“manifestly unjust” for the claim to be enforced
without regard to the cross-claim; and “there was
a close relationship between the dealings and
transactions which gave rise to the respective
claims”. He did not elaborate on the degree of
closeness required in the relationship.
In that case, the plaintiff claimed against
a builder for non-completion of the works. The
builder had three counterclaims and relied
on them by way of a set-off. The first was a
claim under the building contract itself for loss
caused by the plaintiff’s refusal to admit the
builder’s workmen. The second was a quantum
meruit claim for extra work performed outside
the contract. The third was for trespass to the
builder’s tools, and thus was founded in tort.
Morris LJ left the third item aside as the first
two already exceeded the plaintiff’s claim. He
said that “it seems to me that a court of equity
would say that neither of these claims ought to
be insisted upon without taking the other into
account”. Sellers LJ was of the opinion that all
three items could be set-off because the first
“arises directly under and affected the contract
on which the plaintiff herself relies”, and the
other two were “closely associated with and
incidental to the contract”. Morris LJ added
that the “question as to what is a set-off is to
be determined as a matter of law and is not in
any way governed by the language used by the
parties in their pleadings.”
In Henriksens Rederi A/S v THZ Rollimpex (The
Brede) [1974] QB 233, Lord Denning MR said of
equitable set-off: “It is available whenever the
cross-claim arises out of the same transaction as
the claim; or out of a transaction that is closely
related to the claim”.
Federal Commerce & Navigation Co Ltd v
Molena Alpha Inc (The Nanfri) [1978] 2 QB 927
was the occasion for Lord Denning MR to make
a further elucidation of the doctrine of equitable
set-off:
But one thing is clear: it is not every crossclaim which can be deducted. It is only
cross-claims that arise out of the same
transaction or are closely connected with it.
And it is only cross-claims which go directly
to impeach the plaintiff’s demands, that
is, so closely connected with his demands
that it would be manifestly unjust to allow
him to enforce payment without taking into
account the cross-claim ...
In the same case, Goff LJ took a similar stand
as to the requirement of fairness when he said
that the “circumstances must be such as to make
it unfair for the creditor to be paid his claim without
allowing that of the debtor if and insofar as well
founded and thus to raise an equity against the
creditor or, as it has been expressed, impeach his
title to be paid.” He also clarified that equitable
set-off which is really a defence, does not arise
from every cross-claim, or from every cross-claim
coming from the same contract.
In Bank of Boston Connecticut v European
Grain and Shipping Ltd (The Domique) [1989] AC
1056, Lord Brandon speaking of equitable set-off,
pointed to Rawson v Samuel (1839) 1 Cr & Ph 161
as the foremost authority in providing the relevant
test. However, he thought that the concept of a
cross-claim being such as “impeached the title of
the legal demand” was out of place in the modern
world. He was more receptive to a different version
of the relevant test suggested in Government of
Newfoundland v Newfoundland Railway Co (1888)
13 App Cas 199. In Newfoundland Railway, Lord
Hobhouse in the Judicial Committee of the Privy
Council, in deciding whether the government’s
cross-claim for un-liquidated damages could be
set-off against the company’s claim, did not apply
the criterion that the cross-claim “impeached
the title to the legal demand”, but rather that it
was a cross-claim “flowing out of and inseparably
connected with the dealings and transactions
which also give rise” to the claim.
Lord Brandon did not refer to Hanak v Green
or The Nanfri. Nor did he mention the element
of fairness. In Geldof Metaalconstructie NV v
Simon Carves Ltd [2010] EWCA Civ 667, Rix LJ
commented that the arguments in Newfoundland
Railway were such that there was no particular
need to emphasise the requirements of justice
and fairness. He noted that the set-off between
the original parties was undisputed and that the
disputed set-off as against the assignees was
debated on a more technical level based on the
assignment.
In Dole Dried Fruit & Nut Co v Trustin Kerwood
[1990] 2 Lloyd’s Rep 309, the Court of Appeal
referred to the test formulated by Lord Denning in
The Nanfri and held that the test approved by Lord
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