Update, No Set-Off – Any means any!

Bexley Beaumont Finance Litigation Partner Phil Sheard provides an update on his successful case where the Judge’s finding on the no set-off clause reinforced the position that the exclusion of “any right of set off” means just that. Any means any!

UPDATE following my previous article which can be found at (https://www.bexleybeaumont.com/indiv-feature?id=122).

The decision referred to in my earlier post was subject to an application for permission to appeal by the Guarantors. The Lender’s original application for summary judgment was resisted, unsuccessfully, on the following two grounds:

A. there was a real prospect at trial of establishing that the term excluding set-off was limited to legal set-off of money due and did not preclude reliance on equitable set-off; and

B. the failure by the Lender to pay the last tranche of about £99,000 under a second bridging loan agreement prevented the Borrower and the Guarantors from performing their obligation to repay the first bridging loan.

The Judge at first instance had rejected both arguments, holding that:

(i) the contractual exclusion of set-off extended to a claim by the Borrower for damages for non-payment of money by the Lender (i.e., an equitable set-off), not just a debt owing by the Lender; and

(ii) even if there was an arguable claim for damages under the second bridging loan agreement that did not arguably prevent due performance of first loan agreement, the two agreements being separate and performance of the first bridging loan agreement being due before the alleged breach of contract in not paying the last tranche of monies under the second bridging loan.

The application for permission to appeal focused only on the first issue (equitable set off).

The Vice Chancellor refused permission to appeal and held:

a. On the interpretation of the anti-set-off clause in the guarantee, if the Guarantors are right then it only prevented them from setting off a clear case of cross liability for money unpaid, but did not prevent setting off a more doubtful case of an arguable cross-claim for damages.

b. That result would be commercially surprising if the anti-set-off clause was balanced and commercially fair, one might expect the opposite, but not that a clear set-off would be excluded but a more doubtful one permitted.

c. What is meant by “any right of set-off in respect of monies owing” must be interpreted in context of the contract of guarantee, which includes the terms of the contract of loan, which expressly provides that “repayments must be in full accordance with the redemption statement with no provisions for set-off”.

d. In context, it would be bizarre for the parties to agree that the Borrower had to repay in full with no set-off but allow the Guarantors to rely on a cross-claim for damages by the Borrower.

e. There was no realistic prospect of the court coming to the opposite conclusion on the hearing of an appeal. The point was clearly a point of interpretation of the guarantees and did not require a trial.

f. Further, if the reason why the alleged failure to permit drawdown of £99,000 under the second bridging loan agreement did not prevent performance of the first bridging loan was because liability to repay the first bridging loan accrued before the drawdown under the second bridging loan was due, as the Judge at first instance held, there can be no equitable set-off of the claim for damages under the second bridging loan agreement against liability to repay under the first bridging loan agreement in any event.

g. The claim for damages does not “impeach” the title of the Lender to repayment of the monies lent under the first bridging loan agreement, for the same reasons.

h. So even if there is a valid claim for damages under the second bridging loan agreement, that does not in equity prevent the Lender from asserting the amount due under the first bridging loan agreement.

Legal disclaimer

The matters contained within this article are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions.

Before acting on any of the information contained herein, expert advice should always be sought.

©Phil Sheard, March 2023


To discuss any of the above further, please feel free to contact Phil: philsheard@bexleybeaumont.com  |  07780 937624