Young v National Australia Bank Ltd
[2004] WASCA 298
•15 DECEMBER 2004
YOUNG -v- NATIONAL AUSTRALIA BANK LTD & ANOR [2004] WASCA 298
| (2004) 29 WAR 505 | |||
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2004] WASCA 298 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:188/2003 | 16 SEPTEMBER 2004 | |
| Coram: | MURRAY J BARKER J | 15/12/04 | |
| 17 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| A | |||
| PDF Version |
| Parties: | WILLIAM LLOYD YOUNG NATIONAL AUSTRALIA BANK LTD (ACN 004 044 937) MALCOLM CHARLES TAYLOR |
Catchwords: | Application for leave to appeal Applicant seeking to claim equitable setoff in capacity of guarantor Whether claim available Limitation Act 1935 (WA) Application dismissed |
Legislation: | Limitation Act 1935 (WA), s 46 Limitation Act 1939 (UK), s 28 Limitation Act 1950 (NZ), s 50 Limitation Act 1974 (Tas), s 35 Limitation Act 1981 (NT), s 8 Limitation of Actions Act 1936 (SA), s 44 Limitation of Actions Act 1958 (Vic), s 30 Limitation of Actions Act 1973 (NB), s 16 Limitation of Actions Act 1974 (Qld), s 42 Limitation of Actions Act 1989 (NS), s 38 Rules of the Supreme Court 1971 (WA), O 63A Statute of Frauds Amendment Act 1828 (UK), s 4 Supreme Court Act 1935 (WA), s 60(1)(f) |
Case References: | Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326 Doherty v Murphy [1996] 2 VR 553 Indrisie v General Credits Ltd [1985] VR 251 Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14 Lowe v Bentley (1928) 44 TLR 388 McDonnell & East Ltd v McGregor (1936) 56 CLR 50 Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 National Australia Bank Ltd v Taylor [2003] WASC 240 Pegasus Leasing Ltd v Cadoroll Pty Ltd (1996) 59 FCR 152 Rawson v Samuel (1841) Cr & Ph 161 Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (1996) 61 FCR 436 Walker v Clements (1850) 15 QB 1046 Webster Ltd v Roberts [1989] Tas R 37 Dougan v Conias [2000] FCA 1556 Hawkins v Clayton (1988) 164 CLR 539 Hazor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62 Impex Transport Aktieselskabet v AG Thames Holdings Ltd t/as John Gibb & Sons [1981] 1 WLR 1647 Pittaway v WH Tutt [2002] QCA 336; [2004] 1 Qd R 285 State of Queensland v JL Holdings (1997) 189 CLR 146 Tony Sadler Pty Ltd v McLeod Nominees Pty Ltd (1994) 13 WAR 323 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 Wilson v Metaxas [1989] WAR 285 Wing Luck Foods v Lay Choo Lim [1989] WAR 358 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : YOUNG -v- NATIONAL AUSTRALIA BANK LTD & ANOR [2004] WASCA 298 CORAM : MURRAY J
- BARKER J
- Applicant
AND
NATIONAL AUSTRALIA BANK LTD (ACN 004 044 937)
First Respondent
MALCOLM CHARLES TAYLOR
Second Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : MASTER SANDERSON
File No : FUL 188 of 2003
(Page 2)
Catchwords:
Application for leave to appeal - Applicant seeking to claim equitable setoff in capacity of guarantor - Whether claim available - Limitation Act 1935 (WA) - Application dismissed
Legislation:
Limitation Act 1935 (WA), s 46
Limitation Act 1939 (UK), s 28
Limitation Act 1950 (NZ), s 50
Limitation Act 1974 (Tas), s 35
Limitation Act 1981 (NT), s 8
Limitation of Actions Act 1936 (SA), s 44
Limitation of Actions Act 1958 (Vic), s 30
Limitation of Actions Act 1973 (NB), s 16
Limitation of Actions Act 1974 (Qld), s 42
Limitation of Actions Act 1989 (NS), s 38
Rules of the Supreme Court 1971 (WA), O 63A
Statute of Frauds Amendment Act 1828 (UK), s 4
Supreme Court Act 1935 (WA), s 60(1)(f)
Result:
Application dismissed
Category: A
Representation:
Counsel:
Applicant : Mr G R Hancy
First Respondent : Mr C G Colvin SC
Second Respondent : No appearance
Solicitors:
Applicant : Slater & Gordon
First Respondent : Mallesons Stephen Jaques
Second Respondent : No appearance
(Page 3)
Case(s) referred to in judgment(s):
Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326
Doherty v Murphy [1996] 2 VR 553
Indrisie v General Credits Ltd [1985] VR 251
Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14
Lowe v Bentley (1928) 44 TLR 388
McDonnell & East Ltd v McGregor (1936) 56 CLR 50
Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439
National Australia Bank Ltd v Taylor [2003] WASC 240
Pegasus Leasing Ltd v Cadoroll Pty Ltd (1996) 59 FCR 152
Rawson v Samuel (1841) Cr & Ph 161
Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (1996) 61 FCR 436
Walker v Clements (1850) 15 QB 1046
Webster Ltd v Roberts [1989] Tas R 37
Case(s) also cited:
Dougan v Conias [2000] FCA 1556
Hawkins v Clayton (1988) 164 CLR 539
Hazor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62
Impex Transport Aktieselskabet v AG Thames Holdings Ltd t/as John Gibb & Sons [1981] 1 WLR 1647
Pittaway v WH Tutt [2002] QCA 336; [2004] 1 Qd R 285
State of Queensland v JL Holdings (1997) 189 CLR 146
Tony Sadler Pty Ltd v McLeod Nominees Pty Ltd (1994) 13 WAR 323
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
Wilson v Metaxas [1989] WAR 285
Wing Luck Foods v Lay Choo Lim [1989] WAR 358
(Page 4)
1 MURRAY J: I have had the advantage of reading in draft the judgment of Barker J. I agree with it. I have nothing to add to his Honour's comprehensive treatment of the issues raised. I too would refuse leave to appeal.
2 BARKER J: The applicant (Mr Young) seeks leave to appeal from the decision of Master Sanderson delivered on 4 December 2003 refusing Mr Young leave to amend his defence and counterclaim in an action by the first respondent (National Australia Bank) against him and others. The Master's reasons for so doing are to be found in National Australia Bank Ltd v Taylor [2003] WASC 240.
3 The Bank's action was commenced in 1996. Mr Young is the second defendant in the action. The Bank claims as against Mr Young for money due under a guarantee of debts owed to the Bank by Computerised Holdings Pty Ltd (Computerised). The Bank also seeks possession of property of Mr Young pursuant to the terms of a mortgage provided by way of security for that guarantee.
4 By his existing defence in the action, Mr Young does not admit that money is due or that demands have been made. He does plead, however, that he was induced to enter into the guarantee and mortgage by representations made by the Bank that were misleading and deceptive. The representations are alleged to concern the financial affairs of another company, Moreay Nominees Pty Ltd (Moreay), the vendor of an abattoir business and land that was sold to Computerised. Moreay was a customer of the Bank. The representations are alleged to comprise the Bank's failure to disclose to Mr Young the financial circumstances of its customer Moreay when Mr Young agreed to guarantee borrowings by Computerised from the Bank to purchase the business and land of Moreay. The same representations are relied upon as the foundation for a counterclaim in misleading or deceptive conduct, misrepresentation and negligence on the part of the Bank.
5 As the Master observed in his reasons, the existing defence is confined to putting the Bank to proof of the terms of the guarantee and mortgage and of the demands, and establishing what amount is due under the guarantee and mortgage. The defence and counterclaim also raises issues as to the representations allegedly made by the Bank to Mr Young prior to Mr Young entering into the guarantee and mortgage. On the pleadings, the Bank relies upon certificates of indebtedness to establish the amounts due under the guarantee and mortgage. No issue is raised on
(Page 5)
- the pleadings as they presently stand as to the underlying state of Computerised's accounts.
6 By the proposed amended pleading, Mr Young foreshadowed fresh counterclaims against the Bank as the assignee of Computerised. The foreshadowed counterclaims were all based upon events that occurred after Mr Young entered into the guarantee and mortgage with the Bank and concerned payments made by the Bank out of the account of Computerised in 1995. The foreshadowed counterclaims were in:
(1) breach of contract (pars 24 - 30);
(2) negligence (pars 31 - 35);
(3) deceit (pars 35A - 35B); and
(4) conversion (par 36).
7 Mr Young also foreshadowed in par 37 of the proposed amendments a claim of set-off, expressed in these terms:
"WLY [Mr Young], as assignee of Computerised's causes of action against NAB, seeks to set off, against any amount claimed by NAB or found to be owed to NAB, the damages suffered by Computerised, which damages will extinguish any such amount found to be owed to NAB."
8 In the event, the Master refused Mr Young's application to amend the defence and counterclaim in the manner proposed because he considered all four causes of action were statute-barred and that set-off was not available.
9 Mr Young then sought leave to appeal pursuant to s 60(1)(f) of the Supreme Court Act1935 (WA) and O 63A of the Rules of the Supreme Court1971 (WA). In his application for leave to appeal, Mr Young sought to impugn both the Master's findings that the foreshadowed causes of action were statute-barred and the further finding that a claim of set-off was not available.
10 The application for leave was set down for hearing in this Court on Thursday, 16 September 2004. On Tuesday, 14 September, after the due date for the filing of an outline of submissions stipulated by the Court’s relevant practice direction, an outline of submissions was filed on behalf of Mr Young. In it, Mr Young, through counsel, abandoned the application so far as it concerned the Master's findings that the proposed causes of action in the counterclaim were statute-barred.
(Page 6)
11 However, Mr Young maintained that the "pleading should have been permitted to support an equitable set-off. The defence is fairly arguable".
12 What the Master ruled, at [18] of his reasons, given the manner in which the proposed amendments to the defence and counterclaim were foreshadowed and how the issue of set-off was couched in par 37, of the amended defence and counterclaim was as follows:
"In my view, the second defendant [Mr Young] cannot set off in law or in equity any claim assigned to him by Computerised against claims made by the plaintiff [the Bank]. There is simply no mutuality. Furthermore, Computerised's claim is not so bound up with the guarantee and mortgage relied upon by the plaintiff that it would be unconscionable that the plaintiff's claim should proceed without allowing the set off. Furthermore, the claims are not inseparably connected. See generally, Hazcor Pty Ltd & Ors v Kirwanon Pty Ltd (1995) 12 WAR 62 at 67 - 69."
13 A number of propositions are clear from this brief statement by the Master concerning the proposed set-off claim. First, that it was a brief statement because the Master had already decided that the proposed counterclaims made by Mr Young as assignee of Computerised were statute-barred and therefore it was not "strictly necessary" for him to deal with the other grounds of objection raised by Mr Young. Secondly, that the Master treated the claim of set-off as one made by Mr Young as assignee of Computerised. Thirdly, that the Master comprehended that the claim of set-off might possibly be advanced as one available under the statutes of set-off at law, as well as by way of equitable set-off.
14 In written and oral submissions on the application before this Court, counsel for Mr Young contended that, in substance, Mr Young, by par 37 of the proposed pleading claimed he was entitled to rely on an equitable set-off available to Computerised in his capacity as guarantor of Computerised's obligations to the Bank and not simply as the assignee of Computerised's rights against the Bank.
15 Put more particularly, counsel for Mr Young submitted that a guarantor may be entitled to rely on an equitable set-off available to a principal debtor as an answer to the creditor's claim on a guarantee and referred to Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (1996) 61 FCR 436. Counsel further contended that an equitable set-off may be asserted notwithstanding that the demand upon which it is based is not
(Page 7)
- enforceable by action by reason of the expiration of the limitation period; as recognised, for example, in Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326, at 331 - 332; and by S R Derham, The Law of Set-Off (3rd ed) at par 4.39.
16 Counsel for Mr Young contended that, to the extent that par 37 of the proposed defence and counterclaim failed fully to convey the substance of these contentions, par 37 was merely "inelegantly" drafted and that Mr Young should, in effect, be given the opportunity to polish the pleading, on the basis that reliance on such an equitable set-off is fairly arguable and should not have been ruled out by the Master prior to a trial of the action.
17 Senior Counsel for the Bank strongly contested the submission made on behalf of Mr Young and contended that Mr Young now seeks to argue that he can himself, as guarantor of Computerised's obligations to the Bank, not merely as an assignee of Computerised, rely on an equitable set-off allegedly available to Computerised. Senior Counsel suggested that such a proposition could only be advanced if an amendment quite different from that proposed by par 37 of the proposed amendments had been sought and considered by the Master. Senior Counsel also raised a number of other grounds of objection to any such foreshadowed pleading in any event, to which I will return.
18 In my view, the submission of counsel for Mr Young that, in substance, Mr Young claimed before the Master and the Master dealt with a claim that Mr Young should be entitled to amend his pleadings in order to set up a plea that he, as guarantor, is entitled to rely upon an equitable set-off available to Computerised as against the Bank, is simply not tenable. The terms of par 37 are quite explicit: Mr Young, as assignee of Computerised, claimed the right to set off (seemingly in law and in equity) the various unliquidated claims for damages made in the proposed four common law causes of action identified above. The proposed pleading in no part constituted a foreshadowed claim by Mr Young either that, as guarantor he had the right to impeach the title of the Bank to claim against him under the contract of guarantee, or under the mortgage, or that he had the right as guarantor to rely on an equitable set-off available to Computerised as against the claim of the Bank.
19 As much as it may be said that the question of the Bank's dealings with the accounts of Computerised, which is the subject of the four foreshadowed causes of action, would be common to both the set-off claims actually pleaded in par 37 and the equitable set-off claim as
(Page 8)
- outlined by counsel for Mr Young in argument before the Court, the fact remains that the two claims are quite different. The Master did not make his decision by reference to the claim that counsel for Mr Young now says Mr Young wishes to agitate, because that was not the specific claim Mr Young foreshadowed. For that reason alone, this application for leave to appeal should be refused.
20 However, the submission advanced on behalf of Mr Young concerning the availability of equitable set-off in circumstances such as those very generally outlined in the written submissions of counsel for Mr Young and by reference to the terms of the proposed pleading in respect of the four foreshadowed causes of action, also leads me to the view that no such defence is arguably available to Mr Young in the circumstances suggested by the proposed pleading.
21 As noted, counsel for Mr Young submits that a guarantor may be entitled to rely on an equitable set-off available to the principal debtor as an answer to the creditor's claim on a guarantee. So much seems to be without contest. In Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (supra), Drummond J, on the authority of Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14, and by reference to S R Derham, Set-Off (2nd ed), accepted that, in an appropriate case, a guarantor may be entitled to rely upon an equitable set-off available to a principal debtor in answer to a demand made by a creditor on a guarantor. Drummond J accepted that: "If an equitable set-off over-tops the creditor's claim, equity will not permit the creditor to assert that any moneys are due by the debtor". However, Drummond J qualified this statement by emphasising that a guarantor may be so entitled where the contract of guarantee on its true construction permitted the guarantor to do so, and where, ordinarily, the debtor is joined as a party to the proceedings.
22 I note that in S R Derham (3rd ed) (supra) at par 18.16, page 878, the learned author observes that:
"In Australia, differing views have been expressed as to whether a guarantor can invoke the debtor's defence. There is on the one hand authority for the view that a surety cannot rely on a cross-claim for damages which may be available to the principal as against the creditor [footnote omitted]. This includes the judgment of the Full Court of the Victorian Supreme Court in Indrisie v General Credits Ltd [[1985] VR 251, 253 - 254]. Subsequent to the Indrisie case however the Appeal Division of the Victorian Supreme Court in Doherty v Murphy [[1996] 2
(Page 9)
- VR 553], without referring to that case, allowed a guarantor leave to defend in a summary judgment application, inter alia on the basis of an arguable equitable set-off available to the principal debtor against the creditor [footnote omitted]. This reflects more liberal formulations of the principle that have been expressed on other occasions in Australia, in terms suggesting that the surety can invoke the debtor's defence if the debtor has been joined as a party to the action [footnote omitted], and it represents the preferred view."
23 In the footnotes omitted from this quoted passage, Derham also cites Langford Concrete Pty Ltd v Finlay (supra) and Re Kleiss; Ex parte Kleiss (supra) in support of the "more liberal formulations of the principle" for which he says Doherty v Murphy [1996] 2 VR 553 stands.
24 In Doherty v Murphy (supra), the Appeal Division of the Supreme Court of Victoria relied significantly on Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439, in finding that the appellants, as guarantors of a loan from the trustee of a trust to a company which defaulted on the loan and was subsequently deregistered, were entitled, on the basis that it was arguable, to raise a defence of equitable set-off. On the appeal, the guarantors sought to rely on arguments of equitable set-off arising from the lender's alleged promise to provide a draw-down of funds to the borrower and subsequent failure to do so.
25 The position of the guarantors in Doherty v Murphy which led to the Court concluding that it was arguable that they could raise the defence of equitable set-off was described in the judgment of Nathan J, at 558, as follows:
"In this case, just as in Zamonex, a relatively small property developer, ie Edmar, backed by personal guarantees of its directors, obtained a loan facility subject to the discretions relating to instalment payments. Representations were made as to the availability of funds and more particularly that a decision had been made to advance them. The issue of reliance upon those representations is very much an evidentiary matter and should not be disposed of at this juncture …
Mr Kendall responded to this argument by making reference to cl 24.9 of the agreement and relying upon it to thwart the appellants. So far as is relevant that provision reads:
(Page 10)
- 'The liability of the guarantors (the Dohertys and Chiodos personally) shall not be determined or affected in any way by anything done or omitted to be done by the lender in the exercise of the rights or power of discretions vested in the lender by this deed … '
- The argument of the appellants to this contention is that Lew, by his statements, represented that the discretion to lend had in fact already been exercised. The facility provided for the exercise of a discretion by the lender prior to making a payment under it, but Mr Lew's commitment to provide the money was tantamount to exercising that discretion and, accordingly, cl 24.9 could be inapplicable. It was contended that Lew's statements were specific. Not that the payments might be made or could be forthcoming but, on the contrary, were in fact available either that day or the next. The nub of the appellants' contention is that the commitment to provide progress payments under the facility had been made and was dishonoured."
26 In Murphy v Zamonex Pty Ltd (supra), Estate Mortgage, through its liquidator, was the plaintiff. It proceeded against Zamonex, who were builders and developers, and their guarantors. The action was for the recovery of moneys advanced and interest. Zamonex sought to set off its own claims for damages for breach of contract and for contravention of s 52 of the Trade Practices Act 1974 (Cth) or the corresponding provision of the Fair Trading Act 1987 (NSW). Giles J held that Estate Mortgage was not in breach of contract in failing to make further advances. However, in the given circumstances, where a representation had been made on its behalf that claims would be paid and that Estate Mortgage would not exercise its discretion in a contrary direction, by doing so Estate Mortgage had engaged in misleading and deceptive conduct in breach of the Trade Practices Act 1974 and the Fair Trading Act 1987. His Honour further considered that an equitable set-off was available to Zamonex, even in the absence of mutuality, because Zamonex had established an equitable ground for being protected from the claim made by Estate Mortgage. He considered that it would have been unjust in the circumstances to have allowed recovery on the claim without taking into account the set-off, it being so directly connected with the initial claim.
27 Of equitable set-off, Giles J said, at 465, after referring to a number of relevant authorities and texts:
(Page 11)
- "Equitable set-off is available where the defendant establishes an equitable ground for being protected from the plaintiff's claim. That has been expressed in language to the effect that the defendant's set-off goes to the root of or impeaches the title of the plaintiff's claim, but also in language to the effect that the counter-claim is so directly connected with the claim that it would be unjust to allow the plaintiff to recover without taking into account the defendant's counter-claim."
28 As far as the guarantors, in particular, were concerned Giles J accepted that the guarantors could raise, by way of set-off, damages in respect of contravention of s 52 of the Trade Practices Act 1974 or the Fair Trading Act 1987. The alleged misleading or deceptive conduct was said to have misled the guarantors as to the operation and effect of a term that did not oblige Estate Mortgage to make any payment under the deed of loan. Giles J considered, at 465, that in those circumstances the claim was "so directly connected with the claim that it would be unjust to allow the plaintiff to recover without taking into account the defendant's counter-claim".
29 Thus, it appears that in Murphy v Zamonex (supra), at least, and possibly also in Doherty v Murphy (supra), the right of the guarantor to raise equitable set-off as a defence was very much dependent on the particular representations made by the creditor to the guarantor and did not depend merely on the right of the guarantor to rely upon an equitable set-off available to the debtor. However, it may be that Doherty v Murphy is to be explained simply by the proposition set out by S R Derham (3rd ed) (supra), that, in an appropriate case, a guarantor may be entitled to rely on an equitable set-off available to the debtor.
30 In the present case, counsel for Mr Young made it plain that Mr Young seeks only to rely on an equitable set-off Mr Young says is available to Computerised in respect of the principal debt due to the Bank. Counsel does not suggest that Mr Young can claim an equitable set-off in the Bank's action against him as guarantor. In other words, Mr Young's claim concerning equitable set-off is entirely dependent on the claim of equitable set-off being available to Computerised in respect of the four proposed common law actions foreshadowed in the proposed pleading.
31 As a result, the question is whether, arguably, Computerised is able to claim an equitable set-off as against the Bank.
(Page 12)
32 What Mr Young accepts, following the Master's ruling on the amendment application, is that the causes of action that Mr Young wished to raise in his counterclaim are statute-barred. Ordinarily, the fact that a remedy is not available to a party, because the cause of action on which it is dependent is statute-barred, does not preclude that party from raising equitable set-off as a defence. That is because, as noted by Drummond J in Re Kleiss; Ex parte Kleiss (supra), where equitable set-off is available in such a case and the set-off available to the principal debtor exceeds the debt due to the principal creditor, in equity there is no sum due under the loan. Thus, it is also conventionally understood that the expiration of a limitation period in respect of a cause of action does not mean that equitable set-off cannot be pleaded: Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (supra) at 331 - 332.
33 However, the question arises whether equitable set-off can be claimed by the debtor in respect of the damages that Mr Young says the Bank is liable to pay under one or other of the four causes of action foreshadowed in the counterclaim, each of which is statute-barred. The type of equitable set-off here being claimed is that which equity recognises whenever the party seeking the benefit of it "can shew some equitable ground for being protected against his adversary's demand": Rawson v Samuel (1841) Cr & Ph 161 at 178; per Lord Cottenham LC. Each of Langford Concrete Pty Ltd v Finlay (supra), Murphy v Zamonex (supra) and Doherty v Murphy (supra) illustrates the availability of this type of equitable set-off.
34 However, there is good reason to think that, unlike the right to set-off recognised by Giles J in Murphy v Zamonex (supra), the subject matter of the counterclaims that Mr Young foreshadowed in his proposed pleading that would form the basis of his claim for equitable set-off in this case, do not impeach the Bank's right to recover under the Bank's loan agreement with Computerised, or are not, to use the formula applied by Giles J in Zamonex, "so directly connected with the claim that it would be unjust to allow the plaintiff to recover without taking into account the defendant's counter-claim". Rather, the counterclaim that Mr Young would rely on here would appear to be much more like those relied on in Indrisie v General Credits Ltd [1985] VR 251 that were considered not to support a plea of equitable set-off. This is because in each case the matters pleaded to support the availability of causes of action in contract, negligence, deceit and conversion post-date the contract of guarantee upon which the Bank founds its action against Mr Young and are in no sense contemporaneous with that contract of guarantee. It follows, in my view, that it would not be open to conclude, if Mr Young made out any of
(Page 13)
- those actions, that it would be unjust for the Bank to recover in its action against Mr Young as guarantor without taking into account the actions of the principal debtor referred to in Mr Young's counterclaim.
35 There is also a real question whether Computerised, whether joined as a party to the present proceedings or not, would be entitled to raise equitable set-off having regard to the terms of s 46 of the Limitation Act 1935 (WA). Section 46 of the Act provides:
"The provisions of this Act shall apply to any counter-claim or set-off alleged by the defendant in all cases, and to the like extent, and for the same purpose in, to, or for which they respectively would apply if the defendant had instituted an action against the plaintiff or plaintiffs in respect of the same matter."
36 Section 46 does not appear to have a direct counterpart in the limitation statute of any other Australian State or Territory. On its face, s 46 appears to negate the general equitable principle recognised in Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (supra), that the expiration of a limitation period in respect of a cause of action does not prevent a party asserting an equitable set-off where it is available. Section 46 appears to have the substantive effect that the limitation rules specified in the Limitation Act 1935, apply to, amongst other claims, a claim of equitable set-off. However, a procedural issue remains: when does the limitation period stop running? On the face of it, s 46 is not directed to this procedural issue.
37 Section 46 must, I think, be understood in light of the rules concerning the running of limitation periods prescribed in the Limitation Act 1935. In that regard, it is generally understood, under the present law, that proceedings are commenced when an originating process is issued and it is the issue of proceedings that stops the running of a limitation period. However, it is also understood that the commencement of proceedings stops time running only in respect of the cause or causes of action sought to be enforced in those proceedings and that time continues to run in respect of any other causes of action that may exist. In this context, as the Law Reform Commission of Western Australia noted in its report on Limitation and Notice of Actions (Project No 36, Pt II), January 1997) at par 20.9, one issue that arises is whether a set-off or counterclaim is a separate action for this purpose. If it is, commencement of proceedings in respect of the main claim will not affect the running of the limitation period with respect to the set-off or counterclaim.
(Page 14)
38 The Law Reform Commission in its report at par 20.9 states that the Limitation Act 1935 in Western Australia does not answer this question:
"It provides merely that the provisions of the Act 'shall apply to any counter-claim or set-off alleged by the defendant in all cases, and to the like extent, and for the same purpose in, to or for which they respectively would apply if the defendant had instituted an action against the plaintiff or plaintiffs in respect of the same matter [Limitation Act 1935, s 46]."
39 The Law Reform Commission further observes in that same paragraph that s 46 has its origins in the old English limitation legislation (Statute of Frauds Amendment Act 1828 (UK) s 4, which provided that the Limitation Acts applied to the case of any debt or simple contract alleged by way of set-off on the part of any defendant, either by plea, notice or otherwise) and can also be found in the legislation of South Australia (Limitation of Actions Act 1936 (SA), s 44) and some Canadian jurisdictions (Limitation of Actions Act 1973 (NB), s 16 and Limitation of Actions Act 1989 (NS), s 38).
40 The Law Reform Commission, at par 20.10 of its report, takes the view that it is necessary to refer to "case law principles" to determine the relationship between a set-off or counterclaim and the main action, and that case law determines that a claim by way of set-off is deemed to commence on the same date as the action (see, eg, Walker v Clements (1850) 15 QB 1046; Lowe v Bentley (1928) 44 TLR 388), but the limitation period for counterclaims is deemed to run until the counterclaim is made (Lowe v Bentley (supra); McDonnell & East Ltd v McGregor (1936) 56 CLR 50).
41 The Law Reform Commission in its report at par 20.11 notes that "modern" Limitation Acts, which it discusses elsewhere in its report, are much more specific in stating the relationship between counterclaims or set-off and the running of time in the main action, than is the Western Australian Act. Thus, in the Northern Territory, Queensland, Tasmania, Victoria and New Zealand the legislation discussed in the report follows s 28 of the English Limitation Act 1939 (UK) in stating that a claim by way of set-off or counterclaim is deemed to be a separate action and to have commenced on the same date as the action in which the set-off or counterclaim is pleaded: Limitation Act 1981 (NT), s 8; Limitation of Actions Act 1974 (Qld), s 42; Limitation Act 1974 (Tas), s 35; Limitation of Actions Act 1958 (Vic), s 30; Limitation Act 1950 (NZ), s 30. Time
(Page 15)
- therefore stops running on that date: Webster Ltd v Roberts [1989] Tas R 37.
42 I would respectfully adopt the analysis of s 46 of the Limitation Act 1935 and case law provided by the Law Reform Commission in its report and accept that a claim by way of set-off is deemed, in this State, to commence on the same date as the main action in respect of which it is pleaded as a defence.
43 I should, however, note that this analysis is not consistent with what Higgins J observed in Pegasus Leasing Ltd v Cadoroll Pty Ltd (1996) 59 FCR 152 at 162. There, Higgins J (dissenting in the result) noted:
"The defence pleaded is supported by reference to the SA Limitation law. Section 44 of the SA Limitation law provides:
'This Act shall apply to the case of any debt or simple contract alleged in the way of set-off on the part of any defendant either by his defence or notice or otherwise.'
In each other State and Territory other than Western Australia a set-off or cross-claim is deemed to have been commenced upon the date the original action in which it is pleaded is commenced. In Western Australia, s 46 of the Limitation Act 1935 (WA) deems the date of commencement of both a set-off and cross-claim to be the date upon which the pleading raising it is delivered.
The South Australian provision does not vary the common law rule as to the date upon which proceedings by way of cross-claim or set-off are deemed to have been commenced.
That rule was referred to by Dixon J in McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 55, namely that:
' … debts which have accrued within six years of the issue of the writ may be relied upon as a set-off by way of defence, while a cause of action relied upon as a counterclaim must have accrued within the period of limitation calculated from the delivery of the counterclaim.'
Thus, insofar as the defence and counterclaim in the South Australian proceeding seeks to have the agreements founding the claim declared void and to claim damages by way of set-off,
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- there is no apparently arguable case that the respondents will be precluded by any applicable limitation law from asserting those claims: see D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 per Woodward J and James v Commonwealth Bank of Australia (1992) 37 FCR 445 per Gummow J.
The only disadvantage that could arguably be suffered by the present respondents would be if their set-off by way of damages left a surplus to be recovered by way of counterclaim. That counterclaim would be capable of being barred even if a set-off based on the same facts would not be: see Commonwealth Trading Bank of Australia v Sidney Raper Pty Ltd (1975) 25 FLR 217."
44 It is not clear to me why Higgins J thought s 46 deems the commencement date for a set-off claim to be the date the pleading is delivered. Section 46 does not in terms deem any such result, his Honour cites no decided case on the topic, and, as the Law Reform Commission has concluded in its report, case law indeed suggests otherwise.
45 If it is accepted, then, that a claim by way of set-off is deemed to commence on the same date as the action, the question in this case is when, if at all, did the action, in respect of which the set-off is relevant, commence. On the face of it, there is no action between the Bank and Computerised. In those circumstances, the limitation period in respect of the set-off is still running, meaning that, just as the proposed causes of action of Computerised by way of counterclaim are acknowledged to be statute-barred, so would any equitable set-off that was dependent upon them.
46 As it is not contended that Mr Young is himself entitled to a set-off against the Bank in the Bank's action against him as guarantor, there is no question that a claimed equitable set-off is deemed to have commenced on the same date as the Bank's action on the guarantee against him.
47 The question remains, however, whether, if a guarantor is entitled to rely upon an equitable set-off available to a principal debtor, and a creditor commences an action against the guarantor without commencing an action for recovery against the principal debtor following default (and assuming the guarantor joins the principal debtor as a party to those proceedings, as the authorities suggest ordinarily is appropriate), the entitlement of the guarantor to rely upon an equitable estoppel available to the principal debtor should be deemed to commence on the same day as
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- the action by the principal creditor against the guarantor. If that were the case in the present proceedings, then the deemed commencement date for Mr Young's entitlement to rely on the set-off he claims Computerised is entitled to claim in equity would be the date of the commencement of the Bank's action against Mr Young, namely, in 1996. At that time, it would appear the limitation period would not have run in respect of any set-off claim available to Computerised.
48 In these circumstances, I am inclined to consider it is arguable that, in an appropriate case, s 46 of the Limitation Act 1935 does not prevent a guarantor from asserting an entitlement to rely on an equitable set-off available to the principal debtor, at least in a case where the principal debtor is joined as a party, notwithstanding that the principal debtor may be statute-barred in respect of the cause of action upon which the set-off is based.
49 However, as noted earlier, in the case of Mr Young I am not satisfied that the causes of action upon which Mr Young wishes to found his claim of equitable set-off are properly able to support such a claim.
50 For these reasons, I consider the Master was right to refuse leave to amend the counterclaim in the manner proposed by Mr Young and I would dismiss the application for leave to appeal.
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