DISTRICT COURT OF QUEENSLAND

CITATION:	A4 Developments Pty Ltd v Suncorp-Metway Ltd & Others [2022] QDC 283	
PARTIES:	A4 DEVELOPMENTS PTY LTD
ACN 087 703 590
(applicant) 

v

SUNCORP-METWAY LTD
ACN 010 831 722
(first respondent)  

ASHLEY LESLIE AS TRUSTEE FOR THE BANKRUPT ESTATE OF ANTHONY RICHARD ALLATT 
(second respondent)

PAUL LEROY AS TRUSTEE FOR THE BANKRUPT ESTATE OF MARIA TERESA ALLATT
(third respondent)
 	
FILE NO:	2109 of 2022 	
DIVISION:	Civil  	
PROCEEDING:	Application 	
ORIGINATING COURT:	District Court of Queensland 	
DELIVERED ON:	13 December 2022	
DELIVERED AT:	Brisbane	
HEARING DATE:	15 September 2022 	
JUDGE:	Rosengren DCJ	
ORDERS:	1.	The applicant has not surrendered its security.
2.	The applicant is entitled to be paid the surplus.
3.	Before making formal orders, I will hear the parties as to the form of the orders.
4.	Unless a party wishes to submit to the contrary, the second respondent is to pay the applicant’s costs of and incidental to the applications filed on 30 August and 9 September 2022.  	
CATCHWORDS:	BANKRUPTCY – ADMINISTRATION OF PROPERTY – SECURED CREDITORS – CREDITOR’S PETITION –  PROOF OF DEBT –– VOTING – where mortgage given over property as security for advance of loan by applicant – where applicant had second registered mortgage over property – where first respondent had first registered mortgage over property – where first respondent exercised power of sale under the mortgage – where applicant claims surplus proceeds of sale of property – whether applicant has been required to make election – if election has arisen whether security surrendered by unequivocal conduct 

Bankruptcy Act 1966 (Cth) ss 44, 90-94
District Court of Queensland Act 1967 (Qld) s 69
Insolvency Practice Rules (Bankruptcy) 2016 (Cth) rr 75-80, 75-85
Insolvency Practice Rules (Corporations) 2016 (Cth) rr 70-35, 75-87
Property Law Act 1974 (Qld) s 88
Trusts Act 1973 (Qld) s 98
Uniform Civil Procedure Rules 1999 (Qld) r 561

Brown v Brown [2007] FCA 2073
Champtaloup v Thomas [1976] 2 NSWLR 264
In the matter of Glacier Ceiling Battens Pty Ltd (in liq) [2017] NSWSC 1832
Kalatzis Nominees Pty Ltd & Anor v Proton Development Group Pty Ltd & Ors [2013] QSC 283
Kelso v McCulloch [1994] ACL Rep 185 NSW 31
Moor v Anglo-Italian Bank (1879) 10 Ch D 681
Porter v Computer Based Technology [2004] NSWSC 476
Provident Capital Limited v Kelso Buiders Supplies Pty Ltd (in liq) (rec and mgs appted) [2008] FCR 868
QCMA Ltd v Humeri Pty Ltd (Cohen J, unreported, 25 July 1986)
Re Douglas Homes Qld Pty Ltd (in liq) [1980] Qd R 528
Re Ferguson; Ex parte Elder’s Trustee and Executor Co Ltd (1943) 13 ABC 1
Re Finn; Ex parte Finn v Amoco Australia Ltd (1982) 58 FLR 54
Re O’Leary; Ex parte Bayne (1985) 61 ALR 674
Re Wiggins; Ex parte Credit Assistance Pty Ltd (1979) 30 ALR 443
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Seventeenth Canute Pty Ltd v Bradley Air-Conditioning Pty Ltd (in liq) [1986] 1 Qd R 111
Surfers Paradise Investments Pty Ltd (in liq) v Davoren Nominees Pty Ltd [2003] QCA 458
Tropical Traders Ltd v Goonan (1964) 111 CLR 41
	
COUNSEL:	J Marr for the applicant 
S L Philippou for the second respondent
	
SOLICITORS:	Kilmartin Knyvett for the applicant
Results Legal for the second respondent	
  Introduction
[1]	The applicant had a second registered mortgage over a property located at 89 Constellation Way, Wynnum, Queensland (‘the property’).  It was owned by Mr and Mrs Allatt as joint tenants.  It was sold by the first respondent, as the first registered mortgagee on 3 December 2019, and the first respondent was paid the debt owing to it from the sale proceeds.  In August this year, the first respondent paid into Court the surplus proceeds from the sale, being $228,257.92 (‘the surplus’).  The applicant and second respondent each claim an entitlement to the surplus.
[2]	By an originating application filed on 30 August 2022, the applicant relevantly seeks: 
(i)	a declaration pursuant to s 69(2)(a) of the District Court of Queensland Act 1967 (Qld) that it is entitled to be paid the surplus pursuant to its second registered mortgage;  
(ii)	an order that the surplus be released to it in accordance with s 88(1)(c) of the Property Law Act 1974 (Qld) (‘the PLA’) by payment into the trust account of its solicitors pursuant to r 561 of the Uniform Civil Procedure Rules 1999 (Qld), or alternatively s 98 of the Trusts Act 1973; and 
(iii)	costs.
[3]	The applicant had also sought orders against the first respondent. While written submissions were provided by the first respondent, it was not represented at the hearing, as the application in so far as it related to the first respondent was resolved prior to the commencement of the oral submissions.
[4]	On 9 September 2022, the second respondent filed a cross-application seeking orders that:
(i)	the applicant has surrendered its security over the surplus;
(ii)	a declaration that the second respondent is entitled to 50 percent of the surplus; 
(iii)	an order pursuant to r 561 UCPR that the Registrar make payment of 50 percent of the surplus to the second respondent; and
(iv)	costs.
[5]	A substantial volume of material was filed with respect to the application.  However, it was ultimately agreed between the parties that the relevant documents were limited to an agreed statement of facts, 12 documents that were tendered as exhibits, paragraph 20 of the affidavit of Stephen Kynvett filed on 30 August 2022, and paragraphs 24 to 26 and 37 of the affidavit of Ashley Leslie filed 12 September 2022.    
[6]	It is primarily contended by the applicant that it is entitled to the distribution of the surplus pursuant to s 88(1)(c) of the PLA.  It is the applicant’s position that it could not have surrendered its rights over the surplus, in circumstances where it is not part of the bankrupt estate.  Alternatively, the applicant contends that in any event, it has not surrendered its position as a secured creditor.   
[7]	The second respondent contends that when Mrs Allatt became bankrupt in July 2018, the joint tenancy in relation to the property was severed, entitling the second respondent to 50 percent of the surplus, being $114,128.96.  The second respondent does not dispute that the applicant became a secured creditor upon the sale of the property in December 2019 but contends that this security has been surrendered by the applicant.   The acts relied on by the second respondent said to amount to an election to surrender are presenting the Creditor’s Petition, lodging the Proof of Debt and voting in the bankruptcy.   
[8]	The questions raised by these applications are:
(i)	whether the applicant has been required to elect to surrender its security;
(ii)	if the applicant has been required to elect to surrender its security, whether its conduct was unequivocal; and
(iii)	whether the applicant is entitled to the surplus, pursuant to s 88(1)(c) of the PLA.                                                                                                                                         
Chronology of events
[9]	Between 18 July 1996 and 9 December 2016, Mr and Mrs Allatt were, as joint tenants, the registered proprietors of the property.  The first respondent registered a mortgage over the property on 27 November 2003, having advanced the sum of $269,000 to Mr and Mrs Allatt as a refinance.  
[10]	Mrs Allatt was a director of a company, Shiamont Pty Ltd (‘the company’). She and her husband were both shareholders of the company.   At their request, the applicant agreed to lend the company $250,000 for a property development in Caloundra.  This was agreed to and facilitated by a loan agreement between the applicant and the company, whereby the company agreed to repay the applicant the principal sum of $250,000 and $250,000 in interest by late May 2006 (‘the loan agreement’).  Mr and Mrs Allatt were guarantors.  The principal sum of $250,000 was drawn down in full by the company on 25 May 2004.  Approximately one month later, the applicant registered a mortgage over the property, securing repayment of the loan, pursuant to the personal guarantees.  It was the second registered mortgage on the title after the registered mortgage held by the first respondent.  
[11]	The loan agreement was varied in late May 2006.  The variation was to the effect that in the interim period until repayment of the $500,000 owing to the applicant, the company would meet fortnightly interest only loan repayments that the applicant owed to a third party in relation to the money it had loaned the company.  The company met its obligations under the varied agreement until 25 March 2008.  It has not made any repayments pursuant to the loan agreement.  On 30 April 2008, the first respondent issued a notice of default.
[12]	The company was deregistered by ASIC in July 2015.  Mrs Allatt was declared bankrupt in July 2018 upon filing a debtor’s petition, and in November of that year the third respondent was appointed as trustee of her bankrupt estate. 
[13]	In June 2019, the first respondent took vacant possession of the property and it was listed for sale a few months later.  On 30 September 2019, the first respondent wrote to the parties advising that the amount owing to it was in the order of $440,000, and that once settlement had occurred, agreement would be sought as to the balance of the sale proceeds, and failing agreement the surplus would be paid into Court.  The property was sold for $700,000 and settlement of the sale was completed in early December 2019.  The first respondent was paid $441,789.84 in respect of the debt owing to it from the sale proceeds. Following settlement, the first respondent again wrote to the parties confirming the settlement and that the surplus had been transferred to the trust account of the first respondent’s solicitors, pending the determination as to who was entitled to it.      
[14]	On 23 March 2020, the applicant filed proceedings in the District Court at Brisbane against Mr Allatt seeking judgement for $500,000, plus costs and interest.   The applicant did not seek to proceed against Mrs Allatt, in circumstances where she was an undischarged bankrupt.  In September 2020, default judgment was entered against Mr Allatt in the amount of $515,656.59.  On 21 October 2020, a bankruptcy notice in respect of the judgment debt was issued.  
[15]	There was a meeting between Ms Leslie and the solicitor for the applicant on 29 April 2021 to seek Ms Leslie’s consent to act as trustee, in the event that a Creditor’s Petition was pursued. Ms Leslie agreed to provide this consent.  At this meeting, the applicant’s solicitor recalled advising Ms Leslie that the applicant held a second mortgage over the property and that there was a dispute over the surplus. Ms Leslie does not recall being told of the name of the potential bankrupt, the bankrupt co-owner or any mortgage or mortgagee.   
[16]	In mid-August 2021, the applicant commenced bankruptcy proceedings against Mr Allatt by filing a Creditors Petition in the Federal Circuit Court at Brisbane, for failing to comply with the bankruptcy notice served on him in October 2020.   It stated that the applicant was owed the amount of $515,656 pursuant to the default judgment.  Relevantly it was also stated that the applicant did not hold any security over the property.
[17]	By email dated 3 September 2021, solicitors for the applicant confirmed with the solicitors for the first respondent that the surplus would not be distributed without the order of the court or the agreement of all parties. It was noted that the applicant maintained its claim with respect to these funds.   By a further email dated 9 September 2021, the position of the applicant as to its entitlement to the surplus was reiterated to the solicitors for Mr Allatt and the first and third respondents.  It was clarified that this entitlement was contemplated by s 88(1)(c) of the PLA and that if it was contended otherwise, that an application ought to have been made to have the second mortgage removed prior to the sale of the property.   A copy of the default judgment was attached to the email.   
[18]	A sequestration order was made on 22 September 2021 and Ms Leslie was appointed as trustee of Mr Allatt’s bankrupt estate.
[19]	In accordance with the second respondent’s obligations under Rule 70-35 of the Insolvency Practice Rules (Bankruptcy) 2016 (Cth) (‘the Bankruptcy Rules’), on 27 October 2021, she issued a Report to Creditors (‘the Report’).  The matters identified in the Report were on a preliminary basis.  Part 4 of the Report set out a summary in table form of the information provided by Mr Allatt, together with additional information ascertained by the second respondent since her appointment.  The table included reference to the fact that Mr Allatt had stated in his Bankruptcy Form that he had no secured creditors.  The applicant was listed as one of three ordinary unsecured creditors, for the amount of the default judgement. The Report stated that this was subject to change and that Poof of Debt forms had not yet been completed by creditors.  The property was detailed under the heading of ‘Real Property’.  It was noted that the applicant had registered a second mortgage over it and was therefore claiming to be entitled to the surplus.  
[20]	The Report enclosed a Proof of Debt form to be completed by creditors, with all supporting documentation in relation to their claims.  Creditors were also informed that the second respondent did not propose to convene a meeting of creditors, and that she instead intended to put forward proposals in relation to past and anticipated future disbursements and her renumeration.   The proposals would be put forward by giving Notices to each creditor inviting the creditor to either vote “YES” or “NO”.  The creditors were further informed that the proposals would be taken to have been passed as resolutions, if the majority of the responding creditors voted “YES” and not more than 25 percent of the responding creditors objected to the proposals being resolved without a meeting.  Creditors wishing to record a vote in relation to each proposal were required to complete the attached Notice of Proposal to Creditors forms (‘the Proposal forms’) by 5pm on 25 November 2021.
[21]	In response to the requests contained in the Report, the applicant’s solicitors forwarded a Proof of Debt and three completed Proposal forms.   The Proof of Debt form was completed by naming the applicant as a creditor and marking the box that states “Do you hold any security?” with “No”.  Further, the box titled “Estimated value of security” was left blank as was the box titled “Description of security property”.  The form included details of the default judgment obtained against Mr Allatt on 24 September 2020.   A copy of the court order was attached.  
[22]	As to the Proposal forms, they approved the proposals in relation to the second respondent’s renumeration and disbursements.  In response to the question “Do you hold security over any of the debtor’s property?” a circle was placed around “No” in two of the forms, and not responded to in the remaining form.   The circumstances giving rise to the applicant’s claim were detailed in Annexure A to the forms.  Each were in identical terms.  They  referred to the applicant’s second mortgage over the property, the default judgment against Mr Allatt, the power of sale of the property exercised by the first respondent, that the applicant was seeking to recover the surplus, and that the balance owing under the default judgment was being sought from the assets realised in Mr Allatt’s bankrupt estate.   
[23]	On 2 December 2021, the applicant emailed the second respondent seeking her consent to vary the Proof of Debt.  It was said that the original one provided on 25 November 2021 contained an administrative error.  The email attached an amended Proof of Debt and amended completed Proposal forms.   The Proof of Debt was amended by marking “Yes” next to the box that asked “Do you hold any security?”.  Further, in the box titled “Estimated value of security” it stated “$231,558.00”.  The box titled “Description of security property” was left blank.  Each of the Proposal forms were amended  by marking the word “Yes” next to the question “Do you hold security over any of the debtor’s property?”.   The estimated value of the security was said to be $231,558.00.
[24]	On the following day, the second respondent requested an email be forwarded to the applicant requesting it to surrender its security over the property of Mr Allatt pursuant to s 44(5) of the Bankruptcy Act 1966 (Cth) (‘the Act’).   No response was provided and on 26 May 2022, the second respondent asserted that the applicant was in contempt of court for failing to comply with the request.
[25]	In August this year the first respondent provided instructions for the surplus to be transferred from its solicitor’s trust account to the Registrar of the District Court of Queensland, pending the resolution of this dispute. The total amount paid into Court was $228,257.92.
Whether applicant required to make an election
[26]	The regime for the rights of secured creditors codified in the Act dates back to the judgment of Jessel MR in Moor v Anglo-Italian Bank.   A secured creditor can choose to rely on the security and stand outside the bankruptcy process.  On the other hand, if a secured creditor chooses to participate in the bankruptcy and prove a debt, the intention of s 44 of the Act is to allow the secured creditor not wishing to surrender its security, to retain it and to obtain as much as possible as a secured creditor.  This is while simultaneously petitioning in respect of the balance which is unlikely to be yielded upon the realisation of the security, provided that the balance amount exceeds the statutory minimum.  Other alternative courses a secured creditor can adopt are to surrender the security and prove the whole of the debt, or value the security and prove for the balance over the assessed value. 
[27]	These alternatives can involve the exercise of inconsistent rights and therefore can potentially raise for determination whether there has been an election by the creditor to surrender the security.  By way of an example, if a creditor wishing to prove a debt surrenders the security and proves for the full amount of the debt and subsequently receives a dividend, the creditor gives up the security.  This is because there are potentially two funds for the creditor to resort to.  The first is the bankrupt’s general estate, so as to get a dividend on the whole amount of the debt.  The second fund that can be resorted to is the security.  If an election is made to take the bankrupt’s estate, that necessarily involves giving up the security, in circumstances where the creditor has availed itself of a right of an unsecured creditor.  
[28]	It is alleged by the second respondent that prior to 2 December 2021, the applicant maintained its position as an unsecured creditor and therefore has made an election to surrender his security.  Support for this is said to be found in the Creditor’s Petition, the Proof of Debt and the completed Proposal forms.  Each of these documents include responses to questions to the effect that the applicant did not hold any security.   I am not persuaded that the applicant has been required to make an election to surrender its security for the reasons set out below.
[29]	Starting with the Creditors Petition filed by the applicant in August 2021, it is not in dispute that it states in paragraph 2 that the applicant did not hold any security over the property of Mr Allatt.  This is contrary to the applicant’s contended position as a secured creditor.  However, I am not satisfied that this amounts to the applicant having made an election to give up its security.  The reason for this is apparent when consideration is given to the purpose of filing a Creditor’s Petition.  It is simply to make a person bankrupt.  Where a person has not paid a judgment debt there is the public interest in the Court protecting the public generally against the insolvent person continuing to incur liabilities.
[30]	Any creditor who is owed money, irrespective of whether they are secured or unsecured, can file a Creditor’s Petition with a Court.  The fundamental requirement for standing to file a Creditor’s Petition, is that there must be a debt or debts of not less than the statutory minimum owing to the creditor.  Consequently, a creditor holding security needs to disclose its existence and estimate its value, to satisfy the Court that it is a creditor that comes within s 41(1) of the Act.  Even if the conditions for presenting a Creditor’s Petition as specified in s 44 of the Act can be met, there is no obligation on the petitioning creditor to prove and it gets nothing unless it proves.  Indeed, a creditor may make a person bankrupt and then leave the other creditors to prove.  Therefore, in completing the Creditor’s Petition, the applicant was not required to make a choice between the exercise of alternative and inconsistent rights.
[31]	It is worth observing that an error in a Creditor’s Petition in relation to particulars of the security, or the inadvertent leaving out of the security, does not invalidate it or the subsequent bankruptcy, and can be cured by amending the Creditor’s Petition.  The second respondent points to the fact that the applicant has not sought to amend its petition to reflect the position it now contends for.  However, this is irrelevant in that it does not in any way inform a determination as to whether the applicant has surrendered its security.   The mistake as to the applicant’s security is of no importance, in the sense that the value of the security, being the amount of the debt, is so much greater than the surplus as to leave no possible doubt that it is a petitioning creditor’s debt.   Further, it is of note that there is no statement in the Creditor’s Petition that the applicant was willing to surrender the benefit of its security, within the meaning of s 44(3) of the Act.
[32]	As to the Proof of Debt, the provisions of ss 90 to 94 of the Act determine how the amount of the debt is to be quantified when the creditor comes to prove in the bankruptcy.  Once again, it is not in dispute that the applicant’s Proof of Debt states that it did not hold any security.   While a statement in a Proof of Debt that no securities are held may be some evidence of election, it is not conclusive evidence. It could also be consistent for example, with an attempt by a secured creditor to protect its rights, if it was found not to be a secured creditor.  
[33]	The authorities suggest that something more than what occurred with the Proof of Debt here is required to constitute an election.  For example in Surfers Paradise Investments Pty Ltd (In Liq) v Davoren Nominees Pty Ltd a secured creditor proved in a winding up, valuing its security at nil, and received a dividend calculated upon the acceptance of its debt in the full amount as unsecured. It was held that by proving and receiving payment of a dividend on that basis, the secured creditor had elected to surrender its security. Dutney J, with whom Williams and Jerrard JJA agreed, said “a point at which it became necessary in this case to make an election was, in my view, when the dividend cheque was received. At that point in time the respondent was required to make a choice between accepting the cheque or returning it and notifying the liquidator that a mistake had been made in relation to the proof of debt”.
[34]	Similarly, in Seventeenth Canute Pty Ltd v Bradley Air-Conditioning Pty Ltd (in liq) a company in liquidation owed the respondent monies in respect of which the respondent had claimed a sub-contractor’s charge.  The company in liquidation entered into a scheme of arrangement which by its terms, excluded sub-contractors.  There was evidence that the respondent did not expect to receive anything from the sub-contractor’s charge.  It asserted in its Proof of Debt under the scheme of arrangement that it had received no satisfaction or security for the debt.  Notwithstanding the respondent’s view of the lack of worth of the charge, it received payment under the scheme and a dividend as an unsecured creditor.  It was held that the Proof of Debt constituted notice to the trustees of the scheme that the creditor had elected to be treated as an unsecured creditor and not a sub-contractor.
[35]	The present case is factually distinguishable from these authorities.  The circumstances facing the applicant in the context of lodging the Proof of Debt did not require an election to be made between inconsistent positions. 
[36]	Turning to the completed Proposal forms, the effect of the applicant completing the forms and returning them to the second respondent by the required date, was to approve the second respondent’s renumeration and disbursements.  This meant that a formal meeting of creditors was not required.  The impacts of the proposals if passed, were that:
(i)	the renumeration for the second respondent up until 24 October 2021, would be fixed in the sum of $15,675,50 plus GST;
(ii)	up to $25,000 plus GST would be set on an interim basis, for the future renumeration of the second respondent until the finalisation of the bankrupt estate; and 
(iii)	up to $2,000 plus GST would be set on an interim basis, for disbursements incurred and to be incurred until finalisation of the bankrupt estate.
[37]	Rule 75-85 of the Bankruptcy Rules relevantly provides that each creditor has one vote, and a secured creditor is not entitled to vote unless the debt owed to the creditor exceeds the amount estimated by the creditor in the statement given to the trustee under rule 75-80 to be the value of the security. This can be contrasted with r 75-87 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (‘the Insolvency Rules’).  Subrule (3) provides that if a secured creditor votes in respect of his or her whole debt or claim, the creditor must be taken to have surrendered his or her security, unless the Court on application is satisfied that the omission to value the security has arisen from inadvertence.  Several authorities have considered r 75-87 of the Insolvency Rules.
[38]	I do not accept that by voting in favour of the second respondent’s proposals, the applicant was making a choice, the effect of which was to surrender its security.  In accordance with the Bankruptcy Rules, the voting rights in relation to the second respondent’s proposals were not dependent on whether a creditor was an unsecured one.  This was confirmed in the Report to the creditors enclosing the Proposal forms.  In other words, when each of the votes were taken, each creditor did so simply in the capacity of a creditor.  Each creditor had one vote.  The task of the second respondent was to ascertain the number of creditors voting for and against the resolutions and ascertain that no more than 25 percent of the votes were objecting to the resolutions. The value of the creditor’s debt was also irrelevant to the task of the second respondent and the fate of the resolutions.   Further, in contrast with the Insolvency Rules, a secured creditor was not taken to have surrendered its security if the secured creditor voted in respect of the whole debt. 
[39]	Therefore, in my view, the filing of the Creditor’s Petition and the lodgement of the Proof of Debt and completed Proposal forms came at times where there was no ‘necessary choice’ put to the applicant.  It was not confronted with a choice between the exercise of alternative and inconsistent rights.  The occasion for an election by acceptance of a dividend calculated on a full proof of debt has not arisen. There has not been any exercise of other rights dependent on the amount of the proof, such as voting rights, which would have created an occasion for an election.  In short, the conduct of the applicant on each of these occasions is not such that it would be justifiable only if an election had been made to surrender its rights as a secured creditor.  
Whether security surrendered if election has arisen
[40]	Given my findings above that I am not persuaded that an occasion for the election by the applicant has arisen, it may be unnecessary to make findings as to whether the applicant has surrendered its security.  To the extent considered necessary, I am not persuaded that it has for the reasons that follow.
[41]	The answer to the question of whether there has been an election, will depend upon the application of general principles.  An election is the effect which the law attributes to conduct justifiable only if such an election had been made.  It may be exercised in one of two ways.  First, it may involve a conscious act of election.  Second, the creditor may do some act which is of such a nature, that irrespective of the creditor’s actual intention, the law treats the creditor as having exercised an election.   This may occur even though the creditor does not subjectively know that it has a right to elect, or even where the creditor does not intend to elect.   
[42]	Irrespective of whether it is words or conduct that constitutes an election, it must be unequivocal, in that it is consistent only with the exercise of one of the sets of rights and inconsistent with the other.  It calls for an intentional, definite and final act whereby the creditor either expressly, or by the clearest implication, divests itself of the benefit of its security, and hands it over to the trustee for the benefit of creditors generally.  An election to surrender is not lightly to be imputed from conduct, because it is not to be supposed that secured creditors give up their securities without good reason.  The court is required to look at objective evidence, including whether the creditor has sought to avail itself of rights and remedies of an unsecured creditor.  Once an election is made it cannot be retracted.
[43]	When objectively viewed in the context of the chain of events as summarised in the chronology above, while there is some confusion, I am not satisfied that the Creditors Petition, the Proof of Debt and the completed Proposal forms alone, or in combination, amount to an unequivocal surrender of the applicant’s security.  This is supported by not only the contents of the documents, but also the contemporaneous facts.  Relevantly:
(i)	The solicitor for the applicant has deposed to having had a meeting with Ms Leslie on 29 April 2021 to seek her consent to act as trustee if the petition was pursued. Ms Leslie agreed to provide this consent.  The solicitor further deposes to advising Ms Leslie that the applicant held a second mortgage over the property.  While the second respondent does not recall being told of the name of the potential bankrupt, the bankrupt co-owner, or any mortgage or mortgagee she does not dispute the meeting taking place, nor that she understood that the applicant’s solicitor represented a secured creditor.   
(ii)	Paragraph 1 of the Creditor’s Petition sets out the judgment debt and the quantum of it.  As stated above, the document does not include a statement that the applicant was willing to surrender its security in accordance with s 44(3) of the Act.
(iii)	Even after filing the Creditors Petition, the position of the applicant as to its entitlement to the surplus was reiterated to the solicitors for each of the respondents.  It was clarified that this entitlement was contemplated by s 88(1)(c) of the PLA and that if it was contended otherwise, that an application ought to have been made to have the second mortgage removed prior to the sale of the property.   A copy of the default judgment was attached to the email. 
(iv)	The second respondent’s knowledge as to the applicant’s secured position was confirmed in the Report where it relevantly states:
“The Petitioning Creditor is represented by Kilmartin Knyvett Lawyers and is claiming that it is entitled to recover the entire sale proceeds held as it was the second registered mortgagee over the property. A historical title search confirms that the Petitioning Creditor registered its security on the title of the property on 24 June 2004.” 
(v)	The applicant’s Proof of Debt was forwarded to the second respondent at the same time as the completed Proposal forms.  Each of these forms include ‘Annexure A – Claim Details’, which outlined the applicant’s position.  This was that the applicant had obtained a default judgment in the amount of $515,656.69 against Mr Allatt.  Further, that the applicant was seeking to recover the sum of approximately $240,000 which was held in the trust account of the first respondent’s solicitors on the basis that it had held the second registered mortgage over the property, and that the balance under the default judgment was being sought from the assets realised in Mr Allatt’s bankrupt estate.    
(vi)	This abovementioned position was affirmed in the amended Proof of Debt and completed Proposal forms, which were provided to the second respondent on 2 December 2021. At the same time, the applicant also provided the second respondent with the supporting documentation in respect of its security.
[44]	For these reasons, the issue of election is resolved adverse to the second respondent. The applicant’s actions could not be considered unequivocable conduct justifiable only on the basis that the applicant had surrendered its security.
Section 88 Property Law Act
[45]	Section 88 of the PLA is a machinery provision designed to give “effect to priorities otherwise legally established”. It provides for the order and method of application of proceeds of sale.   There is a dispute between the parties as to whether the surplus became part of the divisible property of Mr Allatt’s bankrupt estate and whether the applicant is entitled to the surplus pursuant to this legislative provision without a need to consider the various bankruptcy provisions. Given my findings above, to the effect that the applicant has not elected to surrender its security, it is not necessary to decide this remaining issue. 
Conclusion
[46]	In my view, for the reasons detailed above, there was no occasion on which the applicant was required to elect to surrender its security, and even if there was, the applicant’s  conduct was not unequivocal.    
[47]	As to the costs of the applications, the applicant has been successful.  There will be an order that the second respondent pay the applicant’s costs of both applications unless another order is sought.  If this is to be contested, the party advancing the contest should file and serve a written outline on the issue (of no more than four pages), by 4pm tomorrow, with the opposing party to respond by 4pm on Thursday 15 December 2022.