Mayfield Family Wines Pty Ltd v Growers Wine Group Pty Ltd - [2021] SASC 55

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal to a Single Judge)
MAYFIELD FAMILY WINES PTY LTD v GROWERS WINE GROUP PTY LTD
[2021] SASC 55

Judgment of the Honourable Justice Blue
17 May 2021

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - ENDING PROCEEDINGS EARLY - SUMMARY DISPOSAL - SUMMARY JUDGMENT FOR PLAINTIFF OR APPLICANT
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - CROSS-CLAIMS: SET-OFF AND COUNTERCLAIM - SET-OFF - WHAT MAY BE SET-OFF - EQUITABLE SET-OFF - UNLIQUIDATED DAMAGES
Appeal against dismissal by a Master of an application by the appellant for summary judgment on a counterclaim against the respondent for $3,289,147 in a proceeding in which the respondent sues the appellant and its director Mr Mayfield for damages.
The sole issue on the summary judgment application was whether there is no reasonable basis for defending the appellant's counterclaim on the basis of an equitable set-off of the damages sought in the respondent’s claim.
Held (dismissing the appeal):
1.It is not reasonably arguable by the respondent that the impeachment of title test is no longer a criterion for the existence of equitable set-off in Australia (at [78]).
2.It is reasonably arguable by the respondent that, in assessing whether the impeachment of title test is satisfied, there are pre-requisites that there is a connection between the primary claim and offsetting claim, regard is to be had to the nature and degree of that connection, and the connection must be such that it would be unjust (as opposed to unconscionable) for the applicant to insist on its legal right under its primary claim without accommodating the offsetting claim (at [80]-[81]).
3.It is reasonably arguable by the respondent, and it has a reasonable basis for defending the counterclaim on the ground, that it is entitled to an equitable set-off in respect of at least some of the causes of action pleaded in its claim (at [90]-[95]).
4.Appeal dismissed (at [96]).

Corporations Act 2001 (Cth) ss 181 and 182; Sale of Goods Act 1895 (SA) s 52(1)(a), referred to.
Adelaide Brighton Cement Pty Ltd v Hallett Concrete Pty Ltd [2020] SASC 161; AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705; Bankes v Jarvis [1903] 1 KB 549; Edmunds v Westland Bank Ltd [1991] 2 NZLR 655; Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] QB 927; Forsyth & Anor (as trustees for the C&S Forsyth Superannuation Fund) v Gibbs [2008] QCA 103; Geldof Metaalconstructie NV v Simon Carves Limited [2010] EWCA Civ 667; Goldsmith & Anor v AMP Life Limited [2021] QCA 20; Grant v NZMC Ltd [1989] 1 NZLR 8; Hanak v Green [1958] 2 QB 9; Hawes v Dean [2014] NSWCA 380; Hill Corcoran Constructions Pty Ltd v Navarro [1992] QCA 17; Hill v Ziymack (1908) 7 CLR 352 ; HP Mercantile Ltd v Dierickx (2013) 306 ALR 53; Norman; in the matter of Forest Enterprises Limited v FEA Plantations Limited (2011) 195 FCR 97; Rawson v Samuel (1841) Cr & Ph 161, considered.

MAYFIELD FAMILY WINES PTY LTD v GROWERS WINE GROUP PTY LTD
[2021] SASC 55

BLUE J: The appellant, Mayfield Family Wines Pty Ltd (MFW), has brought a counterclaim against the respondent, Growers Wine Group Pty Ltd (GWG), in a proceeding in this Court in which GWG sues MFW and Ross Mayfield for damages for amongst other things misleading conduct.
MFW’s counterclaim includes a claim (in the alternative to a claim for conversion) for $3,289,147[1] for wine sold by it to GWG. GWG in its defence to counterclaim admits this claim subject to a set-off of $185,770 (which MFW admits) and a set-off of damages the subject of GWG’s claim (which MFW denies).
[1] All dollar figures are rounded to the nearest whole dollar.
MFW applied for summary judgment against GWG for $3,289,147 based on GWG’s admission and a contention that, accepting GWG’s pleadings for the purpose of the summary judgment application (analogous to a demurrer), the claimed set-off for damages is not available at common law or in equity.
The sole issue on the summary judgment application was whether there is no reasonable basis for defending MFW's counterclaim on the basis of an equitable set-off of the damages sought in GWG’s claim.
A Master dismissed MFW’s summary judgment application. MFW appeals against that dismissal.
Background
The facts set out below are based on the pleadings. On the summary judgment application, MFW did not adduce any evidence concerning the underlying facts but relied on GWG’s pleadings. GWG relied on an affidavit by its chief executive officer which supplemented its pleadings but also relied principally on its pleadings. MFW conducted its case on the summary judgment application on the assumption that GWG would establish the facts alleged in its pleadings. However, some of those facts are contested and findings will ultimately need to be made at trial in relation to them. Accordingly, the facts set out below do not represent the ultimate factual position that may be found for the purpose of the proceeding more generally.
MFW at all material times had Mr Mayfield as its sole director and his wife, Regan Mayfield, as its sole shareholder. MFW carried on business as a grower, buyer and seller of wine grapes and a producer, buyer and seller of wine. I refer to MFW and Mr and Mrs Mayfield collectively as the Mayfield group.
GWG at all material times was a subsidiary of Growers Wine Group Investments Pty Ltd (GWG Investments), which in turn was trustee of the Growers Wine Group Unit Trust (the GWG Trust). The shares in GWG Investments and the units in the GWG Trust were held in the same proportions by five grower producers or persons or entities associated with them. The directors of GWG and GWG Investments were at all material times up to October 2019 persons associated with each of the five grower producers. During submissions on the appeal, MFW described GWG as being colloquially a cooperative of grower producers. It was essentially a cooperative in that it was owned and controlled by the grower producers who shared the benefits and profits of its operations.
The Mayfield group was one of the five grower producers. Mr Mayfield was a director of GWG and GWG Investments. Mrs Mayfield held 12 per cent of the shares and units in GWG Investments and the GWG Trust. At all material times Mr Mayfield was the managing director, later renamed the chief executive officer, of GWG.
GWG operated a winery in the Riverland. It carried on business of crushing grapes and making wine for its grower producers and also for external contract customers for domestic and export wine sales. At all material times until August/September 2019, it held an export licence issued by Wine Australia. In addition to being a contract winery, GWG purchased bulk wine and sold bulk wine in Australia and overseas.
GWG offered preferential treatment to its five grower producers. They were entitled to a pro rata share of the winery’s nominal crushing capacity of 25,000[2] tonnes per vintage at a preferential rate. For example, Mrs Mayfield was entitled to crush 3,000 tonnes per vintage, being 12 per cent of the total, and she utilised this crushing entitlement for MFW. The preferential rate differed between white wine and red wine and was adjusted from time to time. It was a lower rate than that charged to external contract customers or to internal customers in respect of crushing in excess of their entitlement.
[2] All tonnage figures are rounded to the nearest whole tonne.
GWG also charged its contract customers for wine processing beyond what was covered by “crushing”, storage, transport, government levies and other services and disbursements.
GWG on occasions purchased bulk wine from its grower producers and sold that bulk wine in Australia and overseas.
Claim: misdescribed wines
2016 and 2017 Langhorne Creek shiraz
In 2017 MFW delivered to GWG for processing shiraz grapes, which GWG crushed and made into 398,414 litres of wine for the Mayfield group. MFW had purchased the grapes from a grower at Langhorne Creek.
In 2017 and 2018 MFW sold the shiraz wine to GWG as Barossa Valley shiraz, principally for $3.65 per litre. In fact, the wine was Langhorne Creek shiraz.
GWG pleads that MFW by its director Mr Mayfield represented to it that the grapes were sourced from the Barossa Valley when in fact they were sourced from Langhorne Creek. GWG claims that, if it had known that it was Langhorne Creek wine, it would only have paid $1.75 per litre. It claims that a similar misrepresentation was made in relation to 10,663 litres of 2016 wine.
Mr Mayfield admits making false representations about the 2016 and 2017 wine but pleads that GWG did not rely on the representations and knew the true position.
GWG claims as loss and damage against MFW a difference of $699,992 between the purchase price of the 2016 and 2017 wine and its true value. It also claims damage which varies between two separate parcels of the 2017 wine summarised below.
Wine exported to Germany
GWG blended 53,105 litres of the MFW shiraz wine with Barossa Valley shiraz obtained from other sources to make 600,000 litres of wine. GWG sold the 600,000 litres of wine to a purchaser in Germany as Barossa Valley shiraz, thereby representing that it contained at least 85 per cent wine sourced from the Barossa Valley. In fact, it contained more than 15 per cent Langhorne Creek wine.
GWG claims that it suffered loss in respect of this parcel being exposure to claims for breach of contract by its German purchaser (which is presently withholding €700,000 otherwise owing to GWG on account of its claim). It claims that it also suffered loss as a result of loss of its export licence in August 2019 caused in part by the misrepresentation to the German purchaser.
Wine blended with Tanunda Hill wine
In 2017 GWG crushed and processed 320 tonnes of Barossa Valley shiraz grapes into wine for Tanunda Hill Pty Ltd (Tanunda Hill).
In 2017, at the direction of Mr Mayfield, GWG blended 385,364 litres of the MFW 2017 Langhorne Creek shiraz referred to above with Tanunda Hill shiraz wine and shiraz wine owned by Blaxland Wine Group. The blended wine contained 33 per cent Langhorne Creek shiraz and consequently could not be sold as Barossa Valley shiraz. Tanunda Hill’s original wine was Barossa Valley shiraz.
GWG returned Tanunda Hill’s share of the blended wine to Tanunda Hill. Tanunda Hill has claimed $272,100 damages from GWG as a result of unauthorised and wrongful blending of the wine by GWG, claiming the difference between the value of its Barossa Valley shiraz wine of $3.50 per litre and the average sale price of the blended wine of $1.56 per litre.
GWG claims against MFW loss and damage being its liability to Tanunda Hill for damages.
2016 dry red wine
In 2017 MFW delivered to GWG 1,248,328 litres of 2016 dry red wine for processing for the Mayfield group.
In 2017 MFW sold the wine to GWG as 2016 shiraz at an average price of $0.88 per litre. In fact, the wine was dry red wine because it had not been made from at least 85 per cent shiraz grapes.
GWG pleads that MFW by its director Mr Mayfield represented to it that the wine was shiraz when in fact it was sourced from more than 15 per cent non-shiraz grapes.
MFW and Mr Mayfield admit making false representations about the wine but plead that GWG did not rely on the representations and knew the true position.
GWG claims that, if it had known that it was dry red wine, it would only have paid $0.70 for the wine. GWG claims against MFW as loss and damage the difference of $143,017. GWG claims that it also suffered loss and damage being exposure to claims for breach of contract by its customers who purchased the wine.
Claim: uncharged fees
Uncharged receival and storage fees
Between 2012 and 2018 GWG received and stored bulk wine that had been purchased by MFW from third parties. GWG generally charges its customers a receival fee of $0.03 per litre and storage fees per litre per unit of time.
GWG did not render invoices to MFW for receival or storage fees in respect of bulk wine purchased by MFW from third parties. GWG claims that this was the result of directions by Mr Mayfield in contravention of his director’s duties under sections 181 and 182 of the Corporations Act 2001 (Cth) (the Corporations Act) and that MFW was a beneficiary of and involved in the contraventions.
MFW and Mr Mayfield plead that MFW was entitled not to be charged receival and storage fees as a term of Mr Mayfield’s employment as chief executive officer.
GWG claims from MFW as damages receival and storage fees that were not invoiced totalling $408,734.
Undercharged crushing fees
In 2016 MFW delivered to GWG for crushing 8,313 tonnes, being 5,313 tonnes in excess of the Mayfield group’s crushing entitlement and in 2017 MFW delivered to GWG for crushing 9,602 tonnes, being 4,602 tonnes in excess of the Mayfield group’s crushing entitlement.
GWG charged MFW at the preferential crushing rate for the whole of the deliveries rather than only for the first 3,000 tonnes in 2016 and first 5,000 tonnes in 2017. The difference between the preferential crushing rate and the average commercial crushing rate (the ordinary rate) for the excess tonnes was $313,545.
GWG pleads that the preferential charging was the result of directions by Mr Mayfield in contravention of his director’s duties under sections 181 and 182 of the Corporations Act and that MFW was a beneficiary of and involved in the contraventions.
MFW and Mr Mayfield claim that the board of GWG authorised MFW being charged at the preferential crushing rate for all tonnage delivered.
GWG claims from MFW as damages undercharged crushing charges that were not invoiced totalling $313,545.
Claim: diverted wine sales
GWG pleads that in February 2017 the parties entered into a Wine Pool Agreement under which it was agreed that GWG’s grower producers would contribute all of the wine produced from grapes crushed under their crushing entitlements (except the Mayfield group’s cool climate wine) to be pooled to enable GWG to make its wine sales in each vintage year. MFW and Mr Mayfield deny this agreement.
In 2018 MFW removed 531,214 litres of 2018 cabernet, chardonnay, sauvignon blanc and shiraz from GWG’s winery and sold it to third parties.
In 2018 MFW removed 327,119 litres of 2018 gordo from GWG’s winery, blended it with other wine to make 500,000 litres of non-vintage dry red and sold the dry red to Dorrien Estate Winery (Dorrien). MFW also sold 380,000 litres of non-vintage dry white and 250,000 litres of non-vintage cabernet sauvignon to Dorrien.
In 2018 MFW removed 534,688 litres of 2018 pinot noir from GWG’s winery and blended it with other wine to make 578,000 litres of 2018 pinot noir and sold it to Wine Movement Pty Ltd (Wine Movement).
GWG pleads that the removal of the 2018 cabernet, chardonnay, sauvignon blanc, shiraz, gordo and pinot noir wine was in breach of the Wine Pool Agreement.
GWG pleads that approaches were made by each of Dorrien and Wine Movement to GWG for GWG potentially to supply the wine in question and Mr Mayfield diverted this opportunity to MFW in respect of the 500,000 litres of non-vintage dry red, 380,000 litres of non-vintage dry white and 250,000 litres of non-vintage cabernet sauvignon sold to Dorrien and the 578,000 litres of 2018 pinot noir sold to Wine Movement.
GWG pleads that in each case Mr Mayfield acted in contravention of his director’s duties under sections 181 and 182 of the Corporations Act and MFW was a beneficiary of and involved in the contraventions.
GWG claims that MFW’s conduct in respect of the 2018 cabernet, chardonnay, sauvignon blanc and shiraz caused it a loss of $78,686 being the difference between its purchase prices to buy that quantity of wine and the prices it would have paid to MFW pursuant to the pooling agreement.
GWG claims that MFW’s conduct in respect of the wine sold to Dorrien and Wine Movement caused it unquantified losses being the opportunity to profit from the supply of the wine to Dorrien and Wine Movement.
Counterclaim: Purchase of wine by GWG from MFW
Between August 2018 and December 2019 GWG issued 73 purchase orders to MFW for a total of $3,289,147 in respect of bulk wine held at GWG’s winery belonging to MFW. Shortly after issuing each purchase order, GWG sold the wine the subject of that purchase order to a third party.
MFW pleads that GWG converted the wine by selling it to third parties because it was not authorised by MFW to do so and had not purchased the wine from MFW.
Between January and August 2019 MFW issued invoices to GWG for the wine the subject of GWG’s purchase orders in matching quantities at matching prices totalling $2,981,925, except for the last 10 purchase orders issued by GWG totalling $307,221.
In its counterclaim, MFW claims damages in conversion being the market value of the allegedly converted wine and in the alternative $3,289,147 in contract.
In its defence to counterclaim, GWG admits that it owes $3,289,147 to MFW for the purchase of the wine the subject of the purchase orders but pleads the defences of set-off described above.
The Master’s reasons for decision
The Master summarised the facts, addressed the criterion for summary judgment under rule 232(2)(a) of the Supreme Court Civil Rules 2006 (SA) and addressed the criteria for equitable set-off. After surveying the cases on set-off cited by the parties, the Master summarised the law in the following passage:
Relevantly for present purposes, the following principles can be extracted from the cases discussed above:
1.The off-setting claim must impeach the title of the principal claim.
2.An equitable set-off may arise in the cross-claim does not arise out of the same contract pursued in the claim.
3.An equitable set-off may arise when the claims and cross-claims arise from different, but closely connected, contracts arising out of a long-term trading relationship.
4.A claim may be impeached in circumstances where it would be unconscionable to allow one party to insist on their strict legal rights without first accommodating the other’s countervailing legal right.
The Master turned to the facts and expressed his conclusion in the following terms:
The parties had an ongoing trading relationship for a number of years. The fact that the claim and counterclaim arise out of different transactions that arose during the trading history appears to be of no real consequence.
If at trial the plaintiff makes good the factual matters pleaded in the Statement of Claim, then it will be found that the defendants engaged in deliberate and persistent fraudulent conduct causing loss to the plaintiff. Whether the plaintiff makes good the allegations is a matter for trial. At an interlocutory stage, all the Court can do is proceed on the assumption that the claim can be made good.
The issue becomes whether the plaintiff’s success in the unliquidated damages claim creates a circumstance in which it can be said the second defendant’s title to its claim is impeached. The plaintiff asserts it would be unjust to enter judgment at the moment and disregard its counterclaim. The term “unjust’ is used in some cases, but is apt to import a subjective judgment as to the justice of a matter. The Court is dealing with an equitable setoff and, accordingly, it is better to proceed with the consideration of equitable principles. Equity intervenes to prevent unconscionable conduct.
…
Unconscionability is fact-sensitive. It is not something well-suited to determination at an interlocutory stage. Nonetheless, it appears apparent that it must at least be strongly arguable in the circumstances set out in the pleadings that it would be unconscionable for the second defendant to insist on payment of its invoices in circumstances where its misconduct may have caused significant loss and damage to the plaintiff. That being so, the plaintiff has established a reasonable basis for the setoff.
Principles in determining summary judgment application

Both parties accept that the Master accurately set out the principles that apply to determining a summary judgment application.
Rule 232 of the Supreme Court Civil Rules 2006 (SA), to which the Master referred, provided:
232—Summary judgment
(1)     The Court may, on application by a party, give summary judgment for that party.
(2)     Summary judgment may only be given if the Court is satisfied that—
(a)     if the applicant is a plaintiff—there is no reasonable basis for defending the applicant's claim; or
(b)     if the applicant is a defendant—there is no reasonable basis for the claim against the applicant.
The interlocutory application was filed before the commencement of the Uniform Civil Rules 2020 (SA), but was heard after their commencement. The parties do not contend that the Master should have applied the new Rules and in any event it is common ground that rule 144.2 of the new Rules is in similar terms insofar as it addresses summary judgment on a claim.
The Master referred to Adelaide Brighton Cement Pty Ltd v Hallett Concrete Pty Ltd.[3] In that case, Doyle J said:
By way of summary of the approach articulated in Spencer v Commonwealth, it can be said that the power to determine a claim summarily should not be exercised lightly. Exercise of the power requires a practical assessment of whether the applicant has real, as opposed to merely fanciful, prospects of success. While the Court need not be satisfied that the claim is hopeless or bound to fail, nevertheless it must be cautious not to do a party injustice by summarily determining an action, particularly where there are disputed issues of fact or law or mixed fact and law, merely because the Court considers that the claim is unlikely to succeed. However, beyond these very general guidelines, the Court should focus upon the words used in the rules and avoid applying any judicial gloss.
Related to the requirement that the Court undertake a practical assessment is the notion that the Court should not embark upon a mini trial of the claim. Rather, the claim should be assessed in a summary manner, while being cognisant of the incomplete nature of the evidence upon which the Court’s decision must be based. Adversarial argument may assist, and indeed may result in the emergence of a sufficiently clear answer to a complex issue that summary judgment is appropriate. On the other hand, the need for prolonged argument may be indicative of a reasonable basis for the claim.[4]
[3] [2020] SASC 161.
[4] At [59]-[60]. (Footnotes omitted)
The criteria for equitable set-off
It is common ground on appeal that, in contrast to “common law” set-off,[5] there can be a set-off in equity between claims regardless of whether they are liquidated or unliquidated. In particular, there can be a set-off between a debt (as in the case of MFW’s claim) and an unliquidated damages claim (as in the case of GWG’s claim).
[5] Under the Statutes of Set-Off 2 Geo II chapter 22 (1729) section 13 and 8 Geo II chapter 24 (1735) sections 4 and 5 received under the common law as part of the law of South Australia in 1836.
MFW contends that, for there to be an equitable set-off, the claim sought to be set-off (the offsetting claim) must impeach the applicant’s title to the claim against which the offsetting claim is sought to be set-off (the primary claim); the two claims must arise out of the same contract or the same relationship; and it must be unconscionable for the applicant to insist on its legal right under its primary claim without first accommodating the countervailing offsetting claim. MFW contends that the Master correctly formulated the test but failed to apply it to the facts.
GWG takes issue with this contention. Its highest contention is that the impeachment of title test has been discarded in England in favour of a requirement that there be a sufficient connection between the two claims and it would be unjust for the applicant to insist on its legal right under its primary claim without accommodating the offsetting claim and the same approach should now be taken in Australia or at least, in the context of a summary judgment application, this is reasonably arguable.
GWG contends in the alternative that, if the impeachment of title requirement is retained in Australia, it is satisfied if there is a sufficient connection between the two claims and it would be unjust for the applicant to insist on its legal right under its primary claim without accommodating the offsetting claim or at least, in the context of a summary judgment application, this is reasonably arguable.
GWG contends that, whichever be the test (including MFW’s formulation of the requirements), it is satisfied in the present case or at least, in the context of a summary judgment application, this is reasonably arguable.
In Rawson v Samuel[6] Lord Cottenham LC said:
We speak familiarly of equitable set-off, as distinguished from the set-off at law; but it will be found that this equitable set-off exists in cases where the party seeking the benefit of it can shew some equitable ground for being protected against his adversary’s demand. The mere existence of cross-demands is not sufficient …
Several cases were cited in support of the injunction; but in every one of them, except Williams v. Davies, it will be found that the equity of the bill impeached the title to the legal demand.[7]
[6] (1841) Cr & Ph 161 (41 ER 451).
[7] At 178, 179.
In Bankes v Jarvis[8] Jarvis in 1895 assigned a house lease to Bankes, who covenanted to pay the rent and indemnify Jarvis against liability (which transaction was connected with the sale of Jarvis’ veterinary practice to Bankes). In 1901 Bankes, by the agency of his mother, sold the veterinary practice to the defendant for £100. Bankes’ mother sued Jarvis for £50 being the balance of the purchase price of the practice. The Court of Appeal held that Jarvis could set-off in equity his claim for damages against Bankes for breach of the covenant in relation to the lease.
[8] [1903] 1 KB 549.
In Hill v Ziymack[9] Griffiths CJ (with whom Barton J agreed) quoted with apparent approval from the judgment of Lord Cottenham LC in Rawson v Samuel, including the passages extracted above.
[9] (1908) 7 CLR 352 at 360-362.
In Hanak v Green[10] Morris LJ (with whom Hodson LJ agreed) said:
In Bankes v Jarvis…[i]t was held that the defendant could set up as a defence to the claim against him that the plaintiff’s son (the cestui que trust of the plaintiff) was indebted to the defendant in a sum for unliquidated damages exceeding the amount of the claim.
The conclusion seems to me to be clearly correct and obviously fair. It would have been manifestly unjust if the defendant had had to pay £50 to the plaintiff (who was an agent or trustee for her son) at a time when the defendant had an unquestioned claim for £51 against the plaintiff’s son, who had left the country. There was a close relationship between the dealings and transactions which gave rise to the respective claims.[11]
[10] [1958] 2 QB 9.
[11] At 24.
In Federal Commerce & Navigation Co Ltd v Molena Alpha Inc[12] Lord Denning MR said:
… one thing is quite clear: it is not every cross-claim which can be deducted. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff’s demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.[13]
[12] [1978] QB 927.
[13] At 974-975. See Goff LJ at 987 to similar effect.
In Grant v NZMC Ltd[14] Somers, Casey and Bisson JJ in the New Zealand Court of Appeal said:
The principle is, we think clear. The defendant may set off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.[15]
[14] [1989] 1 NZLR 8.
[15] At 12-13. Applied in Edmunds v Westland Bank Ltd [1991] 2 NZLR 655 at 661 per Cooke P, Bisson and Williamson JJ.
In AWA Ltd v Exicom Australia Pty Ltd[16] Giles J said:
The ultimate question is whether, bearing in mind that the existence of Exicom’s claim is not enough and that something more is needed, sufficient to warrant intervention of equity to protect Exicom, it would be unjust or inequitable that AWA should be permitted to proceed with its claim. Primarily that throws up the relationship and closeness of connection between the claims.[17]
[16] (1990) 19 NSWLR 705.
[17] At 712.
In Hill Corcoran Constructions Pty Ltd v Navarro[18] Davies and Pincus JJA and Thomas J in the Queensland Court of Appeal said:
The usual starting point of any discussion of the doctrine of equitable set off is the judgment of Lord Cottenham L.C. in Rawson v Samuel, and, though his Lordship's statement that the equity of the defendant's claim must impeach the title to the plaintiff's legal demand is unfamiliar to the modern lawyer, the examples which he gave where that has been the case give some guidance here. Dicta since Rawson v Samuel have explained that it is the closeness of the connection between the defendant's claim and the subject matter of the plaintiff's claim which may make it unfair for the plaintiff's claim to proceed without allowance being made for the defendant's claim.[19]
[18] [1992] QCA 17.
[19] At 5. (Citations omitted)
In Forsyth & Anor (as trustees for the C&S Forsyth Superannuation Fund) v Gibbs[20] Keane JA (with whom McMurdo P and Fraser JA agreed) in the Queensland Court of Appeal said:
Consistently with the technique of equity, which does not seek to define what an elephant is but knows one when it sees one, the principles governing the availability of equitable set-off of cross-claims are couched in open textured terms, such as “sufficient connection” and “unfairness”. In some cases, it will be necessary to engage in an evaluation of a range of facts which might establish “sufficient connection” or “unfairness” of the relevant kind. But the principles to be applied are not so vague or subjective that it is never possible to determine, for the purposes of an application for summary judgment, that the facts alleged by a defendant simply fall short of what is required.
It is important to emphasise that the availability of an equitable set-off between cross-claims does not depend upon an unfettered discretionary assessment of whether it would be “unfair” in a general sense for a plaintiff to insist on payment of the debt owed to it while the cross-claim remains unpaid. It is essential that there be such a connection between the claim and 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.[21]
[20] [2008] QCA 103.
[21] At [9]-[10]. (Footnotes omitted)
In Geldof Metaalconstructie NV v Simon Carves Limited[22] Rix LJ (with whom Maurice Kay and Patten LJJ agreed) in the English Court of Appeal surveyed numerous authorities and concluded:
In my judgment, this jurisprudence allows the following conclusions:
(i)The impeachment of title test, although derived from the leading case of Rawson v. Samuel and still stated by Lord Denning in his formulation in The Nanfri, even if it is there immediately glossed by his “so closely connected…that it would be manifestly unjust” test, should no longer be used: The Dominique and Bim Kemi. It is an unhelpful metaphor in the modern world...
(ii)There is clearly a formal requirement of close connection…. The requirement is put in various ways in various cases. Morris LJ in Hanak v. Green spoke of a “close relationship between the dealings and transactions which gave rise to the respective claims”. Lord Denning in The Nanfri spoke of claims and cross-claims which are “closely connected”. How closely? “[S]o closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim”…
(iv)There is also clearly a functional requirement whereby it needs to be unjust to enforce the claim without taking into account the cross-claim… it is not coherent to have a doctrine of equitable set-off which ignores the need for consideration of aspects of justice and fairness.
(v)Although the test for equitable set-off plainly therefore involves considerations of both the closeness of the connection between claim and cross-claim, and of the justice of the case, I do not think that one should speak in terms of a two-stage test. I would prefer to say that there is both a formal element in the test and a functional element. The importance of the formal element is to ensure that the doctrine of equitable set-off is based on principle and not discretion. The importance of the functional element is to remind litigants and courts that the ultimate rationality of the regime is equity. The two elements cannot ultimately be divorced from each other. It may be that at times some judges have emphasised the test of equity at the expense of the requirement of close connection, while other judges have put the emphasis the other way round.
(vi)For all these reasons, I would underline Lord Denning’s test, freed of any reference to the concept of impeachment, as the best restatement of the test, and the one most frequently referred to and applied, namely: “cross-claims…so closely connected with [the plaintiff’s] demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim”.[23]
[22] [2010] EWCA Civ 667.
[23] At [43]. (Footnotes omitted)
In Norman; in the matter of Forest Enterprises Limited v FEA Plantations Limited[24] Jacobson, Nicholas and Yates JJ in the Federal Court said:
[24] [2011] FCAFC 99, (2011) 195 FCR 97.
In more recent times the courts in England and Wales … have moved from a “reinterpretation” of the impeachment test to its complete abandonment: Geldorf Metaalconstructie NV v Simon Carves Ltd. …
In the present appeal the parties did not suggest that the impeachment test should not be applied. Indeed, all parties advocated that the relevant principles were those explained in Rawson v Samuel and British Anzani.
In James v CBA, Gummow J was critical of the language employed by the New Zealand Court of Appeal in Grant v NZMC Ltd insofar as it may be seen as re-interpreting the impeachment test. But he made no comment about the proposition that equitable set-off may arise where the cross-claim arises out of a different contract.
The principle stated in Grant v NZMC was as follows:
The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.
This formulation of the principle permits a set-off to be maintained even if the “cross-claim” does not arise out of the same contract as that which gives rise to the plaintiff’s claim.
…
The judgment of Forbes J in British Anzani also supports the proposition that the tenant’s cross-claim may give rise to an equitable set-off even if the cross-claim does not arise from the lease itself, or directly from the relationship of landlord and tenant, provided that the claim for rent and the cross-claim arising from another contract are so closely connected that the principles affecting equitable set-off can be said to apply.
Although some of the authorities to which Forbes J referred in support of that proposition employed language which departed from the orthodox principle stated in Rawson v Samuel, it seems to us that the proposition which Forbes J distilled from the authorities is correct.[25]
[25] At [147]-[151], [156]-[157]. (Citations omitted)
In HP Mercantile Ltd v Dierickx[26] Emmett JA (with whom Beazley P and Meagher JA agreed) in the New South Wales Court of Appeal said:
For there to be an equitable set-off, the set-off must essentially be bound up with and go to the root of, challenge, call in question, or impeach the title of the claimant. Equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from its adversary's demand. The mere existence of a cross-claim is not sufficient. There must be some ground for equitable intervention beyond the mere existence of a cross-claim, such that it can be said that the equity of the defendant impeaches the claimant's title to the legal demand being enforced.[27]
[26] [2013] NSWCA 479, (2013) 306 ALR 53.
[27] At [136].
In Hawes v Dean[28] Barrett JA (with whom Bathurst CJ and McColl JA agreed) in the New South Wales Court of Appeal said:
In England, the Court of Appeal decided in 2010 (in Geldof Metaalconstructie NV v Simon Carves Ltd) that the “impeachment of title” test “should no longer be used” …
The “impeachment of title” test remains applicable in Australia.
…
In all the hypothetical cases to which Emmett JA referred [in HP Mercantile Pty Ltd v Dierickx], two wrongs or defaults are so closely connected that a net position or result ought in equity to prevail between the parties because it would be unconscionable to allow one of them to insist on its legal right without first accommodating the other's countervailing legal right. It is the existence of that unconscionability that causes the first party's claim to be “impeached” (that is, undermined and defeated) by the second party's claim.[29]
[28] [2014] NSWCA 380.
[29] At [60], [61], [65]. (Citations omitted)
In Goldsmith & Anor v AMP Life Limited[30] Gold Tip (News) Pty Ltd (Gold Tip) leased a shop from AMP Life Limited (AMP) from 2004 to 2010 and suffered losses caused by AMP’s renovations of the shopping centre. Gold Tip entered into a different lease for a different shop in the renovated shopping centre from 2010 onwards and owed rent to AMP under that lease. The Queensland Court of Appeal held that AMP was entitled to set-off the rent owing under the second lease against compensation due to Gold Tip for disruption in respect of the first lease. Morrison JA (with whom Sofronoff P and Henry J agreed) applied the approach articulated by Keane JA in Forsyth (as trustees for C&S Forsyth Superannuation Fund) v Gibbs.[31]
[30] [2021] QCA 20.
[31] [2008] QCA 103.
In light of its long history and intermediate appellate court authority in Australia since 2010 reiterating the impeachment of title test despite its having been discarded by the English Court of Appeal in Geldof Metaalconstructie NV v Simon Carves Limited,[32] it is not reasonably arguable that the impeachment of title test is no longer a criterion for the existence of equitable set-off in Australia. If the impeachment of title test is to be discarded in Australia, it is a matter for the High Court.
[32] [2010] EWCA Civ 667.
The general effect of the Australian and New Zealand authorities is that, in assessing whether the impeachment of title test is satisfied, there must be a connection between the primary claim and offsetting claim, regard is to be had to the nature and degree of that connection, and the connection must be such that it would be unjust for the applicant to insist on its legal right under its primary claim without accommodating the offsetting claim.
The general effect of the Australian and New Zealand authorities is that insistence on the primary claim without accommodating the offsetting claim must be unjust as opposed to unconscionable. Thus, reference was made to unjustness (or unfairness, which is essentially synonymous in the circumstances) by the New Zealand Court of Appeal in Grant v NZMC Ltd[33] and Edmunds v Westland Bank Ltd;[34] by the Queensland Court of Appeal in Hill Corcoran Constructions Pty Ltd v Navarro,[35] Forsyth & Anor (as trustees for the C&S Forsyth Superannuation Fund) v Gibbs[36] and Goldsmith & Anor v AMP Life Limited;[37] and by the Full Court of the Federal Court in Norman; in the matter of Forest Enterprises Limited v FEA Plantations Limited.[38] This has also been identified as the relevant criterion by the English Court of Appeal since at least Hanak v Green.[39]
[33] [1989] 1 NZLR 8.
[34] [1991] 2 NZLR 655.
[35] [1992] QCA 17.
[36] [2008] QCA 103.
[37] [2021] QCA 20.
[38] [2011] FCAFC 99, (2011) 195 FCR 97.
[39] [1958] 2 QB 9.

In Hawes v Dean[40] Barrett JA (with whom Bathurst CJ and McColl JA agreed) identified the relevant criterion as unconscionability. However, while Barrett JA referred to some of the above cited authorities identifying the relevant criterion as unjustness, Barrett JA did not advert to a distinction between unjustness and unconscionability, refer to any opposing contentions by the parties in that case as to whether the criterion should be unjustness or unconscionability or suggest that the cited authorities were incorrect in referring to unjustness. In the circumstances, it is not appropriate to regard the decision of the New South Wales Court of Appeal as discarding unjustness in favour of unconscionability. This is not to say that it would not be preferable to substitute unconscionability for unjustness as the criterion;[41] however, on the current state of the authorities, and especially in the context of a summary judgment application, it is appropriate to apply the traditional criterion of unjustness.
[40] [2014] NSWCA 380.
[41] This might be seen as being in line with a general trend to regard unconscionability as the foundation for a number of equitable doctrines.
The authorities unanimously establish that the mere fact that the primary claim and offsetting claim arise out of the same contract does not entail in itself that there is the necessary connection between the claim such that it would be unjust for the applicant to insist on its legal right without accommodating the offsetting claim. Conversely, the mere fact that the claims do not arise out of the same contract does not entail that the criteria for equitable set-off cannot be satisfied. Arising out of the same contract is merely a factor, albeit a significant one, in determining whether the criteria are satisfied.
Availability of equitable set-off in present case
MFW contends that, although the Master accurately formulated the equitable set-off principles in the passage extracted at [53] above, in the third paragraph extracted at [54] above the Master applied the English line of authority that no longer requires impeachment of title. I reject that contention. The criteria applied by the Master in his assessment of the facts (on the basis of the pleadings) were the criteria formulated by the Master extracted at [53] above.
Nevertheless, as this appeal is by way of rehearing, it is not necessary for MFW to establish some error of approach by the Master. It is sufficient if MFW establishes that, on an objective assessment, it is not reasonably arguable by GWG that an equitable set-off is available on the facts set out in the pleadings. I turn to that question.
Both before the Master and on appeal, MFW’s contention was and is put on an all or nothing basis. That is, MFW contends that it is not reasonably arguable that an equitable set-off is available in respect of any of GWG’s claims. MFW does not contend, for example, that although equitable set-off may be available in respect of some of GWG’s claims, it is not available in respect of all of them or that MFW should have summary judgment for some amount after deducting an assessed amount in respect of claims for which it is reasonably arguable that equitable set-off is available.
GWG’s strongest case for equitable set-off is in respect of its misdescription claims in relation to the Langhorne Creek shiraz wine sold as Barossa Valley shiraz wine and the dry red wine sold as shiraz wine. GWG claims that the prices it paid for that wine exceeded the true value by a total of $843,009. Ultimately at trial GWG will bear the onus of proof in respect of these claims but for the purpose of summary judgment it is assumed that GWG will succeed in establishing these claims.
Ultimately at trial the trial Judge will have the benefit of evidence about the operations of GWG and the Mayfield group and the relationship and dealings between them. Based on that evidence, the trial Judge will be in a position to determine definitively the nature and extent of the connection between GWG’s misdescription claims and MFW’s wine sale counterclaim and to determine whether that connection is sufficient to render unjust (or for that matter unconscionable) MFW’s insistence on its claim without accommodating GWG’s offsetting claim. At this stage of the proceeding, it is not possible to determine these questions definitively.
On the face of the pleadings and subject to the limitations identified in the previous paragraph, it is strongly arguable that the criteria for equitable set-off will be established. The relationship between the parties was such that GWG provided crushing, processing and other services to MFW for which it invoiced MFW and in turn MFW sold wine to GWG for which it invoiced GWG. It appears that there were a series of debits and credits giving rise to a running account between the parties. It appears that there were not occasional isolated and independent transactions but rather one continuous relationship under which GWG provided services to MFW and MFW sold wine to GWG.
Although GWG formulates its cause of action as being for misleading conduct, the substance of its claim is that it paid excessive prices as a result of the alleged misdescriptions of the wine in terms of its geographical origin and its varietal composition. If GWG had discovered the alleged misdescriptions before paying for the wine, it would have been entitled to set-off damages by way of equitable set-off or pursuant to section 52(1)(a) of the Sale of Goods Act 1895 (SA).
Given the running account between the parties, the nature of the continuous relationship between the parties and the fact that, if GWG had discovered the true position before paying for the allegedly misdescribed wine, it would have been entitled to set-off damages against the purchase price, subject to the limitations referred to above, it is strongly arguable that there is a sufficient connection between GWG’s misdescription claim and MFW’s counterclaim to render unjust, and indeed unconscionable, MFW’s insistence on its counterclaim without accommodating GWG’s misdescription claim and that the equity of GWG impeaches MFW’s title to its legal demand the subject of its counterclaim.
GWG’s claimed losses due to MFW’s alleged misdescriptions are not confined to direct losses being the excessive purchase prices paid. GWG claims that it suffered consequential losses. The first consequential loss is loss resulting from the cancellation by Wine Australia of its export licence. That loss has not yet been quantified on the face of pleadings and no evidence was adduced on the summary judgment application enabling it to be quantified. The second loss is loss resulting from claims against GWG by its purchasers of the allegedly misdescribed wine; which again on the evidence have not yet been quantified. There is no basis on which to separate, or distinguish between, these consequential losses and the direct losses referred to above.
Given the all or nothing nature of MFW’s contentions, it is not necessary to consider the availability of equitable set-off in respect of GWG’s other causes of action against MFW and I mention them only briefly.
GWG claims that MFW should have paid receival and storage fees, and should have paid the ordinary rate (rather than the preferential rate) for crushing in excess of the preferential crushing entitlement, but Mr Mayfield directed that invoices not be raised for these fees and charges. Given the running account between and nature of the continuous relationship between the parties, subject to the limitations identified above it is strongly arguable that the criteria for equitable set-off are satisfied in respect of these claims by GWG.
GWG pleads that approaches to GWG by Dorrien to buy 500,000 litres of non-vintage dry red, 380,000 litres of non-vintage dry white and 250,000 litres of non-vintage cabernet sauvignon and by Wine Movement to buy 578,000 litres of 2018 pinot noir were diverted to MFW. Given the running account between and nature of the continuous relationship between the parties, subject to the limitations identified above it is reasonably arguable that the criteria for equitable set-off are satisfied in respect of these claims by GWG.
Finally, GWG pleads that MFW removed 531,214 litres of 2018 cabernet, chardonnay, sauvignon blanc and shiraz from GWG’s winery and sold it to third parties (as well as gordo and pinot noir removed and sold to Dorrien and Wine Movement respectively referred to above) in breach of an agreement between the parties. The circumstances in relation to this claim are relatively vague on the face of the pleadings and this claim appears to have the least connection with MFW’s counterclaim. Given this vagueness, I am not affirmatively satisfied by MFW to the requisite standard that equitable set-off is not available in respect of this claim.
Conclusion
The Master’s conclusion that MFW is not entitled to summary judgment on its wine sale counterclaim was correct, regardless of whether equitable set-off requires that insistence by an applicant on its legal right under its primary claim without first accommodating the respondent’s countervailing claim be unjust or unconscionable.
I dismiss the appeal. I will hear the parties as to the costs.