[Emphasis added]
59 Mr Coles, on the other hand, says the Guarantee Set-off Clause should be read:
Each party to this Agreement [NAB] irrevocably authorises the other party [Idoport] to apply any amount owing in any currency (whether or not matured) to the other party [NAB] towards satisfaction of any sum at any time due and payable by it [NAB] to the other party [Idoport] under or in relation to the Consulting Agreement."
[ Emphasis added]
60 There is no doubt that if the authorising party is NAB then the first reference to "the other party" is Idoport. Both sides agree on this. There is also no doubt that the expression "the other party" cannot sensibly refer to one specific party.
61 If the second reference to "the other party" means NAB, as Mr Coles submits, then Mr Bathurst puts that the remainder of the clause does not make sense commercially or otherwise. Indeed, if this construction of the clause is correct, one would question, why a creditor would allow a debtor to have a choice of whether or not to pay back moneys owing or set-off them against reverse debts.
62 Mr Bathurst further submits that Idoport's construction of the Guarantee Set-off Clause is commercially unreasonable as it permits Idoport to decide whether any amount owing to NAB should be paid or applied towards a sum payable by NAB to Idoport under or in relation to the Consulting Agreement. Usually, Mr Bathurst says, such a decision is in the hands of the creditor and not the debtor.
63 Mr Coles' riposte is that it is wrong to class NAB as a "creditor" and Idoport as a "debtor" in a commercial agreement in which it was contemplated that there would be debts flowing in both directions.
64 Mr Coles puts that the Guarantee Set-off Clause was created by NAB and Idoport as part of NAB's guarantee that the liability of Valenti to pay the performance bonuses under certain circumstances to Idoport would be met. In that context, it is logical that the intention of the parties was that NAB agreed to authorise Idoport to set-off debt owed by NAB to Idoport against debt owed by Idoport to NAB.
65 Both sets of counsel say that their interpretation is the commercially sensible one. This really depends on one's point of view.
66 Whilst there will be difficulties with either construction, there are respectable arguments for each of the interpretations and I do not consider that the clause is so inscrutable as to be void for uncertainty. It seems to me that the better interpretation is to read the clause as saying that NAB authorises Idoport to set-off any monies owing to it by NAB against monies it owes to NAB. It also means that Idoport authorises NAB to set-off any monies owed by Idoport against monies it owes to Idoport. Although this gives both parties the right to make an appropriation, the practicalities of the matter are that the appropriation will be made by the party owing the lesser amount.
67 However, Mr Bathurst says that it really does not matter that much what is the true interpretation of the Guarantee Set-off Clause. This is because it just cannot be said that there is any amount owing by NAB to Idoport nor that there is any money due and payable by NAB to Idoport.
68 Generally speaking, the authorities favour the proposition that money is only due and owing when, if not paid, the person to whom it should be paid may maintain an action for it at law or in equity; see eg the dictum of Darling J in Re Moss [1905] 2 KB 307, 314, the subsequent history of which I discussed in Fliway Transport Pty Ltd v Soper (1988) 21 NSWLR 19, 22-24.
69 In all cases of procedural set-off, a claim cannot be set-off unless it is enforceable by action: Francis v Dodsworth (1847) 4 CB 202, 220; 136 ER 482, 489; Smith v Betty [1903] 2 KB 317, 323 and Stehar Knitting Mills Pty Ltd v Southern Textile Converters Pty Ltd [1980] 2 NSWLR 514, 522.
70 Again in Re GEB [1903] 2 KB 340, 349, set-off was not available where the debtor did not have a claim which he could enforce by action. See also Maniotis v Valimi Pty Ltd (2002) 4 VR 386; 169 FLR 291.
71 The view that money can only be said to be due when it can be recovered by action fits in with these authorities on procedural set-off.
72 It also accords with the principles discussed by Knox CJ and Dixon J in the case involving the Commissioner of Stamp Duties referred to earlier.
73 Accordingly, I accept this submission.
74 I now pass to the next group of submissions. Mr Bathurst says that the act of raising a defence of set-off in winding up proceedings constitutes the making of a claim which is barred by the Barring Order.
75 Mr Coles submits that the Barring Order only operates to bar Idoport from bringing "fresh proceedings" which concern "any cause of action or the whole or any part of any claim for relief by any of them in these proceedings" [emphasis added]. Thus, says Mr Coles, the Barring Order does not bar the bringing of a claim per se but rather the bringing, commencement or continuation of legal or quasi-legal proceedings (such as arbitration).
76 It is necessary at this stage to refer to the problems involved in considering whether a defence of set-off raises a fresh claim or is merely a defence to an existing claim.
77 Mr Bathurst further submits that although a set-off strictly operates as an answer to a plaintiff's claim and as a plea in bar, it is still "in effect" a separate proceeding by the defendant.
78 A good place to commence this analysis is with Mersey Steel & Iron Co v Naylor Benzon & Co (1882) 9 QBD 648. In that case, a liquidator had a liquidated claim against Naylor. Naylor had an unliquidated claim for damages against the company for breach of contract. Sir George Jessel MR in argument commented at p 656, regarding set-off generally that "[i]t is in the nature of a defence. A defendant sued by a company must be entitled to raise any defence without leave". [emphasis added].
79 Mr Bathurst, on the other hand, cites Stehar Knitting Mills Pty Ltd v Southern Textile Converters Pty Ltd at 518 and 521 per Hutley JA, among others, as authority for his submission.
80 In Stehar at 518, Hutley JA referred to Widgery LJ in Langley Constructions (Brixham) Ltd v Wells [1969] 2 All ER 46 and said "a claim and counter-claim are not truly a single proceeding. The counter-claim cannot be regarded as part of the claim. Set-off is really identical in this regard".
81 At 521 of Stehar, Hutley JA said that "[h]aving regard to the above analysis of set-off, that is, it is one of the means of bringing conflicting claims to a single adjudication, I am of the opinion that claiming to set off a sum of money is commencing a proceeding against the company, and this is by statutory force prohibited. The fact that it is done by way of defence is immaterial. It is still a claim".
82 In the particular circumstances of Stehar the defendant was prohibited from commencing proceedings against the plaintiff by a provision of a scheme of arrangement. The Court held that for the defendant to set-off its claim against that of the plaintiff was to commence a proceeding. Therefore, even though set-off was available as an option for the defendant pursuant to Pt 15 r 25 of the then Supreme Court Rules 1970, the defendant was not able to exercise it because of the scheme of arrangement.
83 Mr Bathurst also cites Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, 301-2 and Westpac Banking Corp v Eltran Pty Ltd (1987) 14 FCR 541, 548-9 as authority for his submission.
84 However, none of these cases were cases of contractual set-off. There are sound reasons for saying that: (a) the first type of set-off discussed above; (b) set-off under s 54(1) of the Sale of Goods Act; and (c) contractual set-off, do not operate as separate counter-claims, but are true matters of defence.
85 Mr Coles submits that the set-off available to the defendant in the circumstances of the instant case is contractual set-off and not set-off by statute (as in Stehar) or equitable set-off. Contractual set-off is a non-judicial step which does not require the assistance of the court (being more along the lines of a self-help remedy), but rather is the exercise of a contractual right; it does not fall within the scope of "fresh proceedings" and is therefore not barred by the Barring Order.
86 I agree with that submission. However, because there is no contractual set-off as the claim by Idoport does not constitute monies owing to it by NAB, victory on that submission does not win the battle for the defendant.
87 Mr Coles puts that, because there was set-off, NAB cannot be considered a creditor because the judgment debt has already been paid by way of Idoport serving the Notice of Set-off on the NAB on the ground that contractual set-off is equivalent to payment.
88 This submission is to my mind outside the terms of the separate question. However, its fate may be sealed by the determination I have already made.
89 Some time was spent in submissions as to whether Idoport's claim was a liquidated claim or not and the consequences of such classification. It is clear that in some classes of procedural set-off the distinction is critical; see eg McDonnell & East Ltd v McGregor (1936) 56 CLR 50; Bayview Quarries Pty Ltd v Castley Development Pty Ltd [1963] VR 445.
90 Mr Bathurst then says that the Court should not allow Idoport to evade the purpose and intended effect of the Barring Order and frustrate the NAB parties' recovery of their costs.
91 He points out that Idoport has had the opportunity to have this Court determine the Performance Bonus Claim. Further, in written submissions to the High Court, Mr Walker SC who then appeared for Idoport accepted that until the judgment debt was paid, the judgment of the Court of Appeal precluded Idoport from seeking any remedy in relation to the Consulting Agreement, even to the extent of denying Idoport the ability to claim and quantify the Performance Bonuses, which could otherwise be set-off against the claim for costs made by the NAB parties.
92 A finding of abuse of process is not lightly to be made: it is unnecessary to make it in the present case, and I do not do so. It is my duty, however, to note the submission.
93 A further matter was raised by Mr Coles and that is that these proceedings in themselves are an abuse of process because NAB did not serve on Idoport a notice of demand as a precursor to winding up proceedings pursuant to s 459E of the Corporations Act 2001 (Cth).
94 There is nothing in this point, s 459E makes it clear that a creditor "may" serve a statutory demand but is not obliged to do so.
95 Finally, Mr Coles submits that this Court ought not otherwise exercise its discretion to order the winding up of Idoport. He cites Re K L Tractors Ltd [1954] VLR 505, 512 where O'Bryan J said "a winding up order will not as a matter of discretion be made on a debt that is bona fide disputed provided the dispute is based upon a substantial ground".
96 This matter is not really within the separate question. However, despite Mr Coles' submissions, I can see no reason at present why a winding up order should not be made in favour of the creditor as a matter ex debito justiciae.
97 The separate question must thus be answered, "No".
98 I will publish these reasons and stand the matter over for short minutes to be brought in. Those short minutes should deal with the answer to the question, costs (which I presently assume will need to be ordered against Idoport) and the ongoing progress of the winding up proceedings.
99 I will provisionally fix 9.30am on 6 December 2007 for those short minutes to be brought in. However, if my Associate is contacted the previous week, it may be possible to change that time.