The Court of Appeal upheld the finding at trial of HHJ Bird (sitting in the High Court) that save where there is fraud, a debtor is not legally obliged to volunteer information to an assignee regarding his arrangement with the assignor. The dispute arose because Bibby, a factor (and ‘Assignee’), purchased debts from Morleys Ltd (‘the Assignor’), owed to it by HFD Ltd and MCD Ltd (the ‘Customers’/‘Debtors’). The contract between the Assignor and Customers was such that the latter were entitled to a rebate, at the beginning of each calendar year, on purchases made. In October 2013 Bibby began proceedings against the Customers for unpaid invoices totalling £281,919.35, following which they served a defence and counterclaim seeking a set off for the rebate (and credit for faulty goods). At trial, Bibby argued that in its ‘take-on letter’ to the Customers, it had precluded any right of set-off and that they were obliged to inform it of any entitlement to a rebate.
Bibby could not prevent a set-off except by contracting directly with the Customers (which it had not), and there was no freestanding obligation for a debtor to provide information concerning the terms of his repayment to an assignee of the debt (Mangles v Dixon (1852) 3 HL Cas 702 applied). Had Bibby wanted such information, it could have included a term to this effect in its contract with the Assignor (or made enquiries directly to the debtor). Despite the Customers not mentioning the rebate for 13 years, the court also found that no estoppel had arisen. The court confirmed that the test for availing a party of the right to equitable set-off was stated in The Nanfri  QB 927 – namely, that a cross-claim must be ‘so closely connected with the [plaintiff’s] demands that it would be manifestly unjust to allow him to enforce payment without taking [it] into account’. This case is a cautionary tale for factors which should undertake due diligence before the purchase of any debt.