The defendant had an exclusive distributorship agency for the plaintiff in England. Under that agreement, the plaintiff sold its prunes and raisins to the defendant under separate contracts of sale. The plaintiff claimed the price of goods sold under the latest of such sale contracts. Three weeks later the plaintiffs commenced separate proceedings in which they claimed $735,000 for goods sold and delivered under several sales. The defendants did not dispute the plaintiff’s claim but claimed in equity to set-off their counterclaim for unliquidated damages for repudiation by the plaintiff of the distributorship agreement.
Held: The counterclaim could be set off, creating an arguable defence to the claim for the price of goods sold.
Lloyd LJ regarded the impeachment test and the Newfoundland Railway test as merely ‘the same test in different language’. Referred to the exceptional rule about no set-off against freight, he continued: ‘But for all ordinary purposes, the modern law of equitable set-off is to be taken as accurately stated by the Court of Appeal in Hanak v. Green . . It is not enough that the counterclaim is ‘in some way related to the transaction which gives rise to the claim’. It must be ‘so closely connected with the plaintiff’s demand that it would be manifestly unjust to allow him to enforce payment without taking into account the crossclaim’: see The Nanfri per Lord Denning . . The authority of these cases has not been diminished by The Dominique. They establish that the mere existence of a crossclaim is insufficient. The claim and crossclaim must arise out of the same contract or transaction, and must also be so inseparably connected that the one ought not to be enforced without taking into account the other.’
and ‘The sale contracts were thus concluded in fulfilment of the agency agreement.’ and ‘In those circumstances the claim and the counterclaim are sufficiently closely connected to make it unjust to allow the plaintiffs to claim the price of goods sold and delivered without taking account of the defendants’ counterclaim for damages for breach of the agency agreement. If that is right, then the defendants are entitled to rely on their counterclaim as a set-off. It follows that they have an arguable defence for the purposes of [Order 14]. Accordingly I would dismiss the plaintiffs’ appeal.’
Judges:
Lloyd LJ
Citations:
[1990] 2 Ll Rep 309, [1990] 2 Lloyd’s Rep 309
Jurisdiction:
England and Wales
Citing:
Approved – Hanak v Green CA 1958
A builder was sued for his failure to complete the works he had contracted for. The buider sought a set-off against that claim of three of his one claims. One, under the contract, was for losses from the defendant’s refusal to allow his workmen . .
Cited – Rawson v Samuel 15-Apr-1841
Cottenham LC said: ‘We speak familiarly of equitable set-off as distinguished from set-off at law, but it will be found that this equitable set-off exists in cases where the party seeking the benefit of it can show some equitable ground for being . .
Cited – Hanak v Green CA 1958
A builder was sued for his failure to complete the works he had contracted for. The buider sought a set-off against that claim of three of his one claims. One, under the contract, was for losses from the defendant’s refusal to allow his workmen . .
Cited – Bank of Boston Connecticut v European Grain and Shipping Ltd (‘The Dominique’) HL 1989
A shipping company and a shipper responsible for the freight disputed the effect of their contract. The ship was duly loaded with its cargo and set out for the voyage from India to Europe. The bills of lading were signed. When the ship called at . .
Cited – Federal Commerce Ltd v Molena Alpha Inc; (The ‘Nanfri’) CA 1978
The court considered whether claim as against a shipowner could be set off against sums due under a time charter hire.
Held: Save for any contractual provision to the contrary a tenant is entitled to deduct from the rent payable, so as to . .
Cited – Government of Newfoundland v Newfoundland Railway PC 7-Feb-1888
A railway company and its assignees brought action the Government. Under the contract the company was to build a railway subsidised by the government. The railway was not completed. The parties disputed whether the contract was ‘entire’ and no part . .
Cited by:
Cited – Geldof Metaalconstructie Nv v Simon Carves Ltd CA 11-Jun-2010
The parties contracted for the supply and installation of pressure vessels by Geldof (G) for a building constructed by Simon Carves (SC). The contract contained a clause denying the remedy of set-off. G sued for the sale price, and SC now sought an . .
Lists of cited by and citing cases may be incomplete.
Contract, Equity
Updated: 07 June 2022; Ref: scu.416757