Equitable set -off much simplified

Geldof Metaalconstructie NV v Simon Carves Ltd

The Court of Appeal's decision in Geldof means that there is now a clear and workable test. The test is whether the cross-claim is so closely connected with the claimant's demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.

The cross-claim does not have to arise from the same contract or transaction as the claim, nor from the dealings and transactions which gave rise to the claim. It is sufficient if it is closely connected with the transaction which gave rise to the claim.

A point arose in Geldof, involving two contracts, which had not arisen in any earlier authority. It was held that, even if initially the two contracts were not sufficiently connected, there could be conduct by the parties which provided the necessary link and satisfied the manifest injustice requirement. There was such conduct in this case. Geldof refused to perform an installation contract unless payment was made under a separate supply contract. SCL relied on this refusal when terminating the installation contract. Thus the cross-claim arose from the use made by Geldof of its supply contract claim. Conduct created a close connection and it would be manifestly unjust to allow the claim to be enforced without taking account of the cross-claim.

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