In Howe v Leck Holdings Limited [2024] EWHC 1842 (Ch), Joanna Smith J on 14 June 2024 said, at paragraphs 23 and 24:

'The test for an equitable set off is not in dispute. It was stated in the case of Geldof Metaalconstructie Nv v Simon Carves Ltd [2010] EWCA (Civ) 667 per Rix LJ at 43 and was repeated by the Court of Appeal in Bibby Factors North West Limited v HFD Ltd [2016] 1 Lloyd's Rep 517 per Christopher Clarke LJ at 37 as follows:

"There is a single test for equitable set off but it has two elements. The composite test is whether the cross-claim is so closely connected with (the plaintiff's) demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim. As Rix LJ put it in Geldof at paragraph 43(4), it is not coherent to have a doctrine of equitable set off which ignores the need for consideration of aspects of justice and fairness."

In Geldof, the close connection element of the test was described as the formal requirement, while the justice element was described as a functional requirement. At paragraph 43(v) Rix LJ said this:

"Although the test for equitable set off plainly therefore involves considerations of both the closeness of the connection between claim and cross-claim and of the justice of the case, I do not think that one should speak in terms of a two-stage test. I would prefer to say that there is both a formal element in the test and a functional element. The importance of the formal element is to ensure that the doctrine of equitable set off is based on principle and not discretion. The importance of the functional element is to remind litigants and courts that the ultimate rationality of the regime is equity. The two elements cannot ultimately be divorced from each other. It may be that at times some judges have emphasised the test of equity at the expense of the requirement of close connection, while other judges have put the emphasis the other way round.”'

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