Redd Factors Ltd v Bombardier Transportation UK Ltd

An agreement to agree is enforceable where the contractual and factual matrix identifies the essential terms sufficiently clearly. A provision requiring parties to agree a variation order may therefore be binding where the price, subject matter and mechanism are specified. Tooling costs cannot be recovered twice where the agreement separately provides for their later sale. Equitable set-off is available where the cross-claim flows out of and is inseparably connected with the dealings giving rise to the assigned claim. That connection may extend across related contracts forming part of one commercial arrangement.

Redd Factors, a factoring company, claimed payment from Bombardier for invoices issued by Primarius, a train-seat manufacturer whose debts had been assigned to Redd Factors. Bombardier relied on contractual and equitable set-off for the cost of free issue materials supplied under a licence agreement intended to support Primarius’s continued trading.

The court determined the enforceability and construction of the licence agreement, the effect of a subsequent May agreement fixing discounts, the recoverability of various material and delivery costs, the scope of equitable set-off, and the treatment of VAT. The precise financial consequences were left for the parties to agree or, failing agreement, for further submissions.

1. Construction and enforceability. Clause 7.1 was sufficiently certain to be enforceable. Although it required the parties to agree a variation order in good faith, it identified the essential obligations: Bombardier would provide free issue materials at cost plus a 5 per cent handling fee, set off against the price payable for deliverables under the underlying contracts. The clause was not an unenforceable agreement to agree.
2. Recoverable costs. Tooling costs were outside the free issue material claim because clause 7.2 separately provided for tooling to be offered for sale. Payments made to expedite delivery were, in principle, part of the cost price under clause 7.1. The May agreement subsequently fixed the recovery mechanism for original suppliers, subject to stated exclusions for the LERL contract and Beamlight. Airfreight, painting and other non-recurring costs within that agreement were covered by the agreed discounts.
3. Evidence and apportionment. Bombardier had to prove that claimed sums had been paid or were payable. Unproved amounts were disallowed. On over-ordering, the court allowed recovery of 15 per cent, representing the proportion supported by permissible inferences, and declined to speculate beyond the evidence.
4. Set-off. The assignment under section 136(1) of the Law of Property Act 1925 remained subject to prior equities. Applying the test in Bim Kemi v Blackburn [2001] EWCA Civ 457, the FIM claims flowed out of and were inseparably connected with the dealings giving rise to the invoice claims. Clause 7.1 and the common commercial scheme justified set-off across the four main contracts, including claims relating to Beamlight, LERL and additional suppliers.
5. Outcome. Various invoice claims were allowed, subject to specified reductions and set-off. The VAT issue was left open pending notification to HMRC and further submissions. The parties were directed to agree an order giving effect to the findings, with permission for further submissions and a short further judgment if agreement proved impossible.