Commonwealth Bank of Australia v Pascoe and Scott

The Commonwealth Bank of Australia commenced proceedings against Pascoe and Scott in the Supreme Court of New South Wales, challenging the trustee's entitlement to surplus funds following the sale of mortgaged properties. The dispute involved the interpretation of the Bankruptcy Act 1966 and the equitable principles applicable to accounts between mortgagors and mortgagees. Specifically, the Court had to determine whether the bankrupt's proprietary rights constituted a "personal injury or wrong" under the Act, and if so, whether the equitable interest of the mortgagee could be recognised and protected.

The legal issues before the Court included whether the sequestration order under the Bankruptcy Act extinguished the bankrupt's proprietary rights in the properties, and if the sale of the properties by the mortgagee was valid. Additionally, the Court had to consider the procedure for dealing with surplus funds in such cases and the appropriate application of equitable remedies, particularly the equity of exoneration. The Court also examined whether an account between the mortgagor and mortgagee should be ordered, and if so, the circumstances in which such an account would be taken.

The Court found that the sequestration order did not extinguish the mortgagee's proprietary interest, and thus the sale of the properties by the mortgagee was valid. The Court held that the bankrupt's proprietary rights were not a "personal injury or wrong" and remained subject to the mortgage. The Court further held that the equity of exoneration applied, protecting the mortgagee's interest. As for the surplus funds, the Court ordered that they be paid into court, considering the competing claims to the surplus and the applicable statutory procedure under the Trustee Act 1925.

The Court made orders that the surplus funds be paid into court, and an account be taken between the trustee and the mortgagee to determine their respective entitlements. The Court also noted that the procedure for payment into court under the Trustee Act differed from interpleader proceedings, providing a mechanism for resolving disputes over surplus funds in bankruptcy cases.