CBA loaned Garuda money to purchase an aircraft. CBA took a chattel mortgage over the airplane. Garurda defaulted and CBA appointed a receiver which seized the airplane and sold it. There was a shortfall and CBA sued the guarantor.
The guarantor accepted there had been default but argued:
- CBA appointed receivers for an improper purpose–to reduce its exposure to Garuda because of concerns about unrelated transactions; and
- the plane was sold at grossly less than market value.;
- CBA was not entitled to claim break costs as a consequence of the loan ending.
CBA sought summary judgement.
Summary judgment will only be ordered in cases so clearly untenable that they cannot possibly succeed. If the defendant has at least an arguable defence, the judge must allow the matter to go on to trial.
The court did not accept there was an arguable case that the receiver had been appointed for an improper purpose commenting:
There is no obligation on the part of a creditor to act in good faith when giving notices of demand or in exercising rights under securities. A contractual right or remedy, once it arises, may be exercised regardless of motive … I do not think there is support for the contention that the exercise of the contractual right under the mortgage debenture to appoint a receiver and manager must be exercised in good faith in either.
The court found that even if the aircraft was sold at an undervalue, that gave rise to no arguable defence or setoff by the guarantor against the bank’s claim because the receiver appointed was the agent for Garuda.
However, the court refused to order summary judgment in respect of the break costs argument because it considered that issue was arguable.