Surgo Construction Limited v PlanET Biogastechnik GMBH

Citation: [2019] EWHC 2310 (TCC)

This judgment concerned an application for summary judgment made by the claimant.

Between July 2013 and October 2015, the claimant engaged the defendant under separate contracts to complete works relating to the supply and installation of anaerobic digestor power plants. During the course of these works, the defendant mistakenly charged £1,177,478.12 in VAT to the claimant which the claimant paid. The mistake was discovered in 2016, and it was agreed between the parties that the defendant had no right to charge VAT to the claimant.

VAT was correctly due on the relevant supplies, but the sum should have been paid by the claimant directly to HMRC. The defendant, having wrongly received the VAT, accounted for it to HMRC and thus became entitled to reclaim it. They recovered £1,226,014.21 and agreed that this should result in a repayment of £77,029.47 to the claimant. However, it sought to retain the remainder on the basis that it was owed to it by the claimant.

On, 26 February 2019, the claimant issued a claim for repayment of the VAT it paid in the sum of £1,100,448.65, giving credit for the sum already paid. On 9 May 2019, the claimant issued an application for summary judgment.

The defendant alleged that it was owed £859,457.60 by the claimant, and identified the claim to retain the benefit of the VAT monies paid as arising under an equitable set-off or a statutory (or legal) set-off.

Following a hearing on 12 July 2019, HHJ Bird QC gave judgment, partially granting the claimant’s application for summary judgment in the sum of £563,053.42 but refusing it for the balance of £537,395.23.

The Judge rejected the defendant’s entitlement to an equitable set-off but accepted that it had reasonable prospects of success based on a legal set-off in respect of some of its counterclaims.

The equitable set-off failed because the defendant’s claims were not so closely connected to the claimant’s claim for repayment of the VAT so as to raise “manifest injustice” sufficient to prevent the repayment of the sums paid as VAT.

The legal set off succeeded in that the defendant had reasonable prospects of establishing at trial that the sums held by the claimant as retention were capable of being set off against the sum claimed. These debts were sufficiently liquidated and, when compared with those for wrongly paid VAT, were mutual debts between the same parties.  There was thus a reasonable prospect of the Court finding that the sums were due and payable. The Judge was also satisfied that the cost of servicing the bond, £34,364.33, was a liquidated sum, that there was mutuality, and that there was a reasonable prospect at trial of the court finding that the sum was due.

However, the Judge was not satisfied that the defendant’s other counterclaims (for the principal value of the bond and the cost of certain additional works) had reasonable prospects of success at trial.

The Judge rejected the claimant’s argument that, because the original payments had been allocated to payment of VAT, the rules of appropriation prevented the defendant subsequently allocating them to other debts.

He therefore gave partial judgment for the claimant.


William Webb acted for the Claimant.

Gideon Scott Holland acted for the Defendant.

Full Judgment


William Webb
Gideon Scott Holland

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