Commonwealth Bank of Australia v Rigg

In the Federal Court of Australia, the Commonwealth Bank of Australia sought to enforce a mortgage over property held by the Riggs, the respondents. The bank argued that the property had been sold at an undervalue in contravention of the mortgage agreement, which contained terms regarding the sale of the mortgaged property. The Riggs, in turn, sought to have the mortgage contract set aside as a transaction at undervalue, contending that the bank had failed to act with good faith and that the sale price was significantly below market value.

The central legal issues before the Court were the construction of the mortgage agreement, particularly the implied terms concerning the sale of the mortgaged property, and the appropriate remedy for the Riggs if the mortgage was found to be a transaction at undervalue. The Court had to determine whether the mortgage terms were enforceable and if the sale was conducted at a price that was unfair to the Riggs. The Court also needed to consider the adequacy of the sale price and whether it was substantially below market value, as well as the bank’s obligations under the contract and the remedies available to the Riggs.

The Court found that the mortgage agreement contained an implied term that the property could only be sold at fair market value. It held that the sale price was indeed below market value and that the bank had not acted in good faith. Consequently, the Court ruled that the sale was a transaction at undervalue and ordered the bank to refund the difference between the sale price and the market value to the Riggs. The Court emphasised that the bank’s failure to ensure a fair sale price constituted a breach of the implied term and warranted the relief sought by the Riggs. This decision underscored the importance of good faith in commercial transactions and the enforcement of implied terms in mortgage agreements.