Summary judgment granted on basis of “no set off” clause - AMC III Purple BV v Amethyst Radiotherapy Ltd [2019] EWHC 1503 (Comm)

Published on 07 November 2019

Will the courts give effect to “no set off" clauses and do they exclude both legal and equitable set off?

The key takeaway

A properly drafted “no set off” clause can prevent a defendant from relying on legal or equitable set off as a defence to claims for payment. 

The facts 

The AMC Group (AMC) provided mezzanine finance to Amethyst Radiotherapy Limited (Amethyst), a company operating radiotherapy centres. AMC provided a £21m loan in 2014 under a mezzanine facility agreement (the Mezzanine Agreement), and a further £4m loan in 2015 under a supplemental facility agreement (the Supplemental Agreement) to assist Amethyst’s expansion plans. 

Amethyst failed to pay the interest payable under both agreements as well as the principal under the Supplemental Agreement. As a result, AMC applied for summary judgment seeking: (i) a declaration that Amethyst had defaulted under the loan agreements; and (ii) an order for payment of outstanding interest and principal. 

Amethyst resisted AMC’s application on the basis of equitable set off in respect of its own alleged claims. In response, AMC relied on the “no set off” clauses in each of the Mezzanine Agreement and Supplemental Agreement to rebut Amethyst’s defence. The relevant clauses were:
  • “All payments to be made by the Borrower under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim” [This is an LMA standard form provision]
  • “Each payment to be made by the [Borrower] under this Agreement will be made in full, without any set-off or deduction”.
The decision 

It was held that, even if Amethyst had valid cross claims against AMC, they were not entitled to set them off against interest or principal payments because the “no set off” clauses successfully excluded both equitable and legal set off. 

The judge’s reasoning was based on the Court of Appeal’s decision in Caterpillar (NI) Ltd (formerly known as FG Wilson (Engineering) Ltd) v John Holt & Company (Liverpool) Ltd [2013] EWCA Civ 1232, where a “no set off” clause with similar wording was held to have excluded both legal and equitable set off. 

The judge focused on the language of the clauses, highlighting that the use of the word “any” meant that equitable as well as legal set off must be excluded. The judge also took the phrase, “payments shall be calculated and be made without…set off” to preclude Amethyst from arguing that the clause only applied to sums which were due (and therefore rejected the argument that neither the interest, nor principal payments were due as they were subject to equitable set off). 

Why is this important? 

The case is a useful reminder of the Court’s willingness to give effect to “no set off” clauses and grant summary judgment for payment claims, even if there are counterclaims.

Any practical tips? 

Consider the use of “no set off” clauses in agreements generally, and in particular how they tie into the particularities of recovering (or withholding) payments. These provisions are typically favourable for the service provider/payee, and are restricted by the customer/paying party.

Stay connected and subscribe to our latest insights and views 

Subscribe Here