Commercial Bulletin No. 90

An analysis of cases and developments from September 2012

No action for price if title retained and "no set-off" clause passes the UCTA reasonableness test

Wilson manufactured and sold generator sets and spare parts worldwide. Its customers included Holt which resold the goods to its subsidiary in Nigeria. Wilson's standard terms applied to the sales. They included the following "no set-off" and retention of title clauses:

"Buyers shall not apply any set-off to the price of Seller's products without prior agreement by the Seller". "Notwithstanding delivery... title shall not pass to Buyer until Seller has received payment in full for the products and all other goods or services agreed to be sold.... Until such time as title passes, the Buyer shall hold the products as Seller's fiduciary agent... Prior to title passing the Buyer shall be entitled to re-sell or use the products in the ordinary course of business and shall account to the Seller for the proceeds of sale..." Holt was permitted extended credit. When it failed to pay invoices, a repayment plan was agreed. Holt failed to meet the repayment terms with the result that Wilson brought proceedings for the price of goods, claiming US$12.6m.

The first point concerned section 49 of the Sale of Goods Act 1979 which provides that an unpaid Seller can bring an action for the price if either title to the goods has passed or the price is expressed to be payable on a certain date [note that this is irrespective of whether delivery is made, title has passed, or the goods have been appropriated to the contract]. Holt claimed that s49 was the only way of claiming for the price, and that the section was not satisfied, since title remained with Wilson under Wilson's terms (and there was no certain date for payment). Holt also sought to apply a set off based on its counterclaim in a separate action against Wilson for more than US$53m for breach of Holt's exclusive distributorship rights in Nigeria. Wilson argued that the "no set-off" clause prevented Holt from setting off its counterclaim; Holt said it was unreasonable under UCTA.

The High Court held, in an application for summary judgment, that Wilson's action for the price complied with Section 49 of the Sale of Goods Act 1979, that the "no set-off" clause prevented Holt from relying on a defence of set-off based on its separate claim and that the clause was reasonable under UCTA:

Section 49 sets out the only circumstances in which a seller can...