Bibby Factors Northwest Ltd v HFD Ltd & Anor

An assignee of a debt takes subject to an equitable set-off where the debtor’s cross-claim is so closely connected with the assigned claim that it would be manifestly unjust to enforce the claim without taking the cross-claim into account. The test is composite: it includes both close connection and the justice of enforcing the claim without allowance for the cross-claim.

A factor cannot improve the assignor’s position merely by giving notice that set-off is prohibited, where the factor has no agreement with the debtor. Silence during routine balance confirmations does not ordinarily create an estoppel or a duty to volunteer information about the debtor’s arrangements with the assignor. Debit notes may constitute sufficient evidence of cross-claims on a summary judgment application where they are pleaded, supported by evidence, and not contradicted.

A factor claimed sums due for goods supplied by Morleys Limited to HFD Limited and MCD Group Ltd. The supplier had assigned its present and future debts to the factor under a factoring agreement. The customers raised claims for an annual rebate, early-payment discounts and debit notes for defective or incorrect goods.

The High Court granted the customers summary judgment on the rebate and debit-note issues, but allowed the early-payment discount issue to proceed to trial. The factor appealed, arguing that the rebate could not be set off because the customers had notice of the assignment, had confirmed account balances without mentioning the rebate, and were estopped from relying on it. The central issues were the availability of equitable or independent set-off, estoppel, and the evidential sufficiency of the debit notes.

1. Appeal dismissed. The customers were entitled to summary judgment on the rebate and debit-note issues. The early-payment discount issue remained for trial.
2. The applicable equitable-set-off test was the composite test stated in Geldof Metaalconstructie NV v Simon Carves Limited: whether the cross-claim was so closely connected with the claim that it would be manifestly unjust to enforce the claim without taking the cross-claim into account. Close connection and justice are elements of one test, not separate stages. The judge’s references suggesting that justice was relevant only to estoppel or that equitable set-off was not an equity were mistaken, but they did not cause the correct outcome.
3. The rebate claim was sufficiently closely connected with the assigned debts. It was calculated as a percentage of the amounts making up those debts, and the supplier could not have demanded payment without crediting the rebate. The factor, standing in the supplier’s shoes, could be in no better position. The court did not need to decide whether the rebate arose under the same contract or under an overarching agreement, since either analysis produced a close connection.
4. Neither equity nor estoppel defeated the set-off. The customers had no contractual or other duty to inform the factor of rebate arrangements in contracts to which the factor was not party. The factor could have required disclosure from the supplier or customers. Notice stating that set-off was not permitted could not itself remove an equitable set-off, and routine confirmations of monthly invoice balances did not clearly represent that no rebate existed. There was no realistic prospect of proving fraud or comparable conduct which could make silence inequitable.
5. An independent set-off was unnecessary to determine. The court nevertheless indicated that, if the rebate right arose only when the underlying price was paid, it would arise after assignment and notice and therefore would not be available as an independent set-off. The alternative analysis, that the right arose on formation of the sale contract, was not favoured.
6. The debit notes were adequate evidence of the customers’ cross-claims. They were pleaded, supported by a statement of truth and witness evidence, and uncontradicted. It was insufficient for the factor merely to rely on the burden of proof and point to issues requiring exploration.

• Court of Appeal (Civil Division): [2015] EWCA Civ 1908. Appeal dismissed.
• High Court, Queen’s Bench Division, Manchester Mercantile Court: Summary judgment was granted for the customers on the rebate and debit-note issues. The early-payment discount issue proceeded to trial.