New South Wales Supreme Court CITATION : CBA v G S Develpment P/L & 2 Ors [2004] NSWSC 511 HEARING DATE(S) : 26 May 2004 JUDGMENT DATE : 15 June 2004 JURISDICTION: Common Law JUDGMENT OF : Master Harrison DECISION : (1) The plaintiff's notice of motion filed 16 February 2004 is dismissed; (2) The plaintiff is to pay the defendants' costs as agreed or assessed. CATCHWORDS : Summary judgment - equitable set-off - possession Contracts Review Act 1980 (NSW) LEGISLATION CITED : Fair Trading Act 1987 (NSW) Supreme Court Rules 1970 (NSW) Trade Practices Act 1974 (Cth) Agar v Hyde (2000) 201 CLR 552 Air Services Australia v Zarb (unreported, NSWSC, 26 August 1998) AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 Commonwealth Development Bank v Windermere Pastoral [1999] NSWSC 518 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 Galambos & Son Pty Ltd v McIntyre Developments Pty Ltd (1974) 5 ACTR 10 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 CASES CITED : Indrisie v General Credits Ltd [1985] VR 251 Popular Homes Ltd v Circuit Developments Ltd [1979] 2 NZLR 642 Rawson v Samuel (1841) cr & Ph 161; 41 ER 451 Starr Investments (Aust) Pty Ltd v Mecafree Pty Ltd [1999] NSWSC 938, Berecry M Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 [11 ACLR 616; 5 ACLC 480] Webster & Anor v Lampard (1993) 177 CLR 598 Westpac Banking Corp v Eltran Pty Ltd (1987) 14 FCR 541 [74 ALR 45; [1987] ATPR [40-802] Westwind Air Charter Pty Ltd v Hawker de Havilland Ltd (1990) 3 WAR 71 Commonwealth Bank of Australia (Plaintiff) G S Development Pty Limited (First Defendant) PARTIES : George Najjar (Second Defendant) Yvette Najjar (Third Defendant) FILE NUMBER(S) : SC 10413/2003 Mr R G Forster SC (Plaintiff) COUNSEL : Mr R Horsley (Defendants) Mr J Lanser, J K O'Sullivan Solicitors (Plaintiff) SOLICITORS : Mr J Russell, Surry Partners (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON TUESDAY, 15 JUNE 2004 10413/2003 - commonwealth bank of australia v G S DEVELOPMENT PTY LIMITED & 2 ORS JUDGMENT (Summary judgment – equitable set-off, possession) 1 MASTER: By notice of motion filed 16 February 2004 the plaintiff seeks pursuant to Part 13 of the Supreme Court Rules 1970 (NSW) (SCR) firstly, an order that the first defendant give to the plaintiff possession of the whole of the land comprised in certificate of title folio identifier 29/651832, being the property known as and situated at 147 Victoria Road, Bellevue Hill; secondly, an order granting leave to the plaintiff forthwith to issue a writ of possession in respect of the property; thirdly, as against the first, second and third defendants, judgment in the sum of $3,402,116.62 together with interest pursuant to the provisions of home loan 2448 01904 for the period 19 June 2002 to the date of judgment; or alternatively, $3,276,000.00 together with interest thereon to the date of judgment, calculated in accordance with the provisions of a deed of settlement between the plaintiff and defendants dated 18 September 2002; and fourthly an order that the amended cross-claim be stayed or dismissed generally. 2 By a foreshadowed amended cross-claim (Ex 1) the defendants claim: firstly, damages under s 82 of the Trade Practices Act 1974 (Cth) (TPA) and/or s 68 of the Fair Trading Act 1987 (NSW) (FTA) for misleading and deceptive conduct and/or for breach of contract; secondly, in the alternative, equitable compensation for the detriment suffered by the defendants/cross-claimants as a result of the plaintiff/cross-defendant's unconscionable conduct referred to in paragraphs 61 to 66 (of the amended cross claim); thirdly, in the alternative, damages for negligence and interest and costs. The defendants foreshadowed that they would seek to amend their cross-claim of relief, namely that the mortgage be declared null and void (s 87 of the TPA and s 9 of the Contracts Review Act 1980 (NSW) (CRA)). The application for summary judgment is dealt with on the basis that the defendants' claim is taken at its highest, so I will take these amendments into account. 3 The plaintiff/cross-defendant is the Commonwealth Bank of Australia ACN 123 123 124. The first defendant/cross-claimant is G S Development Pty Limited ACN 087 642 439. The second defendant/second cross-claimant is George Najjar. The third defendant/third cross-claimant is Yvette Najjar. The plaintiff relied on the affidavits of Susan Joy Ralston sworn 23 December 2003 and Simon Adler affirmed 8 March 2004. The defendant relied upon the affidavit of Michael Patrick Quinn sworn 24 March 2004. 4 The plaintiff seeks possession of the property at Bellevue Hill and payment of debts due to it pursuant to a mortgage between the plaintiff and first defendant and the second and third defendants' guarantees between the plaintiff and the second and third defendants who are directors of the first defendant. The defendants assert that the plaintiff, inter alia breached its contract with them in that it failed to make finance available, which was a direct cause of their inability to complete the project and repay the mortgage on time, and by application of the doctrine of equitable set off the defendants have the right to set off the claim for damages against the amount secured by the mortgage and guarantees. The law in relation to summary judgment 5 The text of Part 13 r 2 of the SCR reads: "2(1) Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff - (a) there is evidence of the facts on which the claim or part is based; and (b) there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed, the Court may, by order, on terms, give such judgment for the plaintiff on that claim or part as the nature of the case requires." 6 And Part 13 r 5 of the SCR reads: "(1) Where in any proceedings it appears to the Court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings- (a) no reasonable cause of action is disclosed; (b) the proceedings are frivolous or vexatious; or (c) the proceedings are an abuse of the process of the Court, the Court may order that the proceedings be stayed or dismissed generally or in relation to any claim for relief in the proceedings." 7 Part 13 r 2 is relied upon in relation to the defence and Part 13 r 5 in relation to the cross claim. 8 In Agar v Hyde (2000) 201 CLR 552 the High Court held at 57 that: "Ordinarily a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formula which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were to go to trial in the ordinary way." According to their Honours, this is because: "It would be wrong to deny a plaintiff resort to the ordinary processes of a court on the basis of a prediction made at the outset of a proceeding if that prediction is to be made simply on the preponderance of probabilities." 9 Similarly, in Air Services Australia v Zarb (Unreported, NSWSC, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railways Commissioners (1949) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. 10 In General Steel Barwick CJ, who heard the application alone stated at 130: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 11 Barwick CJ also said at 129: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; be manifest that to allow them' (the pleadings) 'to stand would involve useless expense." 12 In Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at 602: "The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried."' 13 According to Rolfe AJA in Zarb at 15: "The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241. Background 14 The first defendant is the registered proprietor of the whole of the land in certificate of title folio identifier 29/651832 known as 147 Victoria Road Bellevue Hill NSW (the property). As at November 2001, there were two registered mortgages over the title of the property. The first registered mortgage, securing a debt of approximately $2,300,000.00 was in favour of Westpac Banking Corporation and the second registered mortgage, securing a debt of approximately $900,000.00 was in favour of Preslands Finance Pty Ltd. 15 On 2 November 2001 the first defendant made an application to borrow $4,000,000.00 from the plaintiff in order to: firstly, refinance the first defendant's borrowings in respect of the property and pay out both registered mortgagees at a cost of approximately $3,200,000.00 and secondly, refurbish the apartments located on the property and landscape the property at a cost of approximately $800,000.00 to $900,000.00 and subsequently strata title the apartments and sell them. 16 There are four transactions that are important in this judgment: firstly, the mortgage between the plaintiff and first defendant; secondly, the guarantee between the plaintiff and the second and third defendants; thirdly, the loan agreement and fourthly, the subsequent deed between the parties. 17 Most of the negotiations pertaining to the loan with the plaintiff involved the defendant's broker, Mr Simon Adler and Mr Chris Jurukovski on behalf of the bank. On 7 November 2001, Mr Jurukovski, the mobile sales manager of the Bankstown area of the plaintiff wrote to Mr Adler and stated that a loan facility of $4,000,000.00 had been approved subject to the following conditions: · Satisfactory on completion valuation of the security properties achieving a total value of no less than $5,700,000.00. · Receipt of personal tax returns for both clients' once they are completed. · Copy of the building contract to be provided to the Commonwealth Bank for the renovations on the properties. · Renovation funds to be released on a cost to complete basis. 18 Mr Quinn, bank officer, has deposed that the bank had not at any time received a satisfactory on completion valuation of the property achieving a total value of no less than $5,700,000.00 so one of the conditions referred to in the letter of 7 November 2001 was not complied with. The evidence does not disclose whether the other conditions referred to in the letter were in fact complied with. 19 In mid November 2001, the defendants advised the plaintiff that they would require $200,000.00 of the balance of the loan amount after paying out the registered mortgages to initiate the refurbishment project and pay for preliminary fees. 20 On about 18 November 2001 the second defendant collected the loan documents which named the borrower as Mr Najjar and not G S Development Pty Ltd. The need for only $200,000.00 of the balance of the loan moneys had changed. Mr Najjar had a conversation with his broker to the effect that the name of the borrower on the loan documents was incorrect. In lieu of a loan to Mr and Mrs Najjar, it should be in the name of the company, G S Development Pty Ltd; and secondly, that Mr Najjar advised Mr Adler that he would like to draw down the whole $800,000.00 because the refurbishment was only going to take three months and the architect would need to use the money pretty quickly. Mr Adler forwarded a fax to Mr Jurukovski to that effect. Later that day, Mr Adler and Mr Jurukovski had a conversation to the following effect: Jurukovski: "I got your faxes. The bank will allow your clients to draw down the full $800,000 balance on settlement." Adler: "That's great. Thanks." Jurukovski: "I'll be collecting the new loan contract and mortgage documents with the correct borrower details from the Burwood processing centre at 4pm tomorrow and then passing them onto your clients. When your clients return the signed documents, I'll also need a few things. Firstly, a letter from Mr Najjar advising that no personal tax returns are available. Secondly, an amended letter from the architect saying that an advance of $800,000 is required, not $200,000. Thirdly, a copy of the fixed price contract with the builder which says what the $800,000 is required for. Lastly, a letter from Mr Najjar requesting the $800,000 draw down as per the letters from the architect and builder. Can you arrange all of that?" Adler: "Leave it with me." 21 It is alleged that in this conversation Mr Jurukovski made a representation that the clients would be entitled to draw down $800,000.00 balance on settlement. This did not happen. 22 On or about 20 November 2001, the plaintiff: firstly, confirmed to the first defendant that its application for a Commonwealth Bank Investment Home loan had been approved; and secondly, supplied to the first defendant a copy of the plaintiff's loan contract comprised of a Consumer Credit Contract Schedule (the Schedule) and Usual Terms and Conditions (UTC) for Consumer Lending. It was a term of the loan contract that the plaintiff would make available the full amount of the loan to the first defendant by a single loan drawing unless the loan contract provided otherwise or the plaintiff agreed to a request from the first defendant to fund the loan by progressive loan drawings. 23 Clause 3 provides that the defendant's obligations are secured by security stated in Item K. Item K in the Schedule refers to a registered mortgage over property situated at 147 Victoria Road, Bellevue Hill and guarantees by George and Yvette Najjar. 24 Clause 5.1 of the UTC provides that the plaintiff would fund the loan by a single loan drawing unless the contract provides otherwise or it agrees to fund the loan by progressive loan drawings. 25 Item B(i) of the Schedule provided that it was a term of the Loan Contract that the plaintiff would pay the amount of credit, a principal sum of $4,000,000.00 as stated in Item M of the Schedule. Item M of the Schedule stated that it was a term of the loan contract that the plaintiff would pay the amount of credit stated at Item B(i) of the Schedule, namely, $4,000,000.00, at the first defendant's written direction. 26 By guarantee dated 23 November 2001 and in consideration of the plaintiff granting the loan to the first defendant, the second and third defendants jointly and severally guaranteed to the plaintiff the payment of all moneys owing by the first defendant under the loan including interest, costs, fees and charges. 27 By mortgage dated 28 November 2001 (the mortgage) the first defendant mortgaged all of its estate and interests in the property to the plaintiff on the terms contained in the mortgage by way of home loan 2448 01904 (the loan) and registered the memorandum at the Land Titles Office as number 0671753. The mortgage was then registered in the Land Titles Office and allocated dealing number 8311175B. 28 On 28 November 2001 the bank brought two settlement cheques for $3,223,412.47 (which was some $776,587.67 short of $4,000,000.00). On 29 November 2001 the bank made available to the first defendant a further sum of $88,081.86 bringing the total advance to $3,311,497.33 (still $688,505.67 less than $4,000,000.00). Thus, the bank did not provide the amount stipulated in the loan to the defendants. 29 The further amended cross claim brought by the defendants against the plaintiff plead that by the Bank withdrawing the undrawn portion of the loan (namely $685,505.67), the action had the effect of preventing the defendants from being able to refurbish the apartments on the property and landscape the property. Further, they plead that the loan contract was not reasonably fit for the purpose and in breach of s 74(2) of the TPA and the Bank was engaged in misleading and deceptive conduct (s 52 of the TPA and s 42 of the FTA. The cross defendants seek damages by reason that they had to enter into a further loan contract with Blue Boomerang Capital Finance Pty Limited (BBCF) at a higher interest rate and incurred further expenses such as stamp duty, valuation expenses and legal costs. Nevertheless, the defendants claim that they have been unable to raise the entire amount of $688,507.67 and have been unable to redevelop the property in the time frame proposed and they have been deprived of the expected profit from redeveloping and selling the property or alternatively leasing out the apartments. The cross claimants allege that the cross defendant breached a term of the loan contract namely clauses 5.1 and 5.2(a) of the UTC. The second and third defendants have also claimed in relation to the guarantees and the deed under the CRA and have sought an order declaring the guarantee and the deed void. Equitable Set Off 30 According to the Laws of Australia an equitable set-off may arise when: firstly, the defendant has a claim of debt or damages against the plaintiff and secondly, the defendant's claim is so closely related to the plaintiff's claim in subject matter that it impeaches the plaintiff's claim in the sense that it would be positively unjust that there should be a recovery without an allowance or deduction (see - D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10, Woodward J at 18; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 [11 ACLR 616; 5 ACLC 480] (NSWSC), Smart J at 295; Indrisie v General Credits Ltd [1985] VR 251; AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705; Westpac Banking Corp v Eltran Pty Ltd (1987) 14 FCR 541 [74 ALR 45; [1987] ATPR [40-802]; Westwind Air Charter Pty Ltd v Hawker de Havilland Ltd (1990) 3 WAR 71). 31 As noted in Halsbury's Law's of Australia, for the defence to succeed, it is essential that the defendant identify some equitable right to be protected from the plaintiff's claim. In such cases, the existence of cross demands alone is insufficient, even if they arise out of the same subject matter (see Rawson v Samuel (1841) Cr & Ph 161; 41 ER 451). 32 Though born of the same legal foundation, the English and Australian law on the doctrine of equitable set-off has since diverged with the English authorities adopting an 'expansionist' approach while the Australian authorities upholding a more 'restrictionist' or orthodox interpretation. Of the discrepancy between the English and Australian positions, the learned authors of Meagher, Gummow and Lehane said (in their 1975 incarnation at para 3709) of the English stance: "Either they are wholly misconceived, or they have (albeit unintentionally) abrogated the requirement that no equitable set-off of the kind under consideration can exist unless it generates an equity which impeaches the validity of the plaintiff's claim. Certainly they cannot be reconciled with prior authority." 33 Spry in The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages (6th ed, Lawbook Co., 2001) at 178-179 aptly summarised the situation insofar as: "…in England there has been a tendency from time to time to extend the doctrine of equitable set-off beyond the principles that were set out by Lord Cottenham. Thus in Hanak v. Green the plaintiff sued a builder for breach of contract and alleged a failure to complete properly certain work, and the defendant was permitted to set off a claim arising through a cause of action in quantum meruit in regard to the performance of additional work. It may be doubted whether this matter was one that impeached the plaintiff's claim in the relevant sense, but the analysis of Morris L.J. has received approval on subsequent occasions even although it did not appear to give proper weight to prior authorities dealing with set-offs generally. Indeed, in 1989 the House of Lords accepted a new formulation for equitable set-offs, whereby it is asked whether the cross-claim in question was one 'flowing out of and being inseparably connected with the transaction'. (The orthodox analysis is that the relevant cross-claim must go directly to impeach the plaintiff's demands, that is, be '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'. Probably the formulation of the House of Lords may be regarded as merely providing an instance of cases where an equitable set-off arises because the relevant matter impeaches the plaintiff's demands.) The position in England is further complicated in that a new rule of court authorizes the pleading of a defence and set-off by a defendant '[w]here a claim by a defendant to a sum of money (whether of an ascertained amount or not) is relied on as a defence'. The better view is that this rule does not extend the principles by which set-offs may be established (according to some, but not all of which, as has been seen, the claim attempted to be set off must have been in respect of a liquidated amount), but has merely a procedural effect." (see Spry The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages (6th ed, Lawbook Co., 2001) at 173-180 for an informative account of the historical basis and application of the doctrine)." 34 In Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 15-25, Woodward J chronologically analysed the relevant authorities and at 25-26, His Honour enunciated the principles to be extracted from the authorities. They included: "(i) Failure in part to perform a contract, or defective performance of a contract requiring work to be done again or directly reducing the value of work done or goods supplied, may be raised as a defence to an action for money due under that contract: Allen v Cameron; Lowe v Holme; Mondel v Steel. (ii) Claims for money due under a contract and for damages for breach of the same contract (arising, for example, from delay) may be set-off against each other where the equity of the case requires that it should be so. This will depend upon how closely the respective claims are related, particularly as to time and subject-matter. The general conduct of the respective parties will, as always, be relevant to the granting of such equitable relief: Young v Kitchin Newfoundland Government v Newfoundland Railway Co; Bankes v Jarvis; Hanak v Green. (iii) Even where one of the claims is not in terms based upon the contract, but it flows out of and is directly connected with it, a court may be prepared to recognize an equitable set-off: Piggott v Williams; Beasley v D'Arcy; Smith v Parkes; Morgan & Son v S Martin Johnson & Co; Hanak v Green (per Sellers LJ). (iv) The above statements of principle cannot be regarded as having universal application. They do clearly apply to contracts for work and labour, but special considerations are relevant in other areas such as - bills of exchange: Glennie v Imri; James Lamont & Co Ltd v Hyland Ltd; landlord and tenant: Fong v Cilli and carriage of goods: Henriksens A/S v Rolimpex." 35 Subsequent to Galambos, the New Zealand decision of Popular Homes Ltd v Circuit Developments Ltd [1979] 2 NZLR 642 considered the doctrine of equitable set-off in respect of the divergent views held by the English and Australian authorities, giving extensive consideration to the analysis of Spry (see 658-659). In that case, the matter under consideration involved a contract for the sale of land where the first defendant defaulted in its obligation to provide finance that prevented the plaintiff from completing the project and repaying the mortgage. In finding that the necessary relationship existed between the respective claims of the parties so as to require equitable intervention, Barker J [at 660] summarised the situation in Popular Homes by adopting a similar stance to Spry in stating: "Before the first defendant is entitled to enforce this debt, equity will allow a set-off of the damages caused by his breach. The two claims are so closely related as to make it unconscionable for the first defendant to recover without allowing a set-off." 36 As Giles J, (as he then was) explained in AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 at 710-712, an equitable set-off will arise when there exist circumstances which make it unjust or inequitable that the plaintiff should be permitted to proceed with its claim without the defendant being able to prosecute its claim as an equitable defence. In considering the principles governing equitable set-off His Honour noted that the doctrine had been considered in a number of cases since D Galambos & Son Pty Ltd v McIntyre and that: "This consideration should be undertaken bearing in mind the juristic basis of an equitable set-off. Prior to the Judicature Act , an equitable set-off was enforced by an injunction obtained in equity to restrain the plaintiff at law from proceedings with his action without giving credit to the defendant for the amount of his cross-demand. Hence it was not enough simply to point to a cross-demand: there had to be shown "... some equitable ground for the defendant being protected against his adversary's demand": see Rawson v Samuel (1841) Cr and Ph 161 at 178; 41 ER 451 at 458 per Lord Cottenham LC. Hence also where that equitable ground was shown the defendant had a defence to the claim, and more than just a cross-demand. The so-called equitable set-off could be better described as an equitable defence (Henriksens Rederi A/S v THZ Rolimpex ("The Brede") (at 248-249);" 37 In Commonwealth Development Bank v Windermere Pastoral [1999] NSWSC 518, Rolfe J addressed the issue of equitable set-off in the following manner: "[58] In AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 Giles J gave a wider operation to an equitable set-off or equitable defence. His Honour made clear that in each case one must look at the particular facts to determine whether it would be unjust or inequitable for the plaintiff to be permitted to proceed with its claim without making allowance for the cross-demand and, in doing that, all the circumstances of the case must be considered. His Honour came to a similar decision in Murphy & Anor v Zamonex Pty Ltd & Ors (1993) 31 NSWLR 439, stating, at p465:- '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. It is sufficient to refer to AWA. James v Commonwealth Bank of Australia (1992) 37 FCR 445 .. and the discussion in Meagher, Gummow & Lehane, para3709-para3710 at 817-823, without going into whether the latter approach is an illicit departure from principle and authority.' [59] The issues concerning equitable set-off have since been considered in Direct Acceptance Corporation Ltd (In Liq) v Lord (1993) 31 NSWLR 439 and, on appeal, (1993) 32 NSWLR 362, and by me in Coles Myer Ltd v Liverpool Growers (Australasia) Pty Ltd (24 September 1993 - unreported); Westpac Banking Corporation v Nalty (8 October 1993 - unreported); and Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1 August 1997 - unreported). All these decisions make clear that the Court must look at the particular circumstances of each case. This may mean that the ultimate question as to the right to a set-off may not depend on the construction of the security document alone. [60] In Tooth & Co Ltd v Rosier (Wood J - 7 June 1985 - unreported) there was an application for summary judgment. In the course of considering it his Honour dealt with a defence of set-off, considered cases such as Cellulose, Langford and Covino, and said:- 'That the ultimate question might not always turn on the construction of the guarantee alone, is however suggested by the passages in the judgments of Isaacs J in Cellulose Products, and of Hutley JA in Covino, to which reference has been made.' His Honour cited from the decision of Clarke J in Tooth & Co Ltd v Smith (5 September 1984 - unreported), where his Honour, in considering the circumstances in which an equitable set-off may arise, said:- 'No general rule can be laid down except by stating that such a set-off will arise when there exists circumstances which make it unjust or inequitable that a plaintiff should be permitted to proceed with his claim.' Wood J continued:- 'As presently advised, I do not see any fault in this test. No doubt where an equitable counter-claim was pleaded the fact that the transactions concerned were separate will always be a powerful consideration. However, at this stage of the proceedings, I am not clearly satisfied that the facts alleged would not give rise to an equitable defence.'" 38 Also see Starr Investments (Aust) Pty Ltd v Mecafree Pty Ltd [1999] NSWSC 938 Berecry M [at para 10]. 39 It is my view that the defendant has an arguable case and may, by operation of the doctrine of equitable set off, have a right to set off any damages against the amounts secured by the mortgage as in Popular Homes. It is also arguable 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 defendants' counter claim. It must also be remembered that as Wood J pointed out in Tooth, the ultimate question might not always be confined to the construction of in this case, the loan agreement and guarantee. The plaintiff submitted that even if it does not have an entitlement to summary judgment in relation to the claim under the mortgage, then it has an entitlement to summary judgment under the deed. The defendants submitted that this deed reflected the parties giving the defendants the opportunity to refinance the loan and that once it had the funds to refinance, the provisions of the deed took effect. 40 At paragraph 77 of the further amended cross claim, the defendants plead that they were unable to proceed with the development, as they did not receive the full loan of $400,000.00. As a result, they were unable to maintain the repayments under the loan contract. The cross defendant then threatened and intended to have recourse to its rights as against the property and against the guarantors under the mortgage. The cross claimants then had little immediate alternative but to enter into the deed in circumstances that were unjust in respect of their interests. 41 It is my view, that to determine whether the deed is unconscionable, the facts and circumstances including the earlier financial dealings need to be ascertained. The deed refers to the plaintiff exercising its rights in relation to the mortgage (clauses 3(a) and (b). It is my view that the cross claimants have an arguable case and the matter should proceed to trial. The plaintiff is not entitled to summary judgment. The plaintiff's notice of motion filed 16 February 2004 is dismissed. 42 Costs are discretionary. Costs usually follow the event. The plaintiff is to pay the defendants' costs as agreed or assessed. Orders 43 The Court orders: (1) The plaintiff's notice of motion filed 16 February 2004 is dismissed. (2) The plaintiff is to pay the defendants' costs as agreed or assessed. ********** Last Modified: 06/17/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.