Perpetual Trustee Company v Kwok [2011] NSWSC 422

This involved a loan for 35 million secured over Minto shopping centre. The loan went into default and the lender sued the guarantor. The guarantor sought to raise the defence of set-off based on losses allegedly caused to him by the lender. This was rejected by the Judge who noted:

The alleged breaches arose out of transactions pursuant to the loan which was guaranteed. But the cause of action is, nevertheless, distinct from the cause of action which the lender has for the moneys which it is owed. Accordingly the misrepresentation claim cannot validly operate as a set-off.

There was another reason why the guarantor was not allowed to succeed. The mortgage had a clause which stated:

All money payable by the Guarantor under this Guarantee must be paid without set-off or counter claim and free of all deductions.

The guarantor argued that this clause was void because it sought to oust the jurisdiction of the court. The judge dealt with this by noting:

This contract does not in anyway attempt to oust the jurisdiction of the Court, it merely defines and limits the parties legal rights within the permissible scope of contractual obligations. This is a valid exercise.

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