GMAC Commercial Finance Ltd v Mint Apparel Ltd

On an application for summary judgment on accepted bills of exchange, the defendant must show a real prospect of establishing a defence or counterclaim at trial. Where a facility agreement limits advances by reference to the aggregate of outstanding debts, that limit does not necessarily restrict recovery on each individual bill. An alleged trust affecting part of the proceeds may give the beneficiary a claim against the holder, but does not ordinarily provide the acceptor with a defence to the holder’s claim. Set-off requires an identified legal cause of action against the immediate party. Mere factual enquiries about the financing arrangement do not justify a trial where no defence has a real prospect of success.

GMAC Commercial Finance Ltd applied for summary judgment on two unpaid bills of exchange accepted by Mint Apparel Ltd. The bills had been acquired under an invoice discounting facility provided to China Export Finance Ltd, which had financed transactions between exporters and importers.

Mint argued that GMAC had advanced only 85 per cent of the bills, that it could retain only 80 per cent because the remaining proceeds were intended for the exporter, and that various claims could be set off against the bills. The central issues were the construction of the financing agreement, the possible effect of a trust over part of the proceeds, and the availability of set-off against a holder for value.

The application was granted and summary judgment was entered for the claimant.

1. 85 per cent limitation. The invoice discounting agreement credited the value of each notified debt to the client account. Although the agreement limited aggregate prepayments to 85 per cent of the value of outstanding debts, that limit was calculated by reference to the total portfolio, not to any individual bill. The agreement required monies received in payment of purchased debts to be paid to the claimant. The defendant therefore had no real prospect of showing that recovery was limited to 85 per cent of the two bills.
2. 80 per cent limitation and alleged trust. The evidence made it arguable, by analogy with Barclays Bank v Aschaffenburger Zellstoffwerke AG [1967] 1 Lloyd’s Rep. 387, that China Export Finance would have held 20 per cent of the proceeds on trust for the exporter. The judge was doubtful that the claimant’s knowledge would make it a constructive trustee. In any event, even assuming such a trust, it would give the exporter a claim against the claimant, not the defendant with a defence to the claim on the accepted bills.
3. Set-off and counterclaim. The judge left open the general question whether claims available against an immediate party could be set off against a holder for value. The defendant nevertheless identified no contractual or other cause of action against China Export Finance supporting the proposed claims. It therefore had no real prospect of establishing set-off or the proposed counterclaim.
4. Further investigation of the financing relationship, the operation of the agreement, or the circumstances of indorsement did not justify a trial. Had a defence with a real prospect of success been shown, payment into court would have been ordered, since bills of exchange are generally treated as cash.