Bibby Factors Northwest Ltd v HFD Ltd and Anr
| Jurisdiction | England & Wales |
| Judge | Lord Justice Christopher Clarke,Lord Justice Kitchin,Lord Justice Laws |
| Judgment Date | 17 December 2015 |
| Neutral Citation | [2015] EWCA Civ 1908 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2014/1253 |
| Date | 17 December 2015 |
[2015] EWCA Civ 1908
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION MANCHESTER MERCANTILE COURT
His Honour Judge BIRD (sitting as a Judge of the High Court)
3MA40141
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Laws
Lord Justice Kitchin
and
Lord Justice Christopher Clarke
Case No: A3/2014/1253
Simon Mills (instructed by Bermans) for the Appellant
Edward Brown (instructed by Pinsent Masons LLP) for the Respondent
Morleys Limited ("the Supplier") supplied goods to HFD Limited and MCD Group Ltd ("the Customers"). Bibby Factors Northwest Limited ("Bibby) is a factor.
By clause 2 of a Factoring Agreement dated 6 March 2000 Morleys agreed to sell and Bibby agreed to buy " all the Debts, referred to in the Particulars, which are in existence at the Commencement Date or which afterwards arise during the currency of this Agreement". Under the Agreement " Debts coming into existence after the Commencement Date" were to vest in Bibby " automatically upon their coming into existence".
On 4 July 2013 Morleys went into administration.
On 11 October 2013 Bibby began proceedings against the Customers for failing to pay them £ 281,919.35 due in respect of supplies made by the Supplier. On 29 October 2013 the Customers served a defence and counterclaim in which they raised three matters. They claimed:
i) that they were entitled to a rebate from the Supplier of 10% of the price payable by the Customers for every supply made in a given calendar year which was payable by the Supplier in January of the following year;
ii) that if payment was made in accordance with the Supplier's terms they were entitled to a discount of 2.5%; and
iii) that they had raised certain Debit Notes for faulty goods for which they were entitled to credit.
The amounts which the Customers sought to set off under these heads were (i) £ 242,175; (ii) £ 6,967.37; and (iii) £ 32,555.
Bibby relied on what was described as a "take-on letter" said to have been written at or about the time of the Factoring Agreement. There is a dispute between the parties as to whether the Customers ever received a copy of this letter. The Customers produced 17 emails from financial controllers at various branches which denied receipt of the letter. Bibby could no longer find a copy of the letters said to have been sent in March 2000; but said that such letters were automatically generated by computer when the Customers' details were entered onto the system. For the purpose of the application for summary judgment the judge proceeded on the assumption that the take-on letters had been received.
The letter (a 2013 copy of which was available) included the following terms:
" We write to introduce ourselves as factors to your supplier Morleys Limited. Please see the attached letter of confirmation and statement of your account. Under the terms of the Factoring Agreement and security of a Debenture all present and future debts are legally assigned to us.
Please note from today onwards payment and queries relating to your account should be addressed to this office and right of set-off in respect of any sale you make to our client is not permitted. We respectfully put you on notice that a valid discharge of your liability can only be obtained by making payment to us. Payment sent to our client will not discharge your liability."
Bibby also relied on (i) a letter or letters said to have been sent in March 2000 informing the Customers of the Factoring Agreement and that all debt of Morleys vested in Bibby on creation, as a result of which all monies had to be forwarded to Bibby to obtain a valid discharge; and (ii) a sticker which was said to have been affixed to all invoices raised by the Supplier on the Customer.
As to the latter, the invoices were sent by Morleys to Bibby so that Bibby could affix the stickers, and they were then sent by Bibby to the Customer. The sticker recorded that the amount payable under the invoice had been purchased by Bibby to whom the Customer was authorised and requested to make payment. It also warned the Customer that the Factor " alone can give a valid discharge and should be advised immediately of any dispute likely to defer payment beyond terms of sale". It was said by Mr Jones, a financial controller of Headlam Group Plc, that " it is our experience that not every invoice received from Bibby had the sticker attached".
In addition notice of assignment was given on the monthly statements of account sent by Bibby to the Customers. Bibby also said that between March 2000 and April 2013 purchase ledger controllers of the Customers at various branches had regularly confirmed that the balances of which they gave details took into account any valid Debit Notes and would be paid when due. No mention of the rebate was ever made in these conversations. The existence of the rebate was said to have been raised as a reason for non-payment for the first time just before Morleys went into administration.
The Customers sought summary judgment in respect of the entirety of Bibby's claim. Bibby sought summary judgment on the rebate issue alone. On 29 January 2014 these applications came before HHJ Bird, sitting as a judge of the High Court in the Mercantile Court in Manchester.
By a judgment dated 12 March 2014 the judge gave summary judgment in favour of the Customers in respect of the rebate point and the Debit Notes but held that the issue in relation to early settlement discount would need to proceed to trial.
The judge set out section 136 of the Law of Property Act 1925 which provides:
" 136.—(1) Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of, charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice—
(a) the legal right to such debt or thing in action;
(b) all legal and other remedies for the same; and
(c) the power to give a good discharge for the same without the concurrence of the assignor …"
Having done so he referred to a passage in Chitty (para 19–070) in which the editors say that:
" … where a claim arises out of the contract under which the debt itself arises, and the claim affects the value or amount of the debt which one of the parties purported to assign for value, then, if the assignee subsequently sues, the other party to the contract may set up that claim… by way of defence against the assignee as cancelling or diminishing the amount to which the assignee asserts his rights under the assignment…"
and to the view of Professor Goode that this was an application of the principle that the assignor could not transfer greater rights than he himself possessed and was distinct from the rule that the assignee takes subject to equities having priority over the right of the assignee.
The judge then said that the proper approach to be taken in respect of a factor and his customers was set out in Business Computers Ltd v Anglo African Leasing [1977] 1 WLR 578 where Templeman J, as he then was, said:
" The result of the recent authorities is that a debt which accrues due before notice of an assignment is received whether or not it is payable before that date, or a debt which arises out of the same contract as that which gives rise to the assigned debt or is closely connected with that contract may be set – off against the assignee. But a debt which is neither accrued not connected may not be set-off even though it arises from a contract made before the assignment."
In relation to the defence of equitable set off the judge took the required degree of closeness between claim and cross claim from the decision of Rix LJ (with whom Patten and Maurice Kay LJJ agreed) in Geldof Metaalconstructie NV v Simon Carves Limited [2010] EWCA Civ 667; [2011] 1 Lloyd's Rep 517. In that case Rix LJ said at [43]:
" (v) Although the test for equitable set-off plainly therefore involves considerations of both the closeness of the connection between claim and cross-claim, and of the justice of the case, I do not think that one should speak in terms of a two-stage test. I would prefer to say that there is both a formal element in the test and a functional element. The importance of the formal element is to ensure that the doctrine of equitable set-off is based on principle and not discretion. The importance of the functional element is to remind litigants and courts that the ultimate rationality of the regime is equity. The two elements cannot ultimately be divorced from each other. It may be that at times some judges have emphasised the test of equity at the expense of the requirement of close connection, while other judges have put the emphasis the other way round.
(vi) For all these reasons, I would underline Lord Denning's test, freed of any reference to the concept of impeachment, as the best restatement of the test, and the one most frequently referred to and applied, namely: " cross-claims…so closely connected with [the plaintiff's] demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim". That emphasises the importance of the two elements identified in Hanak v. Green; it defines the...
To continue reading
Request your trial
-
Buying Debt - Factoring In More Diligence
...of the debt they purchase before going ahead with such transactions. In Bibby Factors Northwest Limited v HFD Limited and another [2015] EWCA Civ 1908, the Court of Appeal held that ordinarily there is no duty on a company whose debt has been purchased to inform the purchasing company of an......