Benford Ltd. & Anor v Lopecan SL

A cross-claim may operate as a transaction set-off where it has a close and inseparable commercial connection with the claim, even if it arises under a different but closely related contract. The question is one of legal principle, not general fairness. A distributorship agreement may provide the commercial framework for related sale contracts. Where the set-off may defeat the price claim, a retention-of-title clause may not justify summary delivery up. An arbitration clause referring an action arising from the sale of goods to the court may encompass both the claim and a transaction set-off, avoiding fragmented proceedings.

The claimants sought delivery up of goods supplied to the defendant Spanish distributor or payment of their price. The defendant disputed the applicable contractual terms and relied on alleged breaches of exclusive territorial rights under the distributorship agreement. It advanced a damages counterclaim and contended that the counterclaim constituted a transaction set-off.

The court also considered whether the counterclaim should be stayed under the arbitration clause in the distributorship agreement and whether execution should be stayed. The applications were interlocutory, with factual and legal issues reserved for trial.

1. Set-off. Transaction set-off operates as a defence and may extinguish the claim; independent set-off involves balancing separate claims. The issue is determined by legal principle rather than a general discretion based on fairness, as illustrated by Leon Corporation v Atlantic Lines & Navigation Co Inc (“The Leon”) (1985) 2 Lloyd’s Rep 470 and Glencore Grain v Agros Trading [1999] 2 All E.R. 288.
2. The necessary connection is a close and inseparable commercial connection. The cross-claim need not arise from the same contract if it flows from the dealings and transactions giving rise to the claim. Dole Dried Fruit and Nut Co. v Trustin Kerwood Ltd. [1990] 2 Ll.Rep. 309 was treated as a useful parallel and as having received approval in Bim Kemi v Blackburn [2001] 2 Ll.Rep. 93.
3. The sale contracts were made under the umbrella of the distributorship agreement. The alleged interference with exclusive territories was therefore sufficiently connected with the price claim to give the defendant a strongly arguable transaction-set-off defence. The counterclaim did not need to be fully quantified at this interlocutory stage.
4. It was sufficiently arguable that the retention-of-title clause would not require delivery up where the defendant had a transaction-set-off defence to the price. Summary relief was not granted on either the delivery-up or price applications.
5. The arbitration issue depended on which contractual terms governed the orders. Clause 18.3 was unlikely to require bifurcation between the supplier’s claim and a transaction-set-off counterclaim. The word “action” could encompass both claim and cross-claim, and a one-stop process made commercial sense. No stay was ordered.
6. A stay of execution did not arise. Had delivery up or judgment for the price been ordered, the court would have granted a stay because the defence and counterclaim were inextricably entwined with the claim.