FG Wilson (Engineering) Ltd v John Holt & Company (Liverpool) Ltd

This is an appeal by the defendant ("Holt Liverpool") from a decision of Popplewell J in the Commercial Court granting summary judgment to the claimant ("FG Wilson") for sums due pursuant to a distributorship agreement ("the distributorship agreement") and rejecting Holt Liverpool's reliance on a cross-claim, as a result of the existence of a "no set-off clause" in the contract, which prevented Holt Liverpool as buyer from applying any set off to any claim for the price of the goods subject to the distributorship agreement.

FG Wilson is a Northern Irish company carrying on business as a manufacturer and seller of generator sets and spare parts worldwide, together with associated services. It is a wholly owned subsidiary of an American company, Caterpillar Inc. Holt Liverpool is an English company, whose business consists predominantly of purchasing generators and spare parts from FG Wilson for export to Nigeria. The sales in Nigeria are made by Holt Liverpool's majority owned subsidiary, John Holt plc ("Holt Nigeria"), a company incorporated in Nigeria.

The claim was for approximately US$ 12 million as the sum allegedly due in respect of generators and spare parts supplied by FG Wilson to Holt Liverpool, together with associated services and licences. There was also a claim for contractual interest for late payment of invoices.

In a separate Commercial Court action, Holt Liverpool claims in excess of US$ 53 million from FG Wilson as damages for alleged breaches of the distributorship agreement relating to the import of generators into Nigeria. The essence of the claim in those proceedings ("the Holt 1 Claim") is that by supplying generators to others within Nigeria over a period going back a number of years, FG Wilson was in breach of exclusivity obligations owed to Holt.

The generators supplied by FG Wilson to Holt Liverpool which form the subject matter of the claim were in one or other of two forms. Some were fully assembled generators which were delivered at FG Wilson's factory in Larne, Northern Ireland, as finished products, requiring only commissioning after transport to Nigeria. These were known as "Completely Built Up" generators and referred to as "CBUs". Other generators were sold in unassembled kit form, again delivered at FG Wilson's factory in Larne, which were then to be assembled by Holt Nigeria after arrival in Nigeria. These were known as "Completely Knocked Down" generators and referred to as "CKDs". As well as complete generators, Holt Liverpool purchased spare parts from FG Wilson, because it was part of Holt Nigeria's business to service and repair generators for their customers. In relation to the CKDs, FG Wilson provided and charged for training services to enable Holt Nigeria personnel to be able to assemble the kits, and granted software licences for electronic tools used for servicing the generators.

Although the sales by FG Wilson to Holt Liverpool were on terms "ex works Larne", on some occasions FG Wilson made arrangements for the haulage from the factory to the port of shipment. On such occasions, FG Wilson paid the freight for the road transport and recharged Holt Liverpool. Nothing now turns on the quantum of the claim.

The nature of the dispute

The trading terms agreed between FG Wilson and Holt Liverpool allowed Holt Liverpool extended credit. The originally agreed payment terms were that the invoiced sums were to be paid on the 25 ^th day of the fourth month after the month in which the invoice was dated. This was later said to have been extended to the 25 ^th day of the fifth month after invoice or some subsequent date. On any view these terms were more generous than the 30 day term contained in FG Wilson's standard terms as set out below.

On 7th December 2009 FG Wilson emailed Holt Liverpool to say that invoices totalling about US$ 1.3m were overdue for payment. These were invoices issued in June 2009 which would have fallen due for payment on 25 ^th November 2009 in accordance with terms for payment on the 25 ^th day of the fifth month after invoicing. The email asked for confirmation that payment had been organised, or for a reason for non-payment. The response from Holt Liverpool was that the consistent practice had been to settle the account on 180-day net monthly account terms, with agreement to pay interest on the excess period beyond the standard terms of the 25 ^th day of the fourth month after invoice. The invoices were therefore said to be intended to be paid as part of a December settlement.

What subsequently happened was that invoices which were due in January 2010, on any view of the relevant credit terms, were not paid. Accordingly, on 1 ^st February 2010, following a meeting of FG Wilson's Credit Committee, FG Wilson notified Holt Liverpool by email that the latter's account had been placed on hold. This meant that no further orders would be accepted, and existing orders would not be shipped. The email asked for a repayment schedule by return, in order to bring the account back within the agreed trading terms.

There followed exchanges and discussions between the parties as a result of which trading was resumed at about the end of April or early May, on the basis of a repayment plan which would have brought Holt Liverpool back "into terms" in relation to outstanding and subsequent orders by December 20It is Holt Liverpool's contention that these discussions resulted in a binding agreement, which it refers to as the "Repayment Agreement", under which FG Wilson was bound to supply identified minimum quantities of product month by month.

By August 2010, however, Holt Liverpool was unable to meet these repayment terms. There followed subsequent negotiations for a further repayment plan, which ultimately foundered.

On 19 ^th January 2011 FG Wilson sent an email purporting to exercise its rights under a retention of title clause in its standard terms and conditions. Holt Liverpool responded by email on the following day to the effect that all the goods had been delivered to Holt Nigeria, which had become the legal owner of the goods and paid Nigerian VAT.

On 11 ^th March 2011 solicitors for FG Wilson wrote a letter before action in relation to the debt, amounting to US$ 12,628,428.73, and threatening proceedings if it was not paid within 7 days. A response from DLA Piper, solicitors acting for Holt Liverpool, was sent on 18 ^th March 2011. It stated that, prior to receipt of the 11 ^th March letter, DLA Piper had been instructed in relation to various issues arising out of the trading relationship. The letter of 18 ^th March set out at some length Holt Liverpool's complaints which form the subject matter of the dispute in the Holt 1 Claim. Having done so, the letter continued under the heading "Your letter of 11 ^th March 2011", stating:-

"Our client accepts that monies are owed to FGW but until it has been able to review all of the individual invoices claimed shown in the schedule attached to your letter, no admissions are made as to whether the sum of $12,628,428.73 is accurate."

The Issues

FG Wilson submits that the invoices, pursuant to which it claims, fall to be paid as the contractually agreed price for goods and (in minor respects) services. Holt Liverpool submits as follows:-

i) It has an arguable defence by way of set-off of:

a) the Holt 1 Claim; and/or

b) a claim for damages for breach of the Repayment Agreement.

ii) The no set-off clause does not prevent reliance on either of these defences because:-

a) upon its true construction it does not apply to transactional set-offs of the type comprised by the Holt 1 Claim or Repayment Agreement claim; and

b) it applies only in relation to claims for the price, and FG Wilson has no claim for the price under section 49 of the Sale of Goods Act 1979 ("the 1979 Act") or otherwise; FG Wilson might have a claim for damages for non-payment of the price, but that is not the claim advanced in these proceedings and would not trigger the application of the no set-off clause.

FG Wilson relies upon the no set-off clause. It accepts that the Holt 1 Claim is to be treated for the purposes of the present application as arguable; and that, if valid, it would afford a defence to FG Wilson's claim in these proceedings, by way of set-off, unless the no set-off clause were effective to preclude it from having that effect. FG Wilson disputes the existence of the "Repayment Agreement" or any claim thereunder. It also disputes the arguments advanced by Holt Liverpool for the ineffectiveness of the no-set-off clause. It accepts that the clause only applies to a claim for the price, but asserts that the claim as advanced in these proceedings is only framed as a claim for the price, contending that it has a valid claim for the price either under section 49 of the Sale of Goods Act 1979 or alternatively irrespective of that Act.