Port of Tilbury (London) Ltd v Stora Enso Transport & Distribution Ltd & Anor

A contractual no-set-off clause may require payment despite a cross-claim where the contract’s language and structure support that construction. A clause allowing withholding of a genuinely disputed sum does not ordinarily permit set-off of an unliquidated counterclaim where the agreement elsewhere expressly refers to set-off and counterclaim but the disputed-sum clause does not. A take-or-pay obligation is not commercially absurd merely because the payer alleges breach of related service obligations. The court will not imply a term which undercuts the agreed payment regime where the proposed term is neither necessary nor obvious and conflicts with an express contractual mechanism.

The Port contracted to provide paper-handling facilities and services for 15 years. Stora agreed to pay a price per tonne and a minimum tonnage payment. After the first contract year, the Port claimed £1,829,574.60 for the shortfall. Stora alleged that the Port’s failures caused the shortfall and sought to withhold the payment under the disputed-sums clause, relying on an unliquidated cross-claim and an implied term limiting the take-or-pay obligation.

Master Fontaine granted summary judgment. Ramsey J allowed Stora’s appeal, holding that the disputed-sums clause could encompass set-off: [2008] EWHC 992 (TCC). The central issues were whether the implied term should be recognised and whether the contract permitted withholding a cross-claim pending trial.

1. Appeal allowed. The Court of Appeal gave summary judgment for the Port for the minimum tonnage payment of £1,829,574.60. Lord Justice Rix delivered the judgment, with Lord Justices Toulson and Rimer agreeing.
2. The proposed implied term was not necessary or obvious. As pleaded, it would mean that any breach affecting the minimum tonnage obligation could destroy the whole payment obligation, although it might have been formulated proportionately. The possibility of materially different formulations indicated that the term was neither necessary nor obvious.
3. The proposed term also conflicted with clause 10.5. That clause expressly provided for a pro rata reduction of the minimum tonnage in cases of destruction of or major damage to the facilities. In a carefully worked-out agreement, it was difficult to impose an additional implied qualification on clause 8.4.
4. Clause 8.11.1 concerned a genuinely disputed sum which could be withheld after timely notice explaining the dispute. Read with clauses 8.10.1 and 15, and against the express references elsewhere to set-off and counterclaim, it was confined to disputes about whether the invoiced sum was payable, ordinarily matters of quantum. It did not create a general right to withhold an unliquidated cross-claim.
5. The contract’s structure supported that construction. The Port financed the facilities and was protected by a minimum throughput and payment regime. The agreement therefore adopted a pay-now, dispute-later allocation of cash flow, subject to its express exceptions. Stora could still reclaim the payment as damages if its cross-claim succeeded at trial.

1. Court of Appeal (Civil Division) allowed the Port’s appeal and entered summary judgment for £1,829,574.60.
2. Queens Bench Division, Technology & Construction Court, Ramsey J, allowed Stora’s appeal from Master Fontaine’s summary judgment: [2008] EWHC 992 (TCC).