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Before the Supreme Court today and tomorrow is an appeal to a decision of the Scottish Court of Session, Inveresk plc v Tullis Russell Papermakers Limited [2009] CSIH 56 CA55/07. The issue in dispute is whether amounts claimed under two separate but related contracts between the parties – an acquisition agreement and a services agreement – can be set off against each other. As Lord Clarke noted at paragraph 51 of his judgment in the Court of Session, this concept, known as “retention” in Scotland, is similar to the law of set off in England and Wales.

The extent to which set off applies in multi-contract transactions is a common source of controversy. For example, just a few weeks ago Mr Justice Burton in the High Court had to consider whether an arbitrator had jurisdiction to determine set offs arising out of related contracts (see Norscot Rig Management PVT Limited v Essar Oilfields Services Limited [2010] EWHC 195 (Comm). The judgment of the Court of Session in Inveresk focused on analysing the mutuality of the obligations in question, and was heavily influenced by the fact that the parties choose to express them in separate contracts, which did not expressly provide for set off as between them. The Supreme Court’s views are eagerly awaited.