High Court grants liberty to defend debt sale contract claim based on alleged improper debt selection criteria.

Neutral Citation Number: [2009] IEHC 512

THE HIGH COURT

COMMERCIAL

2009 3082 S

BETWEEN

GE CAPITAL WOODCHESTER LIMITED AND

GE CAPITAL WOODCHESTER FINANCE LIMITED

PLAINTIFFS

AND

AKTIV KAPITAL, ASSET INVESTMENT LIMITED AND AKTIV KAPITAL ASA

DEFENDANTS

JUDGMENT of Mr. Justice Clarke delivered the 19th November, 2009

1. Introduction

1.1 These proceedings arise out of contractual arrangements entered into between the parties relating to the sale of

debts owed to the plaintiffs (together “GE Capital”) by customers of those companies. The arrangements between the

parties continued in an uncontroversial fashion for some time. However, notice of termination was served by the first

named defendant (“Asset Investment”) which, in accordance with the terms of the relevant contract, provided for a six

month notice period. During the course of that notice period GE Capital were, at least at the level of principle, still entitled

to the benefit of the Agreement which provided for the sale to Asset Investment of between 80% and 100% of certain

debts owed to GE Capital by its customers. These proceedings relate to one such sale.

1.2 The proceedings were commenced by summary summons and, in the ordinary way, a notice of appearance having

being filed, GE Capital bring these proceedings before the court on a motion for summary judgment. That summary

judgment application is resisted, both by Asset Investment and the second named defendant (“ASA”) who act as

guarantor of the obligations of Asset Investment under the underlying contract. No separate issues are raised by ASA on

the relevant guarantee so that the issues arising in relation to ASA are the same as those arising in relation to Asset

Investment. In order to understand the basis of GE Capital’s claim, the defence which it is said is available to Asset

Investment and, therefore, to ASA in respect of that claim and the issues which I have to decide, it is necessary to turn

briefly to the relevant factual background.

2. Factual Background

2.1 GE Capital are Irish companies who are in the business of finance and lending. GE Capital entered into an agreement

with Asset Investment for the sale and purchase of debts owed to GE Capital by its customers. Asset Investment is an

English registered company. ASA is a Norwegian registered company and is a related company of Asset Investment. As

pointed out earlier ASA is joined to the proceedings as it agreed to guarantee the obligations of Asset Investment in

relation to the sale and purchase of the relevant debts and undertook to indemnify GE Capital in respect of non-

performance of that agreement by Asset Investment.

2.2 The agreement to purchase the relevant debts was evidenced in writing on the 1st February, 2004 and subsequently

amended by a side letter dated 19th December, 2006, (together the “Agreement”). The Agreement provided that:-

a) GE Capital agreed to sell and Asset Investment agreed to purchase all of the GE Capital’s rights, title

and interest in certain debts and associated rights specified in the Agreement (“qualifying debts”).

b) The sale and purchase of the qualifying debts would be by way of assignment executed by GE Capital

and Asset Investment, which said assignment would specify the purchase price in relation to the

qualifying debts.

c) ASA agreed to irrevocably and unconditionally guarantee the due and punctual performance by Asset

Investment of its obligations under the Agreement and agreed that if Asset Investment defaulted in

performance of any such obligations, ASA would indemnify GE Capital in respect of such non-

performance by Asset Investment.

2.3 The sale and purchase of the qualifying debts was to be completed by GE Capital executing a deed assigning the

qualifying debts to Asset Investment. The individual contracts (between GE Capital and its customers) which gave rise to

qualifying debts together with the associated rights were to be identified as a list of contracts attached to the relevant

assignment.

2.4 As deposed to in the affidavit of Deirdre Hannigan, the chief risk officer in the GE Group, the Agreement provided for

the purchase of debts arising out of individual contracts for the hire purchase or lease of motor vehicles and loan

contracts which GE Capital had with its customers. The debts which were to be purchased were described as qualifying

debts. Qualifying debts were defined as those which were nonperforming (i.e. that there were outstanding obligations

which remained unpaid) to a sufficient extent to be regarded as qualifying debts in accordance with recovery decision

criteria specified in the Agreement. The relevant recovery decision criteria could not, under the Agreement, be changed

by GE Capital without prior notice to Asset Investment, and in the case of material change, without having first obtained

the consent of Asset Investment.

2.5 At clause 3.2, the Agreement required that GE Capital assign at least 80% of qualifying debts to Asset Investment,

with no upper limit. The qualifying debts were to be selected for sale on an alphabet order basis, meaning that Asset

Investment were to purchase the first 80% of the qualifying debts listed alphabetically or randomly.

2.6 It should also be noted that GE Capital was, again at least in principle, entitled to sell the entire 100% of qualifying

debts in any monthly period. Thus, GE Capital had an entitlement to sell between 80% and 100% of the qualifying debts

concerned. Furthermore, there was an agreed rate at which the relevant debts were to be purchased. In the earlier

stages of the operation of the Agreement that rate was 19%. Subsequently the rate was increased to 20%, at which

point it rested at the time material to the dispute which arises in these proceedings. In substance, therefore, GE Capital

was required to determine the qualifying debts in accordance with the recovery decision criteria to which I have referred.

GE Capital could then decide whether to sell all or any percentage equal to or in excess of 80% of those debts to Asset

Investment. Asset Investment was, at the material time, to pay 20% of the full value of the debt concerned. As I

understand it, in substance the benefits of the business from the perspective of Asset Investment was that they might

hope to actually recover more than 20% of the debts concerned so as to cover any recovery costs and still leave them

with a profit. Obviously if the net recovery on any relevant debts began to fall close to or, indeed, below 20%, then Asset

Investment would suffer a loss.

2.7 It was a further term of the Agreement that same should be governed and construed in accordance with the laws of

Ireland and that the parties thereto submitted to the exclusive jurisdiction of the Irish courts for the purposes of hearing

and determining any dispute arising from the Agreement. This Court has, therefore, jurisdiction to hear the proceedings

pursuant to the provisions of EC Regulation 44/2002.

2.8 After, it would appear, the profitability of the Agreement became questionable, Asset Investment served GE Capital, in

accordance with the Agreement, with a six month notice of termination of the contract on 28th November, 2008.

2.9 The assignment which gives rise to the dispute between the parties is a deed of assignment made under seal on 3rd

March, 2009, whereby GE Capital assigned certain qualifying debts to Asset Investment for a total purchase price of

€2,158,652.45 (the “March Assignment”). The volume of qualifying debts for the month of March 2009 was set out at

€10,793,256.76. This was four times greater than the volume of qualifying debts experienced by GE Capital in January,

2009, and over 150% in excess of the February figure. The February figure had, itself, been the highest monthly figure

experienced during the currency of the Agreement. This much is not in dispute between the parties. By email of 6th April,

2009, an email of a Mr. Pickering of GE Money to Asset Investment, it is suggested that “the volumes are linked to the

increase levels of write-off and delinquency that we are seeing flow through all of the portfolios.”

2.10 Despite demands from GE Capital, Asset Investment has failed to pay GE Capital any of the purchase price arising

out of the March Assignment. The defendants’ principal argument for not so doing is to the effect that the increased

volume of debts was so great that it was in breach of an implied term in the Agreement, or gives rise to an inference of

other non compliance with the terms of the Agreement. Against that factual background it is necessary to turn to the

procedural history of these proceedings.

3. Procedural history

3.1 A summary summons was issued on 28th July, 2009, followed by an appearance on the 14th September, 2009. In this

motion GE Capital are seeking summary judgment in the sum of €2,158,652.45 against Asset Investment and ASA on the

grounds that they have not put forward any bona fide defence to the proceedings.

3.2 The proceedings were admitted to the Commercial list, under O. 63A, r. 2 on 22nd October, 2009.

3.3 The basis for the defendants’ defence is to be found in an affidavit, which has been sworn by a senior executive

within the Aktiv Kapital group of companies, Mr. Mark Scott. GE Capital swore a replying affidavit on 5th November, 2009.

These grounds of potential defence were elaborated on by counsel at the hearing.

4. Defence as Put Forward

4.1 The defendants have suggested that there are four potential defences to GE Capital’s claim:-

a) That there was a breach of the Agreement by GE Capital due to the sudden and extreme increase in

the volume of qualifying debts;

b) As part of the argument under (a) it is also suggested that the large increase in the volume of

qualifying debts which occurred in March and which had, obviously, a large and corresponding increase

in the purchase price to be paid by Asset Investment in that month, when coupled with certain other

facts to which reference will be made in due course, gives rise to at least a realistic possibility that GE

Capital may not have properly complied with their obligations under the Agreement. It is said that

whether this be so and if it be so the extent to which it may be so, is a matter which could not be

established until proper discovery had been obtained;

c) That there was a breach of the Agreement by GE Capital in failing to provide notice of the

consistency of the recovery decision criteria in relation to the qualifying debts; and

d) That there was a breach of the Agreement by GE Capital in failing to sell to Active Capital Asset no

less than 80% of the qualifying debts listed alphabetically or randomly.

4.2 In relation to the first and, indeed the second, arguments, the defendants assert that the volume of the qualifying

debts for March, 2009 was so far above any previous monthly volume that had been experienced since the

commencement of the Agreement as to make it a breach of an implied term of the Agreement. The defendants point to

the fact that the volume of qualifying debt increased from €2,467,542.09 in January, 2009 to €10,793,256.76 in March,

2009. The defendants pointed out that this is a growth of over 250%. While the defendants accept that it would be

expected that there would be some increase in the volume of bad debt as a consequence of the unfortunate decline in

the fortunes of the Irish economy in the recent past, it is argued that the relevant increase could not reasonably be

accounted for by economic reasons alone. The defendants argue that the parties had established trading norms over the

course of the Agreement and that the sudden and unpredictable departure from those norms in March, 2009 was in

breach of those trading norms, and as such was, it is said, a breach of what had become an implied terms of the

Agreement.

4.3 In addition, or in the alternative, the defendants argued that the only way that such a sudden and pronounced spike

could be explained is by way of a change in the recovery decision criteria, or a cessation of an unknown parallel debt sale

agreement between GE Capital and a third party, both of which would, if true, be in breach of the Agreement. The

defendants argue that the selection by GE Capital of the qualifying debts was, therefore, not entirely random, as required

by the Agreement, and that, as a consequence, in the March Assignment, Asset Investment were left with inferior quality

debt.

4.4 In that context it is said by Asset Investment that GE Capital approached them in relation to the sale of a one off

batch of debts in May, 2008. It is argued by the defendants that this attempt in May, 2008 raises a significant question

as to whether GE Capital were, in general terms, entering into sales arrangements with third parties in respect of debts

which should have been or become qualifying debts under the Agreement.

4.5 Counsel for the defendants argued that the increase in the volume of debts was in breach of what had become

implied terms of the Agreement. To this end, counsel pointed to a passage from Chitty on Contracts, 29th Edition.

Paragraph 13.022 of Chitty sets out as follows in relation to implied terms:-

“It is, however, clear that a term may be implied in any given case from the circumstances of the parties having

consistently on former and similar occasions adopted a particular course of dealing. Thus, a covenant to pay

interest or to allow interest to be added to principle at stated periods and to pay interest on the whole, has been

held to be implied from the fact that on former occasion the accounts between the parties have been stated and

settled on that footing. And it had been held that an oral contract between the buyer and seller of goods

incorporated by a long course of dealing conditions printed on the back of “sold notes” as conditions of sale, in so

far as a condition was appropriate to the oral contract.”

4.6 Counsel for the defendants argued that the level of debts offered by GE Capital to Asset Investment over the course

of the Agreement essentially became an implied term of the Agreement.

4.7 In their third point, the defendants further argue that GE Capital were in breach of the Agreement by failing to comply

with the requirement to provide written confirmation to Asset Investment to the effect that the recovery decision criteria

had not changed. That there is an obligation in the Agreement to provide monthly written confirmation that the relevant

selection criteria had not changed is clear. It would also appear on the evidence currently available that no such written

confirmation was, in fact, given. To that extent it would currently appear that there was a breach of the Agreement in

that regard. However, it is said on behalf of GE Capital that there was, in fact, no change in the relevant selection criteria

used for the purposes of determining qualifying debt. It is, therefore, said that there are no consequences which flow

from the failure to provide written confirmation of that fact. In those circumstances it is said that, while there may have

been a technical breach of the Agreement, any such breach does not provide a defence to the claim for recovery of the

monies due on foot of the March Assignment.

4.8 In relation to the fourth potential defence, attention is drawn to the fact that it would appear, from the affidavit

evidence tendered on behalf of GE Capital, that for one month, GE Capital fell below the 80% threshold of debts sold.

Thus, again, it is argued that there was an undoubted breach of the Agreement in respect of that month. GE Capital,

while accepting that there is evidence of such a breach, again argue that no, or at least no significant, consequences

could be said to flow from that breach as the relevant shortfall was marginal. In that context there is a dispute between

the parties as to the proper construction of one clause in the contract which requires GE Capital to identify all qualifying

loans in respect of any particular month. GE Capital argue that the relevant clause simply requires an internal exercise on

the part of GE Capital designed to identify the qualifying loans concerned. Therefore, in the event that less than 100% of

such loans are to be sold the exercise of random selection provided for in the Agreement is applied to the debts thus

identified. Asset Investment argue, on the other hand, that GE Capital were required to identify the relevant qualifying

loans to them so as to enable Asset Investment to monitor the total volume of loans, so as to ensure that Asset

Investment were only required by GE Capital to purchase randomly selected loans in the event that less than 100% of all

qualifying loans were sold.

5. Submissions of Counsel for GE Capital

5.1 As pointed out counsel for GE Capital accepted that no notice was sent of the non-change in recovery decision

criteria but, it is said, that no damage was caused by this omission. In relation to the defendant’s claim that less than

80% of qualifying debt was sold, counsel for GE Capital noted that there was one isolated incident when Asset

Investment was not assigned the requisite amount of qualifying debts, which arose in November 2007, and, it is said, was

caused by analyst error and gave rise to no, or no significant loss. Neither of these points, it is said, amount to a defence

to these proceedings.

5.2 In relation to the spike in the volume of debts in March 2009, counsel for GE Capital argued that the average balance

of debts had steadily increased since the commencement of the Agreement with significant monthly variations. Counsel

argued that this was a consequence of the level of income inflation in the economy over that period which allowed

customers of GE Capital to service a higher level of debt. Counsel pointed to the fact that GE Capital had experienced an

overall increase in arrears throughout 2008 and 2009, and that month to month, GE Capital experienced considerable

variation in the amount of qualifying debts. Counsel for GE Capital further asserted that Asset Investment continued to

work the debts assigned through the March Assignment without any complaint. It was also said that there was no

evidence from which it was appropriate to draw an inference that there was an arguable defence to the effect that GE

Capital had sold debt to third parties in circumstances where such sale would amount to a breach of the Agreement.

5.3 Against the background of those arguments it is necessary to turn, briefly, to the legal principles applicable to an

application such as this.

6. The Law

6.1 The legal test to be applied in an application for summary judgment is set out in Banc de Paris v. de Naray [1984] 1

Lloyds Law Rep.21, as adopted by the Supreme Court in First National Commercial Bank v. Anglin [1996] 1 I.R. 75, where,

at p.79, the following is said by ( Murphy J.):-

“In my view the test to be applied is that laid down in Banque de Paris v. de Naray [1984] 1 Lloyd’s Law Rep. 21,

which was referred to in the judgment of the President of the High Court and reaffirmed in National Westminster

Bank Plc v. Daniel [1993] 1 W.L.R. 1453. The principle laid down in the Banque de Paris case is summarised in the

head note thereto in the following terms:-

‘The mere assertion in an affidavit of a given situation which was to be the basis of a defence did not of

itself provide leave to defend; the Court had to look at the whole situation to see whether the

defendant had satisfied the Court that there was a fair or reasonable probability of the defendants

having a real or bona fide defence.’”

6.2 The standard to be applied in examining whether a defendant has a fair or reasonable probability of the defendants

having a real or bona fide defence is set out in the decision of the Supreme Court in Aer Rianta v. Ryanair Limited [2001]

4 I.R. 607. In his judgment in Aer Rianta Hardiman J. noted that a fair and reasonable probability of a real or bona fide

defence is not the same thing as a defence which will probably succeed or even a defence whose success is not

improbable. At p. 621 of his decision, Hardiman J. states that “the defendant’s hurdle on a motion such as this is a low

one and the jurisdiction is one to be used with great care”. In summary, Hardiman J. concluded, at p. 623 of his decision:-

“In my view the fundamental questions to be posed on an application such as this remain: is it “very clear” that the

defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined?

Do the defendant’s affidavits fail to disclose even an arguable defence?”

6.3 In Harrisrange Limited v. Duncan [2003] 4 I.R. 1, at p. 7, McKechnie J. set out a summary of the principles, following

Aer Rianta v. Ryanair, to be applied by the courts in the assessment of summary judgment application in the following

terms:-

“From these cases it seems to me that the following is a summary of the present position:—

(i) The power to grant summary judgment should be exercised with discernible caution,

(ii) In deciding upon this issue the Court should look at the entirety of the situation and consider the particular

facts of each individual case, there being several ways in which this may best be done,

(iii) In so doing the Court should assess not only the Defendant’s response, but also in the context of that

response, the cogency of the evidence adduced on behalf of the Plaintiff, being mindful at all times of the

unavoidable limitations which are inherent on any conflicting Affidavit evidence,

(iv)Where truly, there are no issues or issues of simplicity only or issues easily determinable, then this procedure is

suitable for use,

(v)Where however, there are issues of fact which in themselves are material to success or failure, then their

resolution is unsuitable for this procedure,

(vi)Where there are issues of law, this summary process may be appropriate but only so, if it is clear that fuller

argument and greater thought, is evidently not required for a better determination of such issues,

(vii) The test to be applied, as now formulated is whether the Defendant has satisfied the Court that he has a fair

or reasonable probability of having a real or bona fide defence; or as it is sometimes put, ‘is what the Defendant

says credible?’, —which latter phrase I would take as having as against the former an equivalence of both meaning

and result,

(viii) This test is not the same as and should be not elevated into a threshold of a Defendant having to prove that

his defence will probably succeed or that success is not improbable, it being sufficient if there is an arguable

defence,

(ix) Leave to defend should be granted unless it is very clear that there is no defence,

(x) Leave to defend should not be refused only because the Court has reason to doubt the bona fides of the

Defendant or has reason to doubt whether he has a genuine cause of action,

(xi) Leave should not be granted where the only relevant averment in the totality of the evidence, is a mere

assertion of a given situation which is to form the basis of a defence and finally,

(xii) The overriding determinative factor, bearing in mind the constitutional basis of a person’s right of access to

justice either to assert or respond to litigation, is the achievement of a just result whether that be liberty to enter

Judgment or leave to defend, as the case may be.”

6.4 Counsel for the defendants also pointed to my decision in McGrath v. O’Driscoll and Ors [2006] IEHC 195. In McGrath

I applied the relatively low hurdle as set out by Hardiman J. in Aer Rianta. In relation to the resolution of factual issues

and questions of law, I said the following at paras. 3.4 and 3.5 of the judgment:-

“3.4 So far as factual issues are concerned it is clear, therefore, that a mere assertion of a defence is insufficient

but any evidence of fact which would, if true, arguably give rise to a defence will, in the ordinary way, be sufficient

to require that leave to defend be given so that that issue of fact can be resolved.

3.5 So far as questions of law or construction are concerned the court can, on a motion for summary judgment,

resolve such questions (including, where appropriate, questions of the construction of documents), but should only

do so where the issues which arise are relatively straightforward and where there is no real risk of an injustice being

done by determining those questions within the somewhat limited framework of a motion for summary judgment.”

6.5 There was no dispute between counsel as to the proper principles to be applied on an application such as this. It was

accepted that the relevant principles are to be found in the case law to which I have referred. There is, perhaps,

however, one issue of principle which arises in this case which needs to be touched on. It is clear that the mere assertion

of a defence is insufficient. Insofar as factual issues arise it is ordinarily necessary for a defendant to place affidavit

evidence before the court setting out facts which, if true, would arguably give rise to a defence. However, that

proposition should not, in my view, be taken over literally. For example, the factual basis on which a defendant may wish

to oppose a plaintiff’s claim may not derive from facts within the defendant’s own knowledge. There may be a variety of

circumstances, nonetheless, where the defendant may be able to persuade the court that the Aer Rianta test is met.

Where, for example, a defendant establishes a credible basis for suggesting that witnesses will be available who will

depose to facts which might arguably give rise to a defence, the fact that the evidence of those witnesses is not strictly

speaking before the court in the form of an affidavit sworn by such witness will not necessarily be fatal. To take but one,

albeit extreme, example a defendant may have been told something by a witness who is unwilling to swear an affidavit but

who would be amenable to subpoena. Provided the defendant concerned puts forward a credible basis for the contention

that such evidence might be forthcoming, it could never be the case that the relevant defendant would be deprived of

the opportunity of requiring the witness concerned to attend under subpoena and seeking to establish relevant facts

through the evidence of that witness.

6.6 Likewise, there will always be cases where the true nature of a defendant’s defence will rest in evidence (whether

documentary or otherwise) which will only become available through procedural devices such as discovery, interrogatories

or the like. That is not to say that it is open to a defendant, on a summary judgment application, to make a vague and

generalized contention which would amount to nothing more than an assertion that something useful to his case might

turn up on discovery or the like. However, it seems to me that where a defendant satisfies the court that there is a

credible basis for asserting that a particular state of facts might exist which state of facts, if same were in truth to exist,

could be established by appropriate discovery and/or interrogatories, then such defendant should be entitled to liberty to

defend. It should, again, be emphasized that mere assertion is insufficient. A credible basis for the assertion needs to be

put forward even if it is not, at the stage of the motion for summary judgment, possible to put before the court direct

evidence of the assertion concerned.

6.7 Having set out what seemed to me to be the relevant principles I now turn to the application of those principles to

the facts of this case.

7. Application to Facts of Case

7.1 It seems to me that it is possible to dispose of two of the arguments put forward on behalf of Asset Investment quite

shortly. While it is true that a basis has been established for suggesting that GE Capital were in breach of the Agreement

in respect of both a failure to give formal notice of the absence of any change in investment criteria and in respect of the

failure to sell at least 80% of qualifying debt in one specific month, it does not seem to me that either of those two

matters could possibly provide Asset Investment (and by extension ASA) with a defence to these proceedings. In order

for those undoubted breaches of the Agreement to be material to the claim which is now made, it would be necessary to

establish either an entitlement to set the Agreement aside on the basis of such breaches or alternatively, a casual

connection with losses attributable to those breaches which might arguably extinguish the claim made by GE Capital.

There does not seem to me to be an arguable basis for either proposition.

7.2 In the absence of any evidence to the effect that there was a change in investment criteria, then any failure to

formally notify the absence of such change is undoubtedly a breach but a breach from which no consequences flow and,

indeed, a breach which Asset Investment must have been aware of and not pursued given that it would have known that

it was not receiving the relevant confirmation on a monthly basis. Likewise, the drop below 80% in one month only of the

volume of qualifying debt actually sold to Asset Investment was marginal in the extreme and there is no basis for

suggesting that anything more than a loss which would be entirely nominal in the context of these proceedings could have

arisen from it. Likewise, there is no arguable basis for suggesting that Active Investment would be entitled to terminate

the Agreement or treat it as at and end as a result of that breach.

7.3 That leads to the question of the undoubtedly large increase in the volume of qualifying debt referable to the March

Assignment. It is important to emphasize that, on the basis of the evidence put forward on behalf of Asset Investment,

the attempt to sell some debt the previous year outside the scope of the Agreement was said to have been an attempt

to sell not just to Asset Investment but to a third party. It may be that the account given on behalf of Asset Investment

of what transpired is disputed in important points of detail by GE Capital. However, there is evidence before the court

which, if ultimately accepted, would suggest that, at a minimum, GE Capital attempted to sell debt to a third party

outside the scope of the Agreement.

7.4 It should be noted that there are difficult questions of construction of the Agreement as to precisely how it was

meant to operate in relation to debts being, as it were, removed from the process prior to such debts becoming qualifying

debts in accordance with the criteria referred to in the Agreement. The relevant portion of the Agreement refers to a flow

chart whose interpretation could well be a matter on which oral evidence would be relevant as an aid to its construction.

In those circumstances, it seems to me, that the construction of such aspects of the Agreement is not a matter on which

it would be safe for the court to reach a conclusion without the benefit of oral evidence. On that basis it is, in my view,

arguable, sufficient for the purposes of giving liberty to defend, that the sale of debt which might ultimately become

qualifying debt for the purposes of the Agreement to a third party prior to the time when that debt had reached the stage

of delinquency when it would qualify as qualifying debt, would have been in breach of the Agreement. It is obvious that

any such sale could have a material effect by skewing the precise type of debt which would ultimately be transferred to

Asset Investment under the Agreement and thus could have material consequences. When coupled with the undoubtedly

very significant change in what would appear to be the volume of qualifying debt occurring in March, 2009, I am satisfied

that Asset Investment has established that there is a credible basis for suggesting that the Agreement may not have

been properly operated by GE Capital in accordance with its terms and in accordance with the relevant criteria for debt

selection which, it must be recalled, are said to have been constant throughout the entire relevant period.

7.5 In those circumstances, I am satisfied that this is one of those cases where, while the defendants have not been able

to put forward direct evidence of such matters, the defendants have, nonetheless, put forward a credible basis for their

suggestion to the effect that the Agreement was not properly operated by GE Capital. The truth or otherwise of any such

suggestion is a matter which will require analysis of evidence which is only available within GE Capital and in respect of

which Asset Investment (and ASA) will, undoubtedly, be entitled to explore by procedural devices such as discovery and

interrogatories.

7.6 I should, however, emphasise that the only basis on which I am satisfied that Asset Investment (and through them

ASA) have established a sufficient basis for putting forward a defence is the grounds connected with the large increase in

qualifying debt in March, 2009 coupled with the events concerning the possible sale of debt before it reached qualifying

status in 2008, and the inference that those matters may give rise to, to the effect that the Agreement was not properly

implemented by GE Capital. I am not satisfied that the technical points to which I have referred earlier provide any proper

basis, although in the context of giving leave to defend the second such point (that is the failure to hit the 80% threshold

in one month) although marginal, nonetheless might provide some albeit limited basis for defence and can be pursued as a

counterclaim or set off.

8. Conclusions

8.1 In those circumstances I propose giving Asset Investment and ASA liberty to defend, but will confine them in that

regard to the arguments in respect of which I have indicated that an arguable defence has been made out (including, for

the avoidance of doubt, and to the extent to which it may be available, the point concerning failure to hit the 80%

threshold).

8.2 I should also add that it is, in my view, incumbent on Asset Investment, when they have had the benefit of discovery

and any other procedural devices to which they may be found entitled, to come to a view as to whether evidence has

been uncovered which would allow those defences to now be put forward. If there is no evidential basis for the

suggestion that the Agreement was not properly operated (other than the failure to hit the 80% threshold in one month)

then it would seem to me that judgment for all, or a very significant portion, of the amount claimed should be immediately

entered.