Westpac Banking Corporation v Zilzie Pty Ltd & Ors

This was an application for summary judgment on a claim to recover the amounts of debts due (namely $21,041,537.56), upon the first defendant’s failure to repay a loan and the others’ failures to pay sums guaranteed in respect of that loan. [3], [7], [8].

Counterclaim

In response, the defendants contended that they had a claim for damages, or compensation, or an account for the receivers’ breaches of duty, as agents of the plaintiff, in selling the first defendant’s property at undervalue. [16]. Specifically, it was alleged that the receivers failed to take reasonable care to sell the property for market value or the best price reasonably obtainable, [22] and that the plaintiff as principal was liable for the resultant loss and damage with regard to breaches of s 85(1) of the Property Law Act 1974 and/or s 420A(1) of the Corporations Act 2001 (Cth). [23]. It was further contended that the plaintiff engaged in unconscionable conduct in relation to the provision of financial services: see s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth). [24].

Importance of set-off

The plaintiff did not question the defendants’ real prospect of success on their counterclaim, instead seeking summary judgment on the basis that, regardless, success on any of the claims would not operate as a defence to their claim. [29]. Essentially, it argued that none of the possible liabilities in damages could be set-off against the first defendant’s liability to the plaintiff as principal debtor, nor to reduce the second to fifth defendants’ liabilities as guarantors, due to the plaintiff’s agreements with the first defendant as principal debtor and the second to fifth defendants as guarantors (to the effect that they would not raise a set-off in answer to a claim for the plaintiff’s debt, as outlined in no set-off clauses contained within the General Conditions Booklet).  [36], [43].

The set-offs alleged by the defendants were equitable and not liquidated claims. [42].

Effect of a no set-off clause

Relying upon Hausman v Abigroup Contractors Pty Ltd (2009) 29 VR 213, 219 [24]–[26] and Westpac Banking Corporation v Leckenby [2015] QSC 363, the plaintiff argued that an effective, clearly expressed no set-off clause will exclude equitable set-off of a claim for damages or compensation; an account for a breach of s 85 of the Property Law Act 1974; a contravention of s 420A of the Corporations Act 2001 (Cth); a contravention of s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth), or any reduction of the defendants’ debt as guarantor by reason of such a set-off. [47]. 

Notwithstanding that an identical clause was held to exclude set-off by the court in Westpac Banking Corporation v Leckenby [2015] QSC 363, the defendants contended that in any event, as a matter of construction, they retained a real prospect of succeeding against the plaintiff’s claim since the relevant clause did not exclude the set-offs relied upon. [49]. Specifically, they argued that since their counterclaims were for unliquidated damages, and not amounts that the plaintiff “owed” the defendants before judgment, then the no set-off agreement did not apply. [51].  Further, it was contended by the second to fourth defendants that as guarantors they made no explicit promise to forfeit their entitlements to rely on a right of set-off which the first defendant as principal debtor might have against the plaintiff as lender.  [54].  Finally, with reference to  Palaniappan v Westpac Banking Corporation [2016] WASCA 72 and O’Brien v Bank of Western Australia Ltd [2013] NSWCA 71, [12], [14], [16] and [110]–[112] the defendants submitted that a no set-off clause would be ineffective where a defendant’s claim to a set-off overtopped the amount of the plaintiff’s claim.  [56].

Rejecting those arguments, his Honour took the view that, properly construed, the no set-off clause operated to exclude a defence of equitable set-off for the first defendant and a defence of equitable set-off or reduction of liability on the guarantee based on such a set-off for the other defendants.  [57].

Section 85(5) of the Property Law Act 1974

The defendants claimed a real prospect of their successfully defending the plaintiff’s claim by set-off of their claims for damages under s 85(3) of the PLA for breach of duty under s 85(1), facilitated since s 85(5) avoided the no set-off clause relied upon by the plaintiff, to the extent that it would defeat a defence of set-off of those claims. [58].

Importantly, his Honour clarified that a no set-off clause does not alter the primary right to damages that a person has under s 85(3) for a breach of duty under s 85(1), nor suspend the liability of the mortgagee who breaches the duty under s 85(1) or the correlative right of the person who has such a claim to recover judgment.  It only precludes a person holding such a right from setting up the claim to it as a defence by way of set-off against the lender’s claim. [61]. He identified the critical question as being whether the defendants had a realistic prospect of successfully defending the claim on the basis that a clause which operates in that way purported to relieve the mortgagee from the duty imposed by s 85(1).  [62].

He formed the view that there was no reason to consider that s 85(5) was intended to operate so that a stipulation might be valid at the time when an agreement was made, but later circumvented due to facts subsequently arising – for example, in the event the financial position of the party promising not to raise a set-off in answer to the plaintiff’s claim was in decline. [72].

He held that the defendants had no real prospect of succeeding in their defences of the plaintiff’s claim because s 85(5) avoided the no set-off clause relied upon by the plaintiff. [84].

Section 1325 of the Corporations Act 2001

His Honour dismissed the first defendant’s claim of an entitlement to an order for an account or damages by way of compensation under s 1325 of the CA on the basis that the conduct complained of in the counterclaim was not that the receivers engaged in a contravention under any of the provisions to which s 1325(2) extended.

Unconscionable conduct

The defendants alleged that the plaintiffs engaged in unconscionable conduct under s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth), by making demand for payment of the debts owed without set-off and in breaching its equitable duty of care in exercising a power of sale. They sought damages under s 12GF of the ASIC Act.  That section requires that there is “conduct by another person that contravenes a provision of Subdivision C (ss 12CA to 12CC) or Subdivision D (ss 12DA to 12DN)”.  It is recognised that a claim of that kind does not operate outside the scope of a no set-off clause (see Palaniappan v Westpac Banking Corporation [2016] WASCA 72, [147]–[149]), at least where it is set up as a claim for damages.  [95].

It was further submitted that an order varying the relevant contracts to avoid the loss suffered from the unconscionable conduct might be made under s 12GM, despite no claim of that kind being contained in the pleadings.  To remedy that, the defendants sought leave to amend the counterclaim to add claims for relief under s 12GM.  [96].

The proposed s 12GM orders would enable the varied contractual terms to prevent the plaintiff from relying on the no set-off clause to repel the defendants’ claims of set-off or reduction of liability. [99].

Whilst his Honour was of the view that the plaintiff’s application was not presently viable, he allowed the defendants the opportunity to plead any loss or damage which might engage the power of the court to make the proposed s 12GM orders. [119]. The parties were heard further as to the orders to be made to give effect to his reasons.