MAK Industrial Water Solutions Pty Ltd v Doherty [No 2]

In MAK Industrial Water Solutions Pty Ltd v Doherty [No 2], the Full Court of the Federal Court of Australia was tasked with addressing the legal principles surrounding equitable set-off in the context of a contractual dispute. MAK Industrial Water Solutions Pty Ltd, the plaintiff, sought summary judgment against Doherty, the defendant, for various breaches of contract and fiduciary duty. The defendant attempted to resist the plaintiff's application for summary judgment by invoking the doctrine of equitable set-off, asserting that the plaintiff's claims were countered by the defendant's counterclaims which, if proven, would equal or exceed the plaintiff's claim. The central legal issue before the court was whether the defendant's counterclaims sufficiently met the criteria for equitable set-off so as to defeat the plaintiff's summary judgment application. Specifically, the court had to determine if the defendant's claims were closely connected to and impeaching of the plaintiff's entitlement to its claims, and if the defendant had provided sufficient evidence to enable the court to assess the likely quantum of its counterclaims.

The Full Court of the Federal Court of Australia, in its judgment, reaffirmed the established legal principles governing equitable set-off. It held that for a set-off to be recognised, the countervailing claims must be closely connected to and challenge the plaintiff's claims to such an extent that they impeach the plaintiff's entitlement. The court emphasised that the mere existence of cross-claims does not suffice; there must be a recognised equitable ground for protection. Furthermore, the court underscored that in resisting a summary judgment application based on set-off, the defendant must provide evidence that allows the court to make an informed assessment of the likely quantum of the counterclaims. In this case, the court found that the defendant's counterclaims were not sufficiently connected to the plaintiff's claims to qualify as equitable set-off, as they did not directly challenge the plaintiff's entitlement or meet the criteria for equitable intervention. Additionally, the evidence provided by the defendant was deemed insufficient to enable an assessment of the likely quantum of the counterclaims.

Consequently, the Full Court dismissed the defendant's attempt to resist summary judgment by invoking equitable set-off. The court granted the plaintiff's application for summary judgment, finding that the defendant had failed to establish an arguable defence on the basis of set-off. The court ordered that the plaintiff's claims were to be determined on their merits, and that the defendant's counterclaims would be considered at a later stage in the proceedings if they were pursued further. This decision underscores the stringent requirements for invoking equitable set-off in the context of contractual disputes and the necessity for defendants to provide robust evidence to support their claims when resisting summary judgment.