Stewart Gill Ltd v Horatio Myer & Co Ltd  1 QB 600
Set off clauses, exclusion clauses and reasonableness under the Unfair Contract Terms Act 1977
The Claimant and Defendant had a contract under which the Defendant purchased an overhead conveyor system from the Claimant. The system was defective however and the Defendant did not pay the full sum of the contract (with 10% outstanding). The Claimant started the claim and the Defendant attempted to defend by setting it off against what was owed to them. The conditions of sale had a clause however, which prohibited the purchaser (in this case the defendant) from refusing to pay or from attempting to set off any amount owed for whatever reason.
The issue in this case was whether the Unfair Contract Terms Act 1977 could apply to a contract between two companies and if it did, the second issue was if the clause in question was reasonable for the purposes of the Act.
The court held that the Unfair Contract Terms Act 1977 applied to this case and that the anti-set off clause effectively amounted to an exclusion clause. The reasonableness test was to be applied to the clause as a whole and not just the aspect relied on and as a result, this clause was deemed to be unreasonable for the purposes of the act, since it effectively can act to exclude liability for breach of contract. It was observed that anti-set off clauses should be deemed to be unreasonable where they prevent the attempted set off of credits which the other party had admitted to owing the party seeking to set off.