There are three types of set-off: common law, equitable set-off, and set-off in insolvency.

The discharge of reciprocal obligations to the extent of the smaller obligation. The relevant party applies a claim owed to it against a claim or liability owed by it.

This Practice Note considers set-off provisions in leases and whether a tenant can set off a claim against a new landlord after assignment. A tenant is entitled to set off liquidated claims for damages, at law, and unliquidated claims, in equity, for damages for breach of covenant by the landlord against rent accruing under the lease. In leases this right of set-off and deduction is usually excluded by express words. The Practice Note also considers whether or not a tenant is entitled to withhold rent or service charge in the event of a landlord’s breach of lease. A tenant is entitled: • in certain circumstances at law to set off liquidated, and • in equity to set off, including unliquidated claims for damages for breach of covenant by the landlord against rent accruing under the lease. However, the right to set off is usually excluded by express words. It is particularly important to use clear wording when excluding this right to rebut the presumption that neither party intends to abandon any remedies for

Construction analysis: The Technology and Construction Court refused to enforce an adjudication decision in which the adjudicator had declined, on the grounds of a lack of jurisdiction, to consider the defendant employer’s set-off defence. Jonathan Schaffer-Goddard of 4 Pump Court Chambers considers the judgment and its implications.

Cash flow is essential to the construction industry—without it, projects would grind to a halt. However, where parties owe sums of money to each other (for example, where an employer owes the contractor for works undertaken but the contractor also owes the employer for damage caused to the property during the works) it makes commercial sense to have a mechanism whereby only one payment is made rather than two separate payments. Such a mechanism exists in the form of 'set-off'. This Practice Note gives an overview of set-off (both generally and contextually within the construction industry), explains how it works in practice and offers some practical tips and considerations to bear in mind when dealing with set-off in the context of construction contracts. What is set-off? Commercially, set-off is a mechanism used by parties to manage cash flow. It effectively allows for the offset of opposing financial claims to produce a single amount owed by one party to another. In litigation, set-off functions as a defence to a claim for monies due. For more information, see Practice Note: What

This Practice Note considers the five types of set-off (the most significant being contractual set-off, insolvency set-off and banker’s set-off) and how they could be relevant to finance transactions, and in particular, commercial loan transactions. It also covers issues relating to guarantees and freezing injunctions which relate to set-off. For information on set-off in general, see Practice Note: What is set-off and when is it available? When is set-off relevant to finance transactions? There are five main types of set-off: • independent set-off (sometimes known as legal set-off or statutory set-off) • transaction set-off (also known as equitable set-off) • contractual set-off • insolvency set-off, and • banker's set-off (also known as current account set-off) For more information, see Practice Note: Types of set-off. In commercial loan transactions, contractual set-off, insolvency set-off and banker's set-off are typically the most important forms of set-off. Contractual set-off provisions in loan documentation For information on contractual set-off in general, see Practice Note: Contractual set-off. Many finance documents in loan transactions include specific contractual provisions

This Practice Note sets out certain key cases and associated relevant content in relation to set-off. The cases are divided by topic area and include cases relating to: • Principles of set-off • Contractual set-off • Insolvency set-off • Banker’s set-off • Transaction (or equitable) set-off, and • Independent set-off Key cases relating to the principles of set-off Names of parties Judgment date Case summary Relevant content Jones v Mossop (1844) 67 ER 506 24 July 1844 With the exception of contractual set-off, one of the key features of set-off is that there must be mutuality of debts between the two parties involved. This case sets out the guiding principle behind mutuality—ie that a debtor should not be entitled to use another person's debt to pay its own liability. See Practice Note: What is set-off and when is it available?—The requirement for mutuality of debts Edlington Properties Ltd v JH Fenner & Co Ltd [2006] EWCA Civ 403, [2006] 3 All ER 1200, [2006] 1 WLR 1583 21/22 March 2006 This case

Property Disputes analysis: This is a decision by the Upper Tribunal on an application to set aside and/or remake a decision modifying leasehold covenants under section 84 of the Law of Property Act 1925 (LPA 1925). The Upper Tribunal dismissed various procedural challenges to the order, but decided that it had not had jurisdiction to modify alienation covenants (as they were not restrictions as to the user of land) nor various other covenants, including a keep open obligation, as they were positive covenants. Written by Caroline DeLaney, Partner at Stevens & Bolton LLP.

Private Client analysis: The claimant, one part of the well-known genealogists Fraser & Fraser, brought this probate claim on behalf of intestate beneficiaries of the estate of Gerard Reading deceased (‘the Deceased’) to revoke a grant of probate obtained by defendant, the purported attorney of a purported (and untraced) residuary beneficiary of what purported to be a most bizarre Will (‘the Will’) of the Deceased. The defendant had not acknowledged service and at a trial of the claim on written evidence, at which the defendant did not attend, the Chief Master pronounced against the validity of the said Will on the grounds that the signature on it was not that of the deceased and had been drafted as an attempt to commit fraud and obtain the deceased’s estate by deception. Written by Oliver Hilton, barrister at Radcliffe Chambers, Lincoln’s Inn.

Dispute Resolution analysis: A party against whom a default judgment had been obtained sought to have that judgment set aside on the ground that it had been obtained by fraud. Although there are well-recognised remedies of either the bringing of a fresh action to set aside the judgment or the bringing of an appeal and seeking to rely upon fresh evidence, the party sought to do neither, seeking, instead to argue that the court itself had the power to set aside the judgment under CPR 1 and 3 and the court's inherent powers. The attempt failed, the judge at first instance (Laing J, affirmed by the Court of Appeal) holding that she no longer had jurisdiction to grant such a remedy once a final order had been granted. Written by Iain G Mitchell QC (Scotland), barrister at Tanfield Chambers.

Dispute Resolution analysis: In a recent High Court decision, the court confirmed that its equitable jurisdiction to set aside judgments procured by fraud applies even to parties who have not been complicit in the fraud. After examining the facts and taking all relevant circumstances into account, the court held that it was just and equitable to set aside a 2014 High Court judgment dismissing a claim against various defendants, in circumstances in which that judgment had been obtained by the fraudulent evidence of one of the defendants. The court rejected arguments that a retrial would be an abuse of process and that the defence of laches should apply and ordered a retrial. Written by Josephine Higgs KC, 7 King’s Bench Walk.

Dispute Resolution analysis: This case demonstrates the significant burden faced by a party who did not attend trial and who then seeks to apply for the resulting judgment/order to be set aside. The applicant had initially participated in the proceedings, but did not participate in the trial despite having been given notice of the trial date and the ability to attend by videolink. Over four months after the resulting judgment, he applied for permission to appeal. The court treated this as an application to set it aside under CPR 39.3, but refused the application on the basis that: (i) the application was not made promptly; (ii) there was no good reason for not attending the trial; and (iii) Mabrouk had no reasonable prospect of success on any retrial. Permission to appeal was similarly refused, and the application was also dismissed under the Denton v White principles. Written by Jon Felce, partner at Cooke, Young & Keidan LLP.