‘No set-off’ clause is reasonable

Posted: 14th September 2012

Technology COurtA High Court judge has rejected arguments that a ‘no set-off’ clause in a sales contract, protecting the supplier’s entitlement to the price of goods without deduction, is reasonable and does not fall foul of the Unfair Contract Terms Act 1977.

Mr Justice Popplewell said that such contractual terms are ‘not unusual’ in many commercial contexts and are a legitimate means by which suppliers protect their cash flow, particularly where the goods or services supplied are of high value.

The claimants are seeking approximately $12 million in respect of generators and parts it supplied to the defendants. However, the defendants are pursuing a separate claim in the Commercial Court for more than $53 million against the claimants for alleged breach of exclusivity obligations.

The defendants argued that the potential value of their Commercial Court action should be set off against the value of the claimants’ debt recovery claim against them.

However, in granting the claimants summary judgment in their debt recovery action, Mr Justice Popplewell ruled that the no set-off clause contained in their sales contract with the defendants was reasonable and enforceable.

The judge said that the length of agreed credit terms and the high value of the products supplied meant that the claimants would have made a large cash flow outlay in supplying the goods to the defendants.

The terms of the no set-off clause were ‘not particularly onerous’ and the defendants are a substantial and sophisticated commercial concern, said the judge, who concluded that the clause was a ‘reasonable and legitimate’ means of protecting the claimants’ cash flow.