Set-off... as if!

Set-off... as if!

Set-off... as if!

One criticism often levelled at lawyers (not us of course) is that legal documents are too long. And that we deliberately make them that way so that we can charge more. 

But the truth is that if we include something in a legal document, it is usually there for a reason. This applies even in respect of common “boilerplate” provisions which can sometimes look pretty meaningless on the page.

A good example is a no or anti set-off provision, which recently provided some useful protection to a lender in the case we discuss below.

The Case

In AMC III Purple B.V. v Amethyst Radiotherapy Limited [2019] EWHC 1503 (Comm), the claimant lender provided two loans to the defendant borrower under a €21 million mezzanine facility agreement originally dated 7 May 2014 (the “MFA”) and a €4 million supplemental loan agreement dated 21 April 2015 (the “SLA”). The defendant failed to pay interest when due under both loans, as well as principal due under the SLA at the repayment date. The claimant sought a summary judgment in the High Court seeking a declaration that events of default had occurred under both loans and an order that the defendant pay the outstanding amounts.

The defendant raised a number of defences, one of which was based on equitable set-off. According to the defendant, it did not have to pay the amounts due under the loans because it was allowed to set those amounts off against various claims it had against the claimant. In particular, the borrower argued that the lender had an implied duty to co-operate in facilitating a refinancing and its payment of sums owing under the loans was conditional on such co-operation with the lender. 

In response, the claimant relied upon anti set-off provisions contained within the loan agreements which read as follows:

  • In the case of the MFA: “All payments to be made by the Borrower under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim”.
  • In the case of the SLA: “Each payment to be made by the [Defendant/Borrower] under this Agreement will be made in full, without any set-off or deduction”.

Provisions of this kind are commonly found in loan documents, and whilst it is unclear from the case report whether these loans were made on standard terms, so far as the specific provisions set out above are concerned they largely mirror the equivalent provision found in Loan Market Association loan documentation.

The decision

Mr Justice Butcher in the High Court gave pretty short shrift to the defendant’s set-off defence and argument that the lender had an implied duty to co-operate in facilitating a refinancing. The court gave summary judgment in favour of the lender for the amounts outstanding under both loans.

Dealing with the MFA first, the court held that even if the borrower had valid cross-claims against the lender, it was not entitled to set those claims off against the interest payments due nor reduce the amount payable in respect of that interest.   

In reaching this conclusion, Mr Justice Butcher followed a number of previous judicial rulings in which the courts had held that set-off clauses with similar wording excluded both legal as well as equitable set-off (legal set-off is only available as a defence to a court action where two claims between the same persons are both due and payable and liquidated or ascertainable in nature, whereas equitable set-off is available outside of litigation in respect of closely related claims but which aren’t necessarily liquidated in nature). He highlighted the expansive wording contained in the MFA, which provided that payments made by the borrower “shall be calculated and be made without…set-off”, and concluded that it precluded the application of both equitable and legal set-off.

Whilst the anti set-off clause in the SLA was not identical, the High Court found that the reference to “any” set-off also operated to exclude both equitable and legal set-off.  


This case does not establish new law but provides a good example of how the courts have robustly interpreted market standard anti set-off provisions of the kind discussed above. It will therefore be warmly received by both lenders and their lawyers as it provides welcome reassurance that such provisions should achieve their objective.

It’s worth noting, however, that such anti set-off provisions don’t defeat otherwise valid claims; they merely serve to ensure that such claims (if they exist) need to be pursued in separate actions.

In the case discussed above we refer to the unsuccessful attempt by the borrower to assert both legal and equitable set-off claims. But the world of set-off doesn’t end there and there are other categories of set-off – including insolvency set-off – which are mandatory in nature and cannot be varied by contract. Accordingly, anti set-off provisions, whilst very helpful, may only get you so far where there are dealings between contracting parties outside of insolvency, administration or bankruptcy.

And finally, the case discussed above concerned loans provided by a mezzanine finance house, whose typical product offering was described to the court as a hybrid of debt and equity. Perhaps part of the reason why problems arose is because the lender was a subsidiary of a company (called Accession Mezzanine Capital III (Jersey) Ltd (the “AMC III Fund”)) that received a warrant for 5% equity in the defendant, and among the transaction documents was a shareholders’ agreement to which AMC III Fund was party and which described the defendant as the “JVC”. Rightly or wrongly, the defendant argued therefore that this was a joint venture kind of arrangement, therefore informing the nature of the cross-claims asserted by the borrower in the litigation referred to above. As such, this case provides a good example of why anti set-off provisions are particularly important in loans where the creditor (or an affiliate of a creditor) has different interests in the wider capital structure of a transaction which is of course very often the case where mezzanine lenders are involved.

To read the full transcript of the case discussed above, please click here:

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