Law Report: Cancelling direct debit was like dishonouring cheque

Esso Petroleum Co Ltd v Milton; Court of Appeal (Lord Justice Simon Brown, Lord Justice Thorpe, Sir John Balcombe) 5 February 1997

A payment by direct debit, like a payment by cheque, was to be treated as equivalent to cash, in that no defence of set-off should be available to a person sued for breach of a contract under which such payments were to be made for goods already supplied.

The Court of Appeal (Lord Justice Simon Brown dissenting on the above point) allowed an appeal by the plaintiff, Esso Petroleum Co Ltd, against the decision of Judge Anthony Thompson QC, sitting as a deputy High Court judge in Exeter on 21 June 1996, who dismissed Esso's application for summary judgment against the defendant, Howard James Milton, for pounds 167,885.81

The defendant was the licensee of two of Esso's service stations, which he occupied and managed under successive three-year agreements. It was a condition of these agreements that he bought all his fuel from Esso and that he paid for it by direct debit.

The price at which he sold the fuel was fixed by Esso. In 1996 Esso began its "price watch" initiative to help it compete with supermarket chains who had begun to sell cut-price petrol. Esso lowered its prices and increased the rents charged to its licensees. The defendant complained that he could not continue profitably to run his service stations. He took the view that the business relationship between them was over.

Between 1 and 9 April 1996 Esso made 12 fuel deliveries to the two service stations. On 9 April the defendant cancelled the direct debit instruction by which such deliveries were paid for. Esso gave the defendant notices purportedly terminating his licence agreements and sued him for the outstanding payments for fuel already delivered.

Esso's application for summary judgment was refused, however, and the defendant was granted unconditional leave to defend. He admitted Esso's claim but counterclaimed for damages for repudiatory breach of contract, which damages he sought to set off in extinction of Esso's claim.

Esso argued that no such right of equitable set-off was available. Under the direct debit scheme the debtor should be subject to the same restrictive rules, as to the stay of judgments and the scope of defences, which applied with regard to dishonoured cheques. Reliance was placed on Nova (Jersey) Knit Ltd v Kammgarn Spinneri GmbH [1977] 1 WLR 713 in which the House of Lords refused to allow a plaintiff's action upon a dishonoured bill of exchange to be stayed pending the resolution of the defedant's counterclaim for unliquidated damages: see per Lord Wilberforce at p 721.

The defendant's case was that a distinction should be made between the debtor's mandate and the creditor's request for payment under the direct debit system: the mandate did not constitute a cheque; and the request, far from being a signed instrument equivalent to cash provided by the debtor, was drawn rather by the creditor. What the defendant had done was to dishonour a promise, not a cheque.

Mark Hapgood QC (Irwin Mitchell, Sheffield) for Esso; Michael Soole (Anstey Sargent & Probert, Exeter) for the defendant.

Lord Justice Thorpe accepted Esso's argument on the direct debit issue. Whilst conscious of the difficulties and dangers involved in such an extension, his Lordship believed it was consistent with the principle stated by Lord Wilberforce in 1977. Where goods were effectively sold for cash, the seller should have the security that cash brought when for mutual convenience the parties had adopted the banking mechanisms in general usage for the transfer of cash from one account to another.

Twenty years ago that was still by cheque. Theoretically the tanker driver could demand a signed cheque on arrival for an amount to be written in when ascertained by completion of the fuel delivery. But Esso's daily petrol sales varied between pounds 9m and pounds 20m and the modern mechanism for handling what were effectively cash sales on that scale was the direct debit system.

It seemed a natural evolution, rather than an extension, of the Nova Knit principle to hold that the seller of goods for cash transferred by the direct debit mechanism should be in no worse a position that if he had accepted a cheque on delivery.

In this case justice was not required to safeguard the defendant's cash flow pending trial of his claim against Esso.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs People

Recruitment Genius: Office Manager

Negotiable: Recruitment Genius: Have you been doing a brilliant job in an admi...

Surrey County Council: Senior Project Officer (Fixed Term to Feb 2019)

£26,498 - £31,556: Surrey County Council: We are looking for an outgoing, conf...

Recruitment Genius: Interim Head of HR

£50000 - £60000 per annum: Recruitment Genius: Are you an innovative, senior H...

Recruitment Genius: Human Resources and Payroll Administrator

£20000 - £22000 per annum: Recruitment Genius: Our client, a very well respect...

Day In a Page

War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?