Commonwealth Bank of Australia v Hadfield

The Commonwealth Bank of Australia (the Bank) appealed to the Court of Appeal from a decision of the District Court. The mortgagor had sued the Bank in the District Court seeking to settle mortgage accounts and alleging liabilities against the Bank for an undervalue sale of mortgaged property and for conversion of goods left on the premises. The District Court had found in favour of the mortgagor, settling the accounts and charging the Bank with the claimed liabilities.

The Court of Appeal was required to determine whether the District Court had correctly applied the legal test for a mortgagee's sale, specifically whether the Bank had acted in good faith and with reasonable care in conducting the sale. It also had to consider whether the Bank had converted the mortgagor's goods remaining on the premises after the sale. A further issue involved the Bank's obligation, if any, to carry out the mortgagor's subdivision project prior to exercising its power of sale, and how this interacted with the Bank's right to pursue its own interests as mortgagee.

The Court of Appeal held that the District Court had, in substance, applied a test of negligence rather than the correct test of good faith and reasonable care in its assessment of the sale. The Court found that the Bank had not converted the goods that were still on the premises at the completion of the sale. The Court also addressed the complex factual matrix concerning the Bank's supposed obligation to complete the mortgagor's subdivision project, concluding that the Bank was entitled to pursue its own interests as mortgagee.

Consequently, the appeal was allowed with costs. The Court of Appeal set aside the large charges imposed against the Bank by the District Court and provided directions for the mortgage accounts to be settled in accordance with the Court of Appeal's decision.