Set off in UK Law

We have to ask ourselves: What should we do now so as to ensure fair dealing between the parties? 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.

But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption.

But, and I do not think that sufficient recognition to this has been given in the courts below, it is a time bar of a special kind, viz., one which extinguishes the claim (cf. Article 29 of the Warsaw Convention 1929) not one which, as most English Statutes of Limitation (e.g. the Limitation Act 1939, The Maritime Conventions Act 1911), and some international Conventions (e.g. the Brussels Convention on Collisions 1910 Article 7) do, bars the remedy while leaving the claim itself in existence.

Transaction set-off, on the other hand, is a cross-claim arising out of the same transaction or one so closely related that it operates in law or in equity as a complete or partial defeasance of the plaintiff's claim. The category covers a common law abatement of the price of goods or services for breach of warranty, as explained by Parke B in Mondel v. Steel (1841) 8 M & W 858, 870 and equitable set-off, as explained by Morris LJ in Hanak v. Green [1958] 2 QB 9.

He is saying that although the facts alleged by the plaintiff entitle him to judgment for the amount claimed, a wider examination of related facts would show that the claim is wholly or partly extinguished. It would be quite unreasonable for a plaintiff who has chosen to sue in one forum to rely upon an arbitration or jurisdiction clause to confine the court to the facts which he chooses to prove and prevent it from examining related facts as well.

The position is, therefore that since the Judicature Acts there may be (i) a set off of mutual debts (ii) in certain cases a setting up of matters of complaint which if established reduce or even extinguish the claim and (iii) reliance upon equitable set-off and reliance as a matter of defence upon matters of equity which formerly might have called for injunction or prohibition The basis of (i) was explained in ( Stooke v. Taylor 5 Queen's Bench Division, page 569) in which case Chief Justice Cookburn pointed out (at page 576) that in the case of a set-off, the existence and the amount of a set-off must be taken to be known to a plaintiff who should give credit for it in his action against the defendant.

Bankruptcy set-off, on the other hand, affects the substantive rights of the parties by enabling the bankrupt's creditor to use his indebtedness to the bankrupt as a form of security. Instead of having to prove with other creditors for the whole of his debt in the bankruptcy, he can set off pound for pound what he owes the bankrupt and prove for or pay only the balance. …" Although it is often said that the justice of the rule is obvious, it is worth noticing that it is by no means universal.