Queensland Judgments
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Davis & Anor v Perry O'Brien Engineering Pty Ltd & Ors (No. 2)

Unreported Citation:

[2023] QSC 281


This case considered the circumstances in which equitable set-off was available where there was no mutuality of debts. The plaintiffs succeeded in three claims against the first defendant, while the second and third defendants were successful in a counterclaim against the plaintiff. The Court held that, in equity, mutuality of debts was an important, but not necessary factor going to the availability of set-off. The plaintiffs were entitled to a set-off of two of their claims in circumstances where the amount of damages for the counterclaim was determined, in part, by reference to the value of those two of the plaintiff’s claims.

Applegarth J

8 December 2023

Judgment in this proceeding was given on 1 November 2023: Davis v Perry O’Brien Engineering Pty Ltd [2023] QSC 243. The dispute involved various transactions entered into between the parties, most notably, a share sale agreement. The plaintiffs were successful against the first defendant in three claims. [1]. The first was a debt claim in respect of a loan of $120,000. [1]. The second was a claim for an account by the first defendant of the proceeds of sale of certain stock. [1]. The third was a claim for damages for breach of an oral agreement for $299,152. [1]. The second and third defendants were successful in a claim against the plaintiffs for misleading or deceptive conduct and damages were assessed at $1,646,798. [1]. The plaintiffs sought an equitable set-off of the claims, which the defendants resisted.

Set-off in equity requires that the amount being set off “impeaches” the claim. [39]. There must be “such a connection between the claim and the cross-claim that the cross-claim can be said to impeach the claim so as to make it unfair for the claim to be allowed without taking account of the cross-claim”. [39]. Generally where, as here, there is not an identity of parties to the relevant claims, it will not usually be just to allow a set-off. [49]. However, mutuality of that kind, is an important but not an indispensable requirement in equity. [40], [48]. The question, in the present case, was whether the claims were so closely connected that the plaintiffs’ claims impeach the counterclaim such that it would be unfair to enforce the counterclaim without taking into account one or more of the claims. [55].

The Court held that there should be set off in respect of the first two of the plaintiffs’ claims. The counterclaim was for breach of contract and misleading or deceptive conduct in relation to a share sale agreement. The quantum of damages turned on the price the buyers paid for shares under the relevant agreement and the actual value of the shares. [64]. The price that the buyers agreed to pay for the shares, took account of the $120,000 liability which was the subject of the plaintiff’s first claim. [64]. If the liability did not exist, the plaintiffs would have demanded $120,000 more for the purchase of the shares, and the quantum of the counterclaim would have been adjusted accordingly. [64]. As such, there was a sufficient connection between the plaintiffs’ first claim and the counterclaim that there could be set-off in equity. [66]. The second claim was in a similar position, as the amount of that claim (which would be determined on an account) was directly referrable to the amount of damages on the counterclaim. [67]–[69]. Set-off was also available in respect of this second claim. [69].

The third claim was in a different position. Although the contract giving rise to the claim was factually connected with the counterclaim, it was not sufficiently connected to impeach the counterclaim and make it unfair that the two debts be enforced separately. [79].

L Inglis

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