COMMONWEALTH BANK OF AUSTRALIA -v- PANKAJ OSWAL (IN HIS PERSONAL CAPACITY AND AS TRUSTEE OF THE BURRUP TRUST) [2012] WASC 128 (26 April 2012)

Supreme Court of WA|2012-04-26|Before: Miere J

1 LE MIERE J: The plaintiff applies for an extension of time in which to apply for summary judgment and for summary judgment pursuant to O 14 r 1 of the Rules of the Supreme Court 1971 (WA). In the alternative, it seeks to strike out the entirety of the defendant's defence, or paragraphs of that defence, as disclosing no reasonable cause of action.

2 The defendant did not oppose an extension of time. I am satisfied that it is appropriate to grant an extension of time and that will be granted.

4 The plaintiff says the defendant committed acts of default as defined in the Loan Agreement and under the Chattel Mortgage. Clause 10.2 of the Chattel Mortgage provides for the immediate enforcement of the Chattel Mortgage without any demand or notice on any event of default, and cl 10.3 of the Chattel Mortgage expressly empowered the plaintiff to appoint a receiver of the mortgaged property, that is the aircraft, at any time after the secured monies become payable or after the security becomes enforceable.

5 The plaintiff appointed a receiver to the aircraft on 17 December 2010. The receiver sold the aircraft on or around 18 May 2011 for the sum of $US12.9 million. The plaintiff sues the defendant as guarantor for the shortfall of the debt still owed to the plaintiff. The action was commenced in February 2011. At the time of the hearing of this application on 4 November 2011 the current pleadings were the amended statement of claim dated 28 July 2011 and the amended defence dated 30 August 2011. However, the application proceeded on the basis that the defendant would amend its defence in the form of an amended defence which was subsequently served on 7 November 2011.

6 The defendant accepts that there has been at least one relevant default proved by the plaintiff. The defendant concedes the following defaults. First, on 17 December 2010 Australia and New Zealand Banking Group Ltd (ANZ) appointed receivers to shares in Burrup Holdings owned by the defendant. This was an event of default under cl 11.1(h) of the Loan Agreement. An event of default under the Loan Agreement is immediately enforceable under cl 10.1(a) of the Chattel Mortgage. Second, under cl 10.1(a)(i) and cl 10.1(b) of the Loan Agreement, Garuda undertook to provide to the plaintiff financial information including copies of accounts for Garuda, the Burrup Trust and Burrup Fertilisers to be provided within 120 days of each year end. The defendant concedes there was a default in relation to the Burrup Trust and Burrup Fertilisers. Third, under cl 8.7 of the Chattel Mortgage, Garuda agreed to comply with the conditions specified in sch 1 regarding the aircraft. Paragraph 7(c) of sch 1 provides that Garuda must, upon request by the plaintiff, provide copies of all information, logs, documents and records relating to the aircraft and its use, maintenance and/or conditions. Failure to comply with a covenant under the Chattel Mortgage is immediately enforceable under cl 10.1(d). The defendant concedes that it failed to comply with that covenant.

7 The plaintiff alleges further defaults. First, Garuda failed to provide the financial information including copies of accounts for Garuda as required under cl 10.1(a)(i) and cl 10.1(b) of the Loan Agreement. Second, the defendant failed to inform the plaintiff of a change in shareholding in Burrup Holdings contrary to cl 3.5 of the Guarantee. Third, Garuda failed to provide maintenance records as required by cl 8.7 and par 7(c) of sch 1 of the Chattel Mortgage. Fourth, Garuda failed to inform the plaintiff of litigation to which it was a party or affecting it or any of its assets involving a claim in excess of $AUD100,000 contrary to its obligation under cl 10.1(d)(iii) of the Loan Agreement which was not remedied within 21 days and hence is an early default under cl 11.1(b)(ii) of the Loan Agreement.

8 Clause 10.1 of the Chattel Mortgage provides that the secured monies shall, at the option of the plaintiff and notwithstanding any delay or previous waiver of the right to exercise such option, immediately become payable without any demand or notice in the event, amongst other things, of an event of default as defined in the Loan Agreement or if Garuda fails to observe or perform any of the covenants in the Chattel Mortgage. It is common ground that at least one event of default or nonperformance occurred. The plaintiff says once an event of default is established the secured money is immediately accelerated to become payable without any demand or notice under cl 10.1 of the Chattel Mortgage, and the mortgage is immediately enforceable without any demand or notice under cl 10.2 of the Chattel Mortgage, and the plaintiff has the power to appoint a receiver to the mortgaged property under cl 10.3 of the Chattel Mortgage.

9 The defendant says that upon an event of default the secured money does not become payable unless and until the plaintiff exercises its option for the monies to become immediately payable. The defendant says the plaintiff did not exercise its option for the secured monies to become immediately payable until 23 December 2010, that is, after the plaintiff appointed the receivers on 17 December 2010. That dispute is relevant to the defendant's argument that the plaintiff appointed the receivers for an improper purpose, to which I will come later in these reasons. However, even if the defendant is right about that, the secured monies became immediately payable no later than 23 December 2010.

10 The defendant's liability arises under the Guarantee. The effect of cl 3.2 of the Guarantee is that the defendant, as guarantor, must pay, on demand, the secured monies provided the plaintiff has first made demand on the principal debtor, Garuda. The plaintiff made demand on Garuda by notice of demand of 23 December 2010 and demanded payment by the defendant as guarantor on 24 December 2010. None of those matters are in issue.

11 On this summary judgment application there are three issues to be determined. First, the defendant says that the plaintiff's appointment of the receiver was beyond power or was for an improper purpose or was not in good faith. Second, the defendant says that the receiver sold the aircraft at grossly less than fair market value. That is only relevant if the appointment of the receiver was not valid. The receiver is the agent for Garuda. Therefore, if the receiver was validly appointed, the plaintiff is not responsible for any loss caused to Garuda by reason of the receiver selling the aircraft at undervalue. Furthermore, if the plaintiff appointed the receiver for an improper purpose, that is only relevant insofar as it caused any loss or damage to Garuda or the defendant. The defendant says that the loss or damage was caused by the receiver selling the aircraft at undervalue. Thus, these two issues are intertwined.

12 The third issue concerns break costs, that is, costs incurred by the plaintiff as a result of the termination of an interest rate swap between the plaintiff and the Royal Bank of Scotland as a consequence of termination of the Loan Agreement.

13 The remaining issue is the quantum in which judgment should be ordered. The plaintiff has applied for summary judgment in respect of part only of its claim. It has carved out the costs and expenses of enforcement, being legal costs and expenses and those of the receiver. The defendant has raised an issue concerning the reasonableness of those costs and the plaintiff accepts that those costs should not be assessed by way of summary judgment.

14 The parties have agreed that I should determine the three issues to which I have referred and then require the parties to confer in relation to the appropriate orders and, where appropriate, the amount for which summary judgment should be ordered. I will proceed in that way.

15 The test to be applied in determining whether to summarily dispose of an action has been variously described. In General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, Barwick CJ said that great care must be exercised to ensure that under the guise of achieving expeditious finality a litigant is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal and summary disposal should be reserved for cases so clearly untenable that they cannot possibly succeed (130). In Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 Gaudron, McHugh, Gummow and Hayne JJ observed:

It is, of course, well accepted that a court whose jurisdiction is regularly invoked in respect of a local defendant (most often by service of process on that defendant within the geographic limitations of the court's jurisdiction) should not decide the issues raised in those proceedings in a summary way except in the clearest of cases. Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways ... but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way [57].

16 Wherever a summary judgment is sought a judge may, in appropriate cases, reach a conclusion on a question of law, even one involving considerable argument, if at the conclusion of the argument he considers the answer is clear. If the judge is satisfied that the plaintiff's claim must succeed it will ordinarily be appropriate that summary judgment be entered. However, if the judge fails to reach that state of satisfaction then the matter should not be disposed of summarily. If the judge considers that the defendant has at least an arguable defence, which may mean that the plaintiff will not succeed at trial, then the judge must allow the matter to go on to trial. The judge may finally determine a question of construction of a contract when it is ordered that a preliminary issue be determined before trial, however, the judge may not summarily dispose of the matter where the defendant has an arguable case.

17 In [22] of his defence, the defendant pleads that on the proper construction of the power to appoint a receiver conferred by cl 10.3 of the Chattel Mortgage the power is only exercisable for the purpose of securing performance of the Chattel Mortgage, or securing repayment of the money secured by the Chattel Mortgage and was only exercisable in good faith for a proper purpose. In [55] of his defence the defendant pleads the plaintiff did not appoint a receiver in reliance on any event of default or for the purpose of remedying that event of default or securing repayment of the secured money by reason of that event of default. In [57] of his defence the defendant says the appointment of the receiver was neither to remedy a default or to secure a repayment of the secured monies and accordingly the appointment of the receiver was a breach of the terms pleaded in [22] and [38] in that it was not an appointment which was within power or for a proper purpose or in good faith.

18 The implication of a duty on contracting parties to act in good faith is contentious. In Vodaphone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 the New South Wales Court of Appeal regarded good faith as a generic term implied in particular classes of contracts: [188] [189] (Giles JA, Sheller & Ipp JJA concurring). In Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 Buchanan JA said:

I am reluctant to conclude that commercial contracts are a class of contracts carrying an implied term of good faith as a legal incident, so that an obligation of good faith applies indiscriminately to all rights and power conferred by commercial contract. It may, however, be appropriate in a particular case to import such an obligation to protect a vulnerable party from exploitive conduct which subverts the original purpose for which the contract was made. Implication in this fashion is perhaps ad hoc implication ... rather than implication as a matter of law creating a legal incident of contracts of a certain type [25].

Where commercial leviathans are contractually engaged, it is difficult to see that a duty of good faith will arise ... [4].

19 I am unaware of any relevant authority in which the appointment of a receiver has been held to be invalid on the ground that the power to appoint the receiver was exercised in breach of an implied duty of good faith.

20 In 'Company Receivers and Administrators' Professor O'Donovan writes:

If the debenture holder making the appointment commits a fraud on the power invested in it by the debenture, the receiver and manager will have no authority to interfere with the management of the company and no power to assume control of its assets [7.9930].

Professor O'Donovan cites Re Maskelyne British Typewriter Ltd [1898] 1 Ch 133 in support of that proposition. However, that case is not authority for the proposition that a duty of good faith is owed to the mortgagor. A company had issued a series of debentures, each of which contained a condition that, at any time after the principal monies secured should have become payable, the L Corporation, which was one of the debenture holders, might appoint a receiver of all or any of the property charged. The England and Wales Court of Appeal held that the L Corporation were trustees of the power of appointment of a receiver on behalf of all the debenture holders and were bound to exercise it in their interest and not in the interests of the shareholders of the company, of which the L Corporation was one.

21 In Shamji v Johnson Matthey Bankers Ltd (1986) 2 BCC 98910 the England and Wales Court of Appeal adopted as its own the judgment of Hoffman J at first instance in which his Honour said:

Mr Crystal said under the terms of the security documents as pleaded in clauses 7 and 15 of the statement of claim, JMB had a contractual right to appoint a receiver at any time after demanding payment. In the absence of bad faith, the Bank could not owe the mortgagors or guarantors a duty of care in deciding whether to exercise that right. It might owe some duty in the way in which the right was exercised (eg it might owe a duty to take reasonable care not to appoint an incompetent) but not as to whether it was exercised or not (98915).

22 In Terry Clark & Associates Pty Ltd v Carez Nominees Pty Ltd [1994] SASC 4552; (1994) 13 ACSR 314 the Supreme Court of South Australia dismissed an appeal from an order of the master granting an injunction restraining the second defendant, who had been appointed by the first defendant as receiver and manager of the plaintiff, from acting as receiver and manager. Counsel for the first defendant submitted that want of bona fides does not in law provide a ground for restraining a mortgagee's exercise of its contractual right to enforce the security by appointment of a receiver. Counsel for the plaintiff contended that a secured creditor generally owes to a guarantor a duty to exercise its powers under the security in good faith, or at the least not to do so in bad faith. He cited dicta in Shamji v Johnson Matthey Bankers Ltd and Re Potters Oil Ltd (No 2) [1986] 1 All ER 890, 894. However, the argument for the plaintiff went further than the general proposition as to good faith. It was submitted that if the corporate veil were removed it would be revealed that the real mortgagees and the real guarantor were partners or joint venturers in an enterprise in the course of which the monies were borrowed and that the relationship gave rise to fiduciary obligations affecting the debt, the security and its enforcement which bound the first defendant in relation to its enforcement of the security against the plaintiff. King CJ, with whom Bollen J agreed, held that it was not the function of the court on those appeals to determine finally whether, as a matter of law, the first defendant was under an obligation to exercise good faith in relation to the appointment of a receiver. His Honour held that, having considered the authorities, he was satisfied that there was a serious question of law to be determined. Mullighan J also dismissed the appeal but stated that he preferred to base the decision as to whether there is a serious question to be tried on the contention that upon removing the corporate veil, the relevant relationships gave rise to fiduciary obligations which bound the defendant with respect to the enforcement of securities against the plaintiff. His Honour added:

The plaintiff has not established, in my view, that there is a serious question to be tried with respect to any general obligation on the part of the defendant to act in good faith to the plaintiff apart from the question of an obligation which arises out of any fiduciary duty. 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 Shamji v Johnson Matthey Bankers Ltd [1986] 1 FTLR 329 or Re Potters Oils Ltd (No 2) [1986] 1 All ER 890.

Close analysis of both of these cases does not establish that a creditor has an obligation to act in good faith in the exercise of the right to appoint a receiver except in the limited way suggested in Shamji ie not to appoint an incompetent and matters of that nature. In Re Potters Oils Ltd (No 2), supra, the issue was whether a receiver appointed by a particular creditor pursuant to a debenture was entitled to be paid his remuneration by the liquidator of the company out of the proceeds of sale of the assets which were the subject of the security, it having been contended that the appointment of the receiver was unnecessary. Hoffman J considered the rights of the creditor. He said at 894:

'The debenture holder is under no duty to refrain from exercising his rights merely because doing so may cause loss to the company or its unsecured creditors. He owes a duty of care to the company but this duty is qualified by being subordinated to the protection of his own interests. As Salmon LJ said in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] EWCA Civ 9; [1971] 2 All ER 633 at 643; [1971] Ch 949 at 965:

"If the mortgagee's interests, as he sees them, conflict with those of the mortgagor, the mortgagee can give preference to his own interests".'

Having accepted that the creditor was entitled to appoint the receiver, he went on to say, with respect to the matter in issue, the receiver's remuneration, at 8945:

'The power to agree the receiver's remuneration, like other powers of the mortgagee, has no doubt to be exercised in good faith and with regard to the qualified duty of care to the company to which I have already referred. The receiver as agent for the company is also entitled to be indemnified out of the assets subject to his receivership for expenses properly incurred as such agent.'

This reference to the exercise of powers in good faith must be seen in the context of the duty of care to the company, which involved the agreement as to the remuneration of the receiver, not as to whether to exercise the power under the debenture to appoint the receiver (319 320).

23 It is not clear that a mortgagee has an obligation to act in good faith in the exercise of the right to appoint a receiver except in limited circumstances. However, I am not satisfied that the plaintiff's claim must succeed on this point. Whether or not the plaintiff was bound to exercise the power to appoint a receiver in good faith, or at least not in bad faith or for an extraneous purpose, should not be determined on a summary judgment application.

24 The next question is whether there is evidence the plaintiff exercised the power to appoint the receiver other than in good faith, or exercised the power in bad faith or for an extraneous purpose.

25 The defendant alleges the plaintiff exercised its powers other than for a proper purpose, not in good faith and not to remedy the alleged defaults. The defendant says that the plaintiff exercised its powers to address concerns the plaintiff had with unrelated transactions, to distance the plaintiff from the Burrup Group of companies and/or to put commercial pressure on parties related to the defendant in relation to other contractual arrangements those parties had with the plaintiff or other financial institutions. The defendant relies upon documents discovered by the plaintiff as evidence to support those contentions.

26 Two of the plaintiff's officers, Guy Buxton, Risk Executive, and Michelle Woolhouse, Relationship Executive, on 20 December 2010 wrote a confidential note on the plaintiff's exposure to the Burrup Fertilisers and Garuda Aviation. The note sets out the facilities provided by the plaintiff to the Burrup Fertilisers and Garuda Aviation. The principal facilities are a cash advance of $AUD4.7 million to Burrup Fertilisers Pty Ltd which is secured by 10 residential houses in Karratha and the lease facility of $US16.74 million to Garuda which gives rise to the present action. The note states that there are no financial covenants on Garuda's financial performance but there is a requirement that Burrup Fertilisers maintains minimum net cash flow of $US15 million per annum to ensure it has sufficient surplus cash to meet its Garuda obligations. The note contains the following statements concerning the plaintiff appointing a receiver:

the Deal Team presented the BFPL/Garuda position to Review Panel on 30 Nov 2010, where the agreed action was to seek an early payment of the Garuda top up and continue to reserve our rights. In subsequent discussions on the 7 Dec 2010, Mr Oswal agreed to make this top up payment in advance of the May 2011 due date and offered a January 2011 payment date.
As multiple discussions with the clients did not achieve satisfactory outcomes, a formal notification of the breaches and reservation of rights was issued on Friday 17 December 2010. REDACTED REDACTED That afternoon (subsequent to ANZ appointing a receiver over BFPL), the bank appointed a receiver over the aircraft.

As the client discussions were not fruitful, the Deal Team held continuing concerns on the transparency, liquidity and client integrity. As Pankaj Oswal has a history of early legal action, CRS had earlier been engaged to ensure due process.

27 Amongst other things, counsel for the defendant, Mr Newlinds SC, submitted in relation to this note:

There is no reference to any other discussions between the client and the bank between 7 December and the appointment. In my submission, there would be real doubt that as a matter of fact there were multiple discussions about the topup payment and there would be a real possibility that there could be a finding that this document has been crafted with a view to self justification after the appointment ...

Taken on its own that document is against me and if the court at a final hearing made a finding consistent with what is set out in that document my client would lose. I concede that, but that does not compel the conclusion for the purpose of this application that just because there is one document which is supportive of the bank's position that summary judgment ought be entered.

28 Mr Newlinds submitted that the reason the plaintiff appointed the receiver was because it wanted to get out of its relationship with the Burrup Group, including Garuda, because it knew there was going to be a fight between the Burrup Group and Yara or the Burrup Group and ANZ and the plaintiff did not want to be caught up in the bad publicity surrounding that conflict. The defendant says this is an improper purpose because to use the power to appoint a receiver for the purpose of terminating the relationship is beyond the scope of the power unless the termination of the relationship is for the purpose of facilitating repayment of the loan or protection of the asset. Mr Newlinds submitted that if the plaintiff's purpose in appointing the receiver was merely to terminate the relationship and if not for that purpose the plaintiff would not have appointed the receiver then the appointment was beyond power.

29 The defendant must satisfy the court there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of the claim or part of it. If the judge considers the defendant has at least an arguable defence, which may mean the plaintiff will not succeed at trial, then the judge must allow the matter to go on to trial. However, the arguable defence must be raised by evidence. Mere assertion is insufficient. I am not satisfied the evidence before the court demonstrates a triable issue in relation to the plaintiff's purpose in appointing the receiver.

30 Mr Newlinds pointed to a number of internal bank documents that show the bank treated Burrup and Garuda as a group of companies for the purpose of their dealings with them. A number of internal documents deal with, or refer to, the loans to Burrup Fertilisers and Garuda. That is not surprising. The ultimate beneficial owner of Garuda was Mr Oswal. Under the Loan Agreement all communications to the borrower were to be sent to Mr Oswal. Satisfactory review of the Burrup Trust by the bank's solicitor was a condition precedent under the Loan Agreement. It was a condition subsequent that the borrower provide to the bank the final annual accounts of the Burrup Trust for the year ending 31 March 2007. Garuda undertook to provide to the bank the annual accounts of Burrup Trust and Burrup Fertilisers and financial forecasts for Burrup Fertilisers' liquid ammonia project. Garuda undertook to ensure that Burrup Fertilisers maintained a minimum $US15 million per annum in net cash flow available for distribution to shareholders. Those provisions were made because the aircraft would generate little revenue from third parties and the ultimate source of the balance of the loan repayments was the Burrup Trust or Burrup Fertilisers. The amount owing to the plaintiff under the Loan Agreement was guaranteed by Mr Oswal in his personal capacity and as trustee of the Burrup Trust under the Guarantee. Burrup Fertilisers was 100% owned by Burrup Holdings which in turn was owned 65% by the Burrup Trust and 35% by Yara Australia Pty Ltd, a subsidiary of Norwegian company Yara International ASA.

31 Counsel for the defendant submitted the bank's files include documents concerning Burrup Holdings, the ammonia plant and disputes with Yara, none of which have anything to do with Garuda. I do not think any inference can be drawn from the bank obtaining or generating such documents, given the link between Garuda, the Burrup Trust, Burrup Holdings and Yara and that the Burrup Trust and Burrup Holdings were to be the ultimate source of the funds to meet the repayments by Garuda over and above any revenue obtained by Garuda from hire of the aircraft to third parties. The matter is expressly addressed in a diary note by a bank officer of 21 September 2010 which states, amongst other things:

Burrup is the core asset owning and cash flow generating group within the Burrup Group of coys, headed by Holdco Burrup Holdings Ltd (BHL).
The group is part of the larger Oswal Group, a group of coys headed by Pankaj Oswal. Pankaj owns 65% of BHL and the remaining 35% is owned by core offtaker, Yara International, a Norwegian fertiliser group.
Burrup is a significant producer of liquid ammonia in Australia, with other interests in ammonium nitrate plant (FID expected opt OTC 2010), a growing shipping fleet and various other undisclosed projects.
Garuda is an SPV for the operation of a gulfstream aircraft financed by CBA in 2007 for US$27 million. The plane is managed by AvWest under an arms length contract where the Burrup Group has first call on the plane, which is otherwise occasionally chartered to third parties. External charter fees are not sufficient to meet obligations and debt servicing and funding of maintenance is reliant on intercoy payments from Burrup cash flow.

32 Mr Newlinds submitted that during 2010 the plaintiff had no concern about being paid by Garuda and no concern about its security position. That is not completely accurate. The Loan Agreement provided in effect that the bank may undertake an annual revaluation of the aircraft. The bank may require Garuda to make a principal payment in addition to its interest payments as a 'top up' payment. The plaintiff did require 'top ups'. For example, on 9 November 2009, one bank officer informed others:

A bad day for me has just got worse.

Under paragraph 10.1(s) of the Loan Agreement dated 25/10/07, Garuda are to make a 'top up' payment in the event there is a material change in the aircraft's value from that held when the deal was written. As you can see the valuation has almost halved and that US$18.5 m (blue book value) we need to enforce that condition.

33 On 7 December 2010, bank officers held a teleconference with Mr Oswal and another representative of Burrup Fertilisers and Garuda, Mr Raj Jeyarajah. A diary note of the teleconference records the bank officers outlined that their purpose was to discuss with Mr Oswal 'concerns that the bank has around the Yara dispute, delay of financials, operation of business and transparency, and we sought open and candid discussion'. Mr Oswal said ANZ had concerns with the Yara disputes and wanted both parties to 'sort it out' and that ANZ had arranged a meeting that week with Burrup and Yara to seek a resolution to the various disputes. The diary note includes the following recommendation:

Recommend bank issue notice on both Burrup and Garuda that accounts remain overdue, bank considering its position which may include early payment of Garuda top up, and will continue to reserve rights in the meantime. Would prefer we sit tight on the formal advice on the top up until we discuss with Pankaj early next week the outcome of the Yara/ANZ meetings (we may be asking for a higher amount then).

I agree that while we wait for the efficacy check to be completed, it is in the bank's interests to wait on formulating final strategy until the outcomes of the Oswal/Yara/ANZ (9th and 10th December) meetings are known; suggested dates to revert to Raj/Pankaj are 13th/14th Dec.

We also need to confirm all appropriate rights have been reserved and notices issued.

34 There are no documents which indicate what, if any, communications took place between the bank and Garuda or Mr Oswal between 7 and 17 December 2010. On 17 December 2010 the ANZ appointed receivers and managers of Burrup Fertilisers. The only direct evidence of the plaintiff's reasons or purpose in appointing a receiver to Garuda is the statement of Mr Ficko and the plaintiff's confidential note of 20 December 2010 to which I have already referred. Mr Ficko is a manager in the Risk Management Institutional and Banking Division of the plaintiff and has the daytoday carriage of the matter on behalf of the plaintiff. In his affidavit sworn 31 October 2011, Mr Ficko says:

I was involved in the decision by the plaintiff to appoint Mr Hughes as the Receiver and I appointed the Receiver. For the avoidance of doubt I verify that the plaintiff appointed the Receiver for the purpose of recovering the monies owed to the plaintiff under the Loan Agreement and Chattel Mortgage and for no other purpose and was exercised in good faith.

35 As I have said, counsel for the defendant accepts that if the statements in the confidential note of 20 December 2010 are correct, then the plaintiff exercised the power to appoint a receiver in good faith and for a proper purpose. I find there is no evidence that, or from which it can be inferred that, the plaintiff did not exercise the power to appoint a receiver in good faith or that the plaintiff exercised the power in bad faith or for an extraneous purpose. There is no evidence to support the assertions of the defendant that the contrary is arguable.

36 The defendant says that when the plaintiff appointed the receiver on 17 December 2010 it did not, at that time, exercise its option for the secured monies to become immediately payable. Mr Newlinds submits, in effect, that that is evidence from which it may be inferred, or which supports the inference that, the plaintiff did not appoint the receiver for the purpose of obtaining payment of the secured monies. I do not accept that that is evidence of, or from which it might be inferred that, the plaintiff appointed the receiver in bad faith or for an extraneous purpose. If the plaintiff did not exercise its option for the secured monies to become immediately payable its appointment of a receiver is consistent with securing the aircraft as security for the amount owing, even if it had not become immediately payable.

37 In my view, the defendant's argument that the plaintiff did not exercise the power to appoint a receiver in good faith for a proper purpose, or that it exercised the power in bad faith or for an extraneous purpose, and was beyond power rests on assertion and speculation. There is no evidence to support it or any evidence from which an inference may reasonably be drawn that the plaintiff did not exercise the power in good faith or for a proper purpose. In those circumstances the defendant has not made out an arguable case on that ground.

38 The defendant's case is that the purported appointment of the receiver was beyond power, and hence the receiver was dealing with the aircraft as agent of the plaintiff, and not pursuant to the security instruments. The defendant submits if the receiver has sold the plane at undervalue the bank is liable for the acts of its agent. That means that Garuda has a claim for damages against the bank which it can setoff against the bank's claim. That setoff would act as a true equitable setoff and reduce the amount of the debt and the defendant, as guarantor, is entitled to take advantage of that setoff. I have found that there is not an arguable case that the appointment of the receiver was beyond power and hence even if the aircraft was sold at an undervalue that gives rise to no arguable defence or setoff by the defendant against the plaintiff's claim. However, as the matter was argued I will set out my findings on the sale at undervalue issue.

39 The aircraft was sold for $US12.9 million. The defendant says that its market price was at the relevant time not less than $US15.3 million. The defendant relies upon a report of 28 October 2011 by Ken De Jaeger. Mr De Jaeger has relevant expertise in the valuation of aircraft. Mr De Jaeger has stated his opinion that the maintenanceadjusted current market value of the aircraft as of 17 December 2010 was $US15.34 million and the maintenanceadjusted current market value of the aircraft as of 22 March 2011 was $US15.07 million. Mr De Jaeger is of the opinion, in the circumstances set out in his report, that a receiver, acting appropriately and allowing for liquid market exposure, should have been able to achieve sale returns approximating current market value.

40 The value of the aircraft which could have been realised by the receiver, and whether the aircraft was sold at an undervalue are questions of fact. The defendant has led evidence which raises an arguable case that the aircraft was sold at undervalue.

41 The plaintiff claims break costs, that is those costs which the plaintiff says it incurred as a result of the termination of an interest rate swap between the plaintiff and Royal Bank of Scotland as a direct consequence of termination of the Loan Agreement on or around 29 December 2010. The incurring of break costs, and their recovery, gives rise to an issue of construction of cl 3A.4(c)(ii) of the Loan Agreement. Clause 3A.4(c) provides:

(i) The Borrower may not repay any amounts under the Facility without the prior written consent of the Bank which, if given in its absolute discretion, may be conditional including the payment of Break Costs (if any).

(ii) The Borrower agrees to pay Break Costs where the termination of this facility or a payment by the Borrower pursuant to any provision of this facility results in the payment or satisfaction by indemnity of any amount on a date which is earlier than the date upon which such amount would otherwise be due to be repaid or satisfied by indemnity. Break Costs will be such additional amounts as may be necessary to compensate the Bank for the cost of reemployment of the funds prepaid at rates lower than the Cost of Funds provided that the Bank must use its reasonable efforts to minimise such cost.

(iii) The Advance, all interest and any other moneys (other than moneys referred to in clause 12) to become owing or payable by the Borrower to the Bank will be paid or repaid in USD.

42 Clause 1.1 of the Loan Agreement provides that when used in the agreement the following term has the following meaning unless the subject or the context otherwise requires:

any costs incurred by the Bank resulting from the termination of any currency derivative, option, interest rate swap agreement, forward interest rate agreement or similar arrangement entered into in connection with the Bank's obligations under this facility. Any determination by the Bank for the purposes of this definition will, in the absence of manifest error, be conclusive evidence of an amount of such break costs

43 The plaintiff terminated the Loan Agreement on or about 29 December 2010. Mr Ficko swears that as a consequence of the termination of the Loan Agreement break costs have been incurred by the plaintiff of $US1,269,000. As a consequence of the termination of the Loan Agreement the plaintiff terminated an interest rate swap transaction between the plaintiff and the Royal Bank of Scotland. On termination of the interest rate swap the plaintiff was required to pay to the Royal Bank of Scotland $US1,269,000.

44 The issue in brief is whether the break costs the borrower agrees to pay under cl 3A.4(c)(ii) of the Loan Agreement include break costs falling within the definition of break costs in cl 1.1 of the Loan Agreement. The plaintiff says it does. The defendant says it does not and that the break costs which the borrower is required to pay under cl 3A.4(c)(ii) is confined to the break costs described in that clause. It is common ground that the sum of $US1,269,000 paid by the plaintiff to the Royal Bank of Scotland are 'costs incurred by the Bank resulting from the termination of any ... interest rate swap agreement ... entered into in connection with the Bank's obligations under this facility' and hence is within the definition of break costs defined in cl 1.1. It is also common ground that the cancellation payment is not a break cost which the borrower is required to pay under cl 3A.4(c)(ii) if break costs required to be paid are confined to break costs as described in the second sentence of that clause, that is 'such additional amounts as may be necessary to compensate the Bank for the cost of reemployment of the funds prepaid at rates lower than the Cost of Funds provided that the Bank must use its reasonable efforts to minimise such costs'.

45 The defendant says, in effect, the second sentence of cl 3A.4(c)(ii) exhaustively states the break costs which the borrower is obliged to pay by the first sentence of that clause. The defendant says that is the plain meaning of the words 'break costs will be such additional amounts as may be necessary to compensate the Bank ...'

46 The plaintiff submits the defendant's construction is wrong for two reasons. First, if the defendant's construction is correct then the definition of break costs in cl 1.1 has no work to do in the Loan Agreement because the term break costs is not used in any other clause within the Loan Agreement. It might be said in answer to that submission that the phrase break costs appears in cl 3A.4(c)(i) and it is possible that break costs in cl 3A.4(c)(i) may have the meaning set out in the definition cl 1.1, whilst in cl 3A.4(c)(ii) have the meaning set out in the second sentence of that clause. However, that was not a matter raised by the defendant at the hearing and the plaintiff has not had an opportunity to deal with that argument. Second, the plaintiff says the definition of break costs in cl 1.1 is that break costs includes the costs incurred by the bank there described. That is, the definition in cl 1.1 is intended to enlarge the meaning of break costs described in cl 3A.4(c)(ii). Clause 3A.4(c)(ii) may be read consistently with the definition of break costs in cl 1.1 so as to give effect to both clauses by construing them together so that break costs which the borrower is required to pay under cl 3A.4(c)(ii) includes break costs described in the second sentence and the definition of break costs in cl 1.1.

47 I find that the defendant's construction is arguable. Courts may, where appropriate, determine the proper construction of contractual provisions on summary judgment applications. However, I consider it is not appropriate in this case. The final determination of the proper construction of cl 3A.4(c) of the Loan Agreement should await fuller and more complete argument at the final hearing of this matter.

48 The defendant raised a further matter said to be an issue related to break costs. This matter concerns the payment by Garuda to the plaintiff of claimed break costs of $AUD945,000 in May 2010. The defendant's case is in essence that the payment was not payable on termination and so could only be payable under cl 3A.4(c)(i). However, the defendant submits the payment was not the result of a request by the defendant consented to by the plaintiff and conditional on payment of break costs being paid. To the contrary, the defendant submits it was a demand by the plaintiff complied with by the defendant and it was not open to the plaintiff contractually to demand payment of break costs. The defendant submits that if these facts are proved at trial, together with the submitted analysis of the contractual provisions, it will have the effect of reducing the plaintiff's claim by $AUD945,000 plus interest claimed on that sum.

49 The plaintiff submitted that there are three reasons why the payment by Garuda to the plaintiff of $AUD945,000 in May 2010 does not give rise to an arguable defence to part of the plaintiff's total claim. First, Garuda was obliged to pay break costs in accordance with cl 3A.4(c)(ii). That clause provides for Garuda to pay break costs not only on the termination of the facility but also 'where ... a payment by the Borrower pursuant to any provision of this facility results in the payment ... of any amount on the date which is earlier than the date upon which such amount would otherwise be due to be repaid ...'. The payment by Garuda resulted in the payment of an amount on a date that was earlier than the date upon which that amount would otherwise have been due to be repaid. Accordingly, the plaintiff submits it is not arguable that Garuda was not obliged to pay break costs to the plaintiff pursuant to cl 3A.4(c)(ii). I accept that argument. It is not necessary to consider the plaintiff's alternative arguments on this point.

50 Judgment should be entered for the plaintiff in accordance with these reasons. In accordance with the parties' proposal, I will invite the parties to confer as to the appropriate orders and bring in a minute or minutes of orders to give effect to these reasons.

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Judgment (72 paragraphs)

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