In Gary Fearns (trading as Autopaint International) v Anglo- Dutch Paint & Chemical Ltd  EWHC 2366 (Ch), the date when the Claimant’s damages and the sum he owed to one of the Defendants was to be converted into a common currency and set off to derive a net liability was the date of final determination of liabilities (i.e., the date of judgment), not the date the claim arose.
Previously, the deputy judge assessed damages payable to Fearns, the Claimant, for the Defendants’ infringement of his trade mark and passing-off, at approximately £440,000. He assessed the debt owed by Fearns to the second Defendant, De Beer, at approximately €600,000. It was common ground that the damages awarded to Fearns and the debt to De Beer should be set off and judgment given for a net sum. The parties disputed the date at which the amounts should be converted to common currency. The claim arose in 2005 and judgment was given in 2010. In that time, the Euro/GBP exchange rate shifted substantially. The 2005 rate led to Fearns coming out approximately €41,000 in credit, the 2010 rate led to him owing De Beer €68,000.
As “set-off” has no uniform meaning in English law, the deputy judge set out the principles:
- Set of may be legal or equitable.
- A claim and cross-claim cannot be set-off to extinguish liability until agreement or judgement (which assesses liability).
- For a right of legal set-off to exist the claim and cross-claim must be for sums which are due and which are either liquidated or capable of ascertainment without valuation or estimation at the time of pleading
- Equitable set off will arise where the two claims are (i) reasonable and bona fide and (ii) so closely connected that allowing one party to enforce payment without considering the cross-claim would be manifestly unjust. Neither party may exercise rights contingent on the validity of its claim except insofar as it exceeds the other party’s claim.
- Under CPR r.40.13 and the court’s inherent jurisdiction, the court can order any judgment sum to be set off against any other such sum. The date for this set-off is the date when the existence and amount of the two liabilities is established.
- Where there are different currencies in a set-off, the court should (i) assess principal and add interest accruing up to the date of set-off, (ii) convert the smaller amount into the currency of the larger at that date’s prevailing exchange rate, and (iii) order payment of the balance.
The deputy judge held that the date at which currency conversion should occur here was the date on which the amounts of those liabilities were finally determined: 2010, not 2005. The judge held that Fearns (who lost out) should have pleaded change in currency in his claim. However, the higher interest rate on the judgment debt meant that Fearns was ultimately £37,000 up.
The deputy judge held that the date on which a set-off ordered by the court will be effected is when the amount of the two liabilities is finally determined by judgment or agreement. Usually this will be the date of the order, but if it is not, the court has discretion to order the set-off to be effected at an earlier or later date.
As a final twist, because Fearns was insolvent and, ultimately, the Defendants were (viewing the case as a whole) adjudged the successful party, the deputy judge ordered that the £37,000 owed to Fearns be set off against the substantial costs owed to the Defendants on the basis of equitable principles and the court’s inherent discretion.
This case provides a clear summary of the nature and operation of set-off, and of the principles involved in setting off when the amounts to be set-off are in different currencies.