equitable Mortgage by deposit of title deed - foreclosure - value of land may exceed debt - whether vesting order should be made.

Bankruptcy - vesting order - equitable mortgage - disclaimer by trustee of property burdened with onerous covenants - whether equitable mortgagee is "claiming an interest in" property - whether equitable mortgagee "a person entitled to" the lands - whether just and equitable that a vesting order be made - effect of value of the land.

Bankruptcy Act 1966, ss.91, 133(9), 231(2)

Real Property Act 1900 (NSW), ss.57(2), 61

Conveyancing Act 1919 (NSW), ss.100(2), 109

HEARING

BRISBANE

#DATE 28:7:1989

Solicitors for the applicant: J. Power of Walsh Halligan Douglas.

ORDER

The lands described as lot 5 in Camp Street, Temora, Volume 12731 Folio 242 and lot 6 in Camp Street, Temora, Volume 12731 Folio 243 be vested forthwith in the applicant on the condition that they be sold within twelve months and that any moneys realised by sale in excess of the debt due to the applicant (plus costs properly incurred in relation to the sales) be paid to the trustee of the debtors' estate, Noel Adsett.

NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application for an order to vest property under s.133(9) of the Bankruptcy Act 1966. On 28 January 1986, the debtors executed a deed of assignment under Part X of the Bankruptcy Act. As at 4 July 1988, the male debtor owed the applicant $9,216.70 under a loan agreement dated 9 November 1984. As security for the loan, the debtors had lodged with the applicant two certificates of title for land situated at Temora in New South Wales. On the same day that the loan agreement was entered into, the applicant sent a letter to the debtors acknowledging receipt of the two certificates of title "to be held as security for advance of $lo,000 and released on finalisation of loan."

1. The trustee of the estate of the debtors disclaimed the two properties on 13 April 1988, giving notice to the applicant. The applicant seeks an order that both properties be vested in it.

2. Section 133(9) states:
   

"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."

Section 133 is made applicable to a deed of assignment by s.231(2).

1. The power of the trustee to disclaim onerous property is given by s.133(1), and the relevant ground for disclaiming is that the land is "burdened with onerous covenants".

2. Onerous covenants need not be covenants that run with the land, and may include financial liabilities constituting a "burden on the land, in the sense that they may be enforced against the land": Re Middle Harbour Investments Ltd (1977) 2 NSWLR 652 at p 659 per Bowen C.J. in Eq. In that case, rates and land taxes which were accruing and were a charge upon the land were held to be "onerous covenants" (see also Re Tulloch Ltd 3 ACLR 808 at p 812). In Re Exton (1932) 5 ABC 83, the possibility that an equitable mortgage might be registered under the Real Property Act, which implied a covenant to repair buildings, was held to make the land subject to an onerous covenant (p 89). I am prepared to assume that the disclaimer in the instant case was within the trustee's powers.

3. The applicant holds an equitable mortgage over the land, which is Torrens system land. It seems clear that an equitable mortgagee by deposit of title deeds is a person "claiming an interest in ... disclaimed property" for the purposes of s.133(9). This is implicit in the decision of Re Exton (above), where, under the 1924 Act, the equitable mortgagee was given possession of a disclaimed property and the Court intimated that it would make a vesting order.

4. The question which next arises is whether the applicant is "a person entitled to" the land. The statutory power of sale (s.57(2) of the Real Property Act 1900 (NSW)) is inapplicable to an unregistered mortgage and that given by s.109 of the Conveyancing Act 1919 (NSW) applies only to mortgages created by instruments. Even if there were a power of sale, the mortgagee would not be "entitled" to the land. The application must therefore fail unless it is "just and equitable" that a vesting order be made.

5. Where the mortgage is of old system land, the appropriate remedy of an equitable mortgagee by way of deposit of title deeds is foreclosure and not sale. (The National Bank of Tasmania Ltd (in Liquidation) v. McKenzie (1920) VLR 411, but note the doubts expressed at p 426.) This view was followed in Ryan v. O'Sullivan (1956) VLR 99 in relation to Torrens Land, where Dean J. considered it settled that the proper order is for foreclosure. The Court there held that it could make a decree for foreclosure under the practice of courts of equity.(See also Re Nairn's Application (1961) VR 26 at p 29.)

6. The same position applies here: there is no right to foreclosure under the Real Property Act 1900 (s.61) because the mortgage is not registered, but a decree is available in equity. The procedure for foreclosure involves the Court making an order nisi which gives the mortgagor further time to repay the mortgage debt; if he does not, then an order absolute is made. Once the Court has made an order absolute, the mortgagee is deemed to have taken the property in full satisfaction of the mortgage debt and his entitlement to sue the mortgagor on the personal covenant to repay the debt is extinguished; see Fink v. Robertson (1907) 4 CLR 864 and s.100(2) of the Conveyancing Act 1919.

7. The problem that arises here is that the value of the land may exceed the amount of the debt, and it might be unjust to vest the property in the applicant. Otherwise, there appears to be reasonable ground for saying that it is just and equitable to vest the property in the mortgagee, in lieu of foreclosure.

8. Where the debt secured by the mortgage is greater than the value of the land, s.91 of the Bankruptcy Act provides a procedure for the vesting of the property in the mortgagee. The secured creditor is to lodge a proof of debt for the excess. If the trustee does not elect to redeem the security within 3 months after notice by the mortgagee, the property vests in the creditor by operation of law: s.91(4)(b). The provision does not adequately meet all cases likely to arise in practice.

9. A vesting order under the Bankruptcy Act may be made with conditions attached (see for example Re Hosking (No 2) (1932) 6 ABC 44, Re Lasscock (1961) 18 ABC 263 at 272). Since this application was heard, the manager of the applicant has filed an affidavit stating that "(s)hould the monies recovered from the sale of the properties ... exceed the amount of the debt owing to Fitzroy Finance Co. Pty Ltd, plus costs in relation to the sale of the property, I hereby undertake to refund the balance to the Trustee of the debtor's estate, Mr Noel Adsett." The lands will be vested forthwith in the applicant on the condition that they be sold within twelve months and any moneys in excess of the debt due to the applicant (plus costs properly incurred in relation to the sales) be paid to the trustee of the debtors' estate, Noel Adsett.