Jurisdiction(s):
United Kingdom

Debt factoring: equitable set-off of customer rebate defeats assignee; debtor had no duty to notify factor—Bibby v HFD (Court of Appeal, England and Wales)

Published on: 24 December 2015

Published by a LexisNexis Dispute Resolution expert

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Article summary

Practical implications

This judgment demonstrates how the principles governing equitable set-off via a cross-claim function in an assignment, in this instance where a factor has taken over debts owed by customers to a supplier. The Court of Appeal concluded that, since the factor neither agreed with the supplier that no rebate would be available nor asked the debtor to notify it of any rebate, the debtor had no obligation to reveal any prior contractual rebate arrangements affecting the debt. Here, the scale of the rebate cross-claim almost eliminated the whole of Bibby’s demand. The clear potential for serious prejudice to a factor in such circumstances is therefore apparent and calls for the inclusion of suitably drafted contractual protections (see paras [49]–[53]).

How did the set off issues arise in this debt factoring case?

Under a Factoring Agreement from 2000, Bibby, acting as factor, acquired all of the supplier’s (Morleys) debts owed by HFD (Morleys’ customers). The debts were: ‘all the Debts, referred to in the Particulars, which are’ ...

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