Written by A set-off is a legal procedure where two competing claims are ‘netted’ against each other. Rather than both sides of a dispute being entitled to obtain judgement against each other, their claims are set-off with the result that there is either a single amount payable by one party to the other or no amount payable at all.
In the recent case of Goldsmith v AMP Life Limited [2021] a tenant sought compensation under a lease relating to redevelopment works carried out by the landlord at a shopping centre. Before the redevelopment work commenced, a new lease was negotiated where the tenant would relocate its business in the shopping centre. The tenant owed the landlord rent under the second lease, and the question was whether the right of compensation under the first lease could be set-off against the debt under the second lease. The Court accepted this argument as both claims arose out of a continuing relationship affected by the landlord’s renovation of the shopping centre.
The Court of Appeal summarised the principles for determining whether an equitable set-off is available. Firstly, there must be a sufficient connection between the two claims. Secondly, to be sufficiently connected, one claim must ‘impeach’ or ‘go to the root’ of the other claim, so that it would be unfair for one claim to be allowed without accounting for the other. Thirdly, a set-off can arise where the claims are based on different legal instruments between the same parties.