New South Wales Supreme Court CITATION : Murphy v Westpac Banking Corporation & Anor [2007] NSWSC 170 HEARING DATE(S) : 01/03/07 JUDGMENT OF : Gzell J EX TEMPORE JUDGMENT DATE : 1 March 2007 DECISION : Application dismissed. CATCHWORDS : PROCEDURE - Payment into Court - Offer to lodge in Court a guarantee for $250,000 as security for any amount held to be due to second defendant in consideration of order that second defendant discharge her mortgage over property - Argument that plaintiff's entitlement to payment for costs of construction exceeded the second defendant's loan - argument that plaintiff entitled to setoff the one against the other - Construction costs not determined under dispute resolution provisions - Whether can offset an unliquidated claim against a liquidated one CASES CITED : Shaw v Wright (1863) W&W 57 Daniel Joseph Murphy - Plaintiff PARTIES : Westpac Banking Corporation - First Defendant June Charmaine Hilliard - Second Defendant FILE NUMBER(S) : SC 6154/06 COUNSEL : Mr P Cullen - Plaintiff Mr D Knoll - Second Defendant SOLICITORS : Thomson Playford Lawyers - Plaintiff McCabe Terrill - Second Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J THURSDAY I MARCH 2007 6154/06 DANIEL JOSEPH MURPHY v WESTPAC BANKING CORPORATION & ANOR EX TEMPORE JUDGMENT 1 The plaintiff in these proceedings seeks an order that he, without admissions, lodge in court a bank guarantee for the payment of up to $250,000 as a surety for the contingent payment of any debt determined by the court as being secured by the second defendant's mortgage over land comprised in two folio identifiers. 2 Consequent upon that order, the plaintiff seeks an order that within 48 hours of lodgement of the bank guarantee, the second defendant provide the plaintiff with an executed discharge of its second mortgage over both properties. 3 The parties were in a joint venture to develop a block of land owned by the second defendant, the plaintiff to provide for the construction of four units on the property. The construction costs were defined in the joint venture agreement as the reasonable sum that the plaintiff expended on the construction of the units, such sum not to be less than $1.35 million nor greater than $1.6 million. 4 The second defendant was to provide the plaintiff with a loan facility of $1.599 million. Clause 14.1 of the joint venture agreement provided that the second defendant should pay to the plaintiff the construction costs. Clause 14.3 provided that the plaintiff might at his option offset the loan of $1.599 million against his entitlement to the construction costs. Clause 14.4 provided that if there was a dispute between the parties as to the value of the construction costs a procedure for the settlement of that dispute should be followed. That procedure involved the appointment of a quantity surveyor to act as an expert, not as an arbitrator, to determine the level of the construction costs. That has not happened. There is a dispute as to whether there has been an agreement between the parties under cl 14.4 for the appointment of a quantity surveyor. There is also the prospect that an application will be made for the appointment of a referee to determine the level of construction costs. 5 Whatever the current position, the amount of the construction costs has not yet been determined and, in my view, there is as yet no entitlement in the plaintiff to offset his unliquidated claim for payment of the construction costs against the amount of the loan of $1.599 million. 6 In the absence of that right of set off, it seems to me that Mr Cullen, who appears for the plaintiff, cannot succeed in his argument that no debt now exists on the basis that the unliquidated claim for construction costs exceeds the loan of $1.599 million. 7 Furthermore, there is evidence that there was a default under the mortgage on 31 December 2005 by the failure to repay the loan. That date was set in the expectation that the units would be sold by that time. 8 A notice of default was given on 4 October 2006 and interest then accrued together with costs. The purported notice of set off given by the plaintiff was after that date. 9 In the absence of the establishment that no debt exists, it seems to me that the court cannot compel the second defendant to give up her security for the proffered guarantee. 10 There is a further problem that the guarantee, if accepted, would arguably preclude the second defendant from arguing that she was entitled to an amount in excess of $250,000. 11 In Shaw v Wright (1863) W&W 57 at 70, Molesworth J held that a person cannot insist upon a tender subject to a condition that would not preserve existing rights: "I think a condition, to make a tender bad, must be one which, if the money be taken, would preclude the taker from disputing a matter which he has a right to dispute, not the preserving to the person making the tender his rights of litigation." 12 In my view, there is no basis upon which the court, if a debt continues to exist to the second defendant, can require her to give up her security and I dismiss the notice of motion. I order the plaintiff to pay the second defendant's costs of the motion. ********** 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.