Perpetual Trustee Company v Triprush [2010] NSWSC 861

In this case there was a shortfall on two loans and the guarantor on both was sued by the lender in two separate proceedings. In the first set of proceedings, the borrower cross claimed pleading that “has suffered damage equal to the liability accrued to him by reason of the guarantee”. This was seized upon by the judge who noted :

Even if Mr Baker is entirely successful in his cross claim in the other proceedings, such success could only possibly result in him being relieved of liability under his guarantee of the loan relevant to those proceedings. Therefore, on his own pleading there will not be any ‘surplus’ funds available to him which would constitute the basis for an equitable set off for the purpose of these proceedings. In my view pleading the equitable set off raised in the amended defence in these proceedings is therefore doomed to failure.

The judge found it unnecessary to consider the argument raised by the bank, as the guarantee expressly excluded the right to claim set off. His Honour did note, however, that the ability to contract out of set off is well established law.

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