Types of set-off
Types of set-off

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Types of set-off
  • Independent set-off
  • Terminology
  • Key features of independent set-off
  • Transaction set-off
  • Terminology
  • Key features of transaction set-off
  • Contractual set-off
  • Insolvency set-off
  • Mandatory application of insolvency set-off
  • More...

There are five main types of set-off:

  1. independent set-off (sometimes known as legal set-off or statutory set-off)

  2. transaction set-off (also known as equitable set-off)

  3. contractual set-off

  4. insolvency set-off, and

  5. banker's set-off (sometimes known as current account set-off)

This Practice Note examines the characteristics of the five main types of set-off.

For information on set-off in general, see Practice Note: What is set-off and when is it available?

Independent set-off

Independent set-off operates as a procedural defence which can be used in court proceedings. It is used to set-off reciprocal claims which (unlike Transaction set-off) are independent of each other and unconnected.


Independent set-off is sometimes described as legal set-off or statutory set-off.

The term independent set-off is usually used to encompass:

  1. statutory set-off (also known as legal set-off)—a form of set-off available under rules carried over from 18th century legislation known as the Statutes of Set-Off, and

  2. set-off arising by analogy with the Statutes of Set-Off (ie where all of the conditions for statutory set-off are present but one of the claims is equitable, rather than legal)

Statutory set-off was originally contained in the Insolvent Debtors Relief Act 1729 and the Debts Relief Amendment Act 1735 (known together as the Statutes of Set-Off). Both of those statutes have been repealed but their effect has been preserved by the Civil Procedure Rules (CPR 16.6) which give a defendant the right to assert

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