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 of the subsidy was payable unless the railway as a whole was completed. The company succeeded on that. The government counterclaimed for the non-completion, and sought a set off from the subsidies.
Held: The Board emphasised the intertwined nature of the obligations, and said that it ‘had no hesitation in saying that in this contract the claims for subsidy and for non-construction ought to be set against one another.’ The set-off could not be made as against the assignees: that once notice of the assignment of the debt had been given, ‘the debt or claim is so severed from the rest of the contract that the assignee may hold it free from any counter-claim in respect of other terms of the same contract.’ However it distinguished between a set-off properly allowable under the contract itself, which bound an assignee of a debt due under that contract, and a cross-claim which might ‘arise from any fresh transaction freely entered into by [the government] after notice of assignment by the company.’ In the first case, ‘It would be a lamentable thing if it were found to be the law that a party to a contract may assign a portion of it, perhaps a beneficial portion, so that the assignee shall take the benefit, wholly discharged of any counter-claim by the other party in respect of the rest of the contract, which may be burdensome. There is no universal rule that claims arising out of the same contract may be set against one another in all circumstances . . Unliquidated damages may be set off as between the original parties, and also against an assignee if flowing out of and inseparably connected with dealings and transactions which also give rise to the subject of the assignment.’


Lord Hobhouse


(1888) 13 App Cas 199, [1888] UKPC 7





Cited by:

CitedSmith v Muscat CA 10-Jul-2003
The tenant was sued by his landlord for arrears of rent, but sought an equitable set-off for damages for disrepair accruing under the previous landlord.
Held: If the entitlement to recover arrears of rent passes from assignor to assignee, and . .
CitedEdlington Properties Limited v J H Fenner and Co Limited CA 22-Mar-2006
The landlord had assigned the reversion of the lease. There was an outstanding dispute with the tenant defendant who owed arrears of rent, but sought to set these off against a claim for damages for the landlord’s failure to construct the factory in . .
CitedGeldof 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 . .
CitedDole Dried Fruit and Nut Co v Trustin Kerwood Ltd CA 1990
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 . .
Lists of cited by and citing cases may be incomplete.

Equity, Contract

Updated: 08 June 2022; Ref: scu.185867