OPTIONS FOR REFORM
4.1 The Commission considers that there are four options for reform:
- insert a savings provision in the Imperial Acts Application Act 1969;
- revive the Statutes of Set-off by proclamation;
- re-insert a provision in the Supreme Court Rules 1970 (NSW); and
- introduce a new limited statutory form of set-off.
Insert a savings provision in the Imperial Acts Application Act 1969
4.2 This is the option preferred by Justice Handley:
Amend the Imperial Acts Application Act 1969 by including a provision similar to the savings provisions included in the Civil Procedure Acts Repeal Act 1879 (UK) and the Statute Law Revision and Civil Procedure Act 1883 (UK).1
This would mean framing a “Westbury Savings” provision which preserves the doctrines and principles of law established by the Statutes of Set-off and would involve a near complete revival of the type of set-off established by the former statutes. In its 1967 report on the application of Imperial Acts, the Commission noted the wide-reaching effects of such a clause and recommended against the general enactment of one as part of the Imperial Acts Application Act 1969 (NSW) on a number of grounds, including that:
4.3 Justice Handley has further suggested the drafting of a limited savings clause confined to the law established by the Statutes of Set-off which would become s 9(2)(c) of the Imperial Acts Application Act 1969 (NSW):
The repeal of the Imperial Act 2 Geo II c 22 s 13 and 8 Geo II c 24 ss 1, 5. (The Statutes of Set-off 1729 and 1735) shall not affect and be deemed never to have affected any jurisdiction or principle or rule of law or equity established or confirmed.3
Revive the Statutes of Set-off by proclamation
4.4 The fourth ground given by the Commission for not including a comprehensive Westbury Savings clause in the Imperial Acts Application Act 1969 (NSW) was:
If, despite the attention which we have given to the problems, the repeals turn out to have gone too far, the position can be restored by proclamation under clause 11. This is better than reliance on the necessarily vague words of a saving clause.4
Section 11 of the Imperial Acts Application Act 1969 (NSW) accordingly provides that the Governor may, by proclamation, declare that the whole or any part of a repealed Imperial enactment shall be revived.5 The proclamation is, however, subject, under certain conditions, to disallowance by resolution of either House of the New South Wales Parliament.6 Any provision revived in this way will have such effect as it had in New South Wales immediately before the commencement of the Imperial Acts Application Act 1969 (NSW).7 Counsel for the defendant at first instance in Southern Textile Converters Pty Ltd v Stehar Knitting Mills Pty Ltd had contemplated seeking an adjournment to make application for such a proclamation. This course was ultimately not taken because the proclamation would only have had prospective application and could not have assisted his client.8
4.5 If mere revival of the Statutes of Set-off is all that is required, then the procedure under s 11 of the Imperial Acts Application Act 1969 (NSW) has much to commend it, since it will not require legislative action to effect the change.
Re-insert a provision in the rules of court
4.6 The re-insertion of a provision similar to Pt 15 r 25 of the Supreme Court Rules 1970 (NSW) was also suggested by Justice Handley. However, he also acknowledged that this would not deal with situations such as that in Southern Textile Converters Pty Ltd v Stehar Knitting Mills Pty Ltd or with the position of guarantors. It may also have the wide-ranging effect suggested by Derham in extending the right of set-off beyond anything presently contemplated.9
New limited statutory form of set-off
4.7 A new limited statutory form of set-off has been proposed by McCracken, essentially to give statutory recognition to contractual rights analogous to set-off. The proposed statutory provision would be in addition to existing rights to set-off and would imply the statutory right into particular specified contracts in absence of an agreement to the contrary. This would be similar to, and probably a broader expression of, the netting proposals already discussed.10
4.8 Is there a demonstrated need for this? The Netting Sub-Committee of the Companies and Securities Advisory Committee, while observing that there was experienced legal opinion to the effect that there was no basis for doubting the effectiveness of netting arrangements, stated that it was “very desirable that the legal position be clarified beyond doubt”:
This is because of the high value of many of the transactions which are subject to netting arrangements, and the potentially disastrous consequences of adverse rulings by the courts.11
Such arguments may not, however, apply to many areas in which New South Wales is competent to legislate, given that insolvency, banking, corporate law and insurance lie in the realm of the Commonwealth’s legislative power. However, a new statutory form of set-off could be useful in the areas of personal finance and non-bank financial institutions. The Netting Sub-committee favoured limiting their proposed legislation to financial contracts or transactions because the effect of a more broadly expressed law was uncertain.12
CONCLUSIONS OF OTHER LAW REFORM AGENCIES
Law Reform Committee of South Australia
4.9 In South Australia, a State where the Statutes of Set-off continue in force, the Law Reform Committee produced a report on set-off in 1983,13 having excepted the Statutes of Set-off from a prior review of Imperial Statutes in force in South Australia. The Committee recognised the tendency in England, Australia and New Zealand for courts to widen the categories of cases in which set-off is available, especially since the decision in Hanak v Green, and concluded that once some unliquidated demands could be subject to set-off, there was no logical reason why all unliquidated demands could not be subject to set-off.14 The following recommendation was, therefore, made:
that the statutes of set-off be repealed as part of the repeal of imperial law in this State and that ... it be enacted that set-off be an allowable plea in relation to all cross-claims, liquidated or unliquidated, whether assessed or not assessed at the date of the plea, and whether arising out of the same transaction or series of transactions or not.15
However, the Committee specifically excepted any set-off claimed against money due under a negotiable instrument or letter of credit, owing to their particular status in mercantile usage.
Law Reform Commission of Western Australia
4.10 The Law Reform Commission of Western Australia, in its report on imperial statutes in force in Western Australia, concluded that the Statutes of Set-off could be repealed without affecting the principles already established so long as the repeal was accompanied by something in the nature of a “Westbury savings” clause.16 The Western Australian proposals have not yet been implemented although they are being actively considered by the Western Australian government.17
Law Reform Commission of British Columbia
4.11 The Law Reform Commission of British Columbia, on the basis of in principle support for there being only one method of raising a cross demand concluded that rights of set-off “should be subsumed by rights of counterclaim”.18 This would be achieved by passing legislation which would provide that “a cross demand raised as a set-off is deemed to be a counterclaim”.19
4.12 In relation to the rights of defendants to claim set-off against assignees (“successors in interest”) of a creditor’s (“assignee’s”) rights, the Commission concluded that rights of counterclaim should be altered to ensure that:
When a successor in interest sues on a demand, the obligor should be able to raise any matter which could have been raised against the assignor to diminish or extinguish the claim of the successor in interest.20
Australian Law Reform Commission
4.13 The Australian Law Reform Commission gave some brief consideration to set-off in part of its Report on legal risk in international transactions.21 In a section dealing with netting and set-off as part of finance law reform,22 although dealing largely with issues relating to companies and securities law and remedies in cross border banking, the Commission expressed its agreement with a submission which suggested a review of the law of set-off in Australia with a view to creating a “new limited statutory right to set off pre-insolvency.”23 It was noted that:
This would make the law on set off simpler and more certain and would extend the benefits of set off to firms which had not considered including it in their contracts.24
THE COMMISSION’S CONCLUSION
4.14 The Commission’s tentative conclusion is that there is sufficient reason to support the qualified reintroduction of set-off under the Statutes of Set-off, particularly in light of the concerns raised by Justice Handley. However, because of the relative obscurity of the Statutes, and to ensure easy access to the law by practitioners, the Commission would recommend a restatement of the provisions in plain English listing, for example, the points outlined at paragraph 2.8 above.
FOOTNOTES
1. K R Handley, Letter to the Chairman of the New South Wales Law Reform Commission (28 February 1994).
2. New South Wales Law Reform Commission, Application of Imperial Acts (Report 4, 1967) at 34.
3. Attachment to J W Shaw, Letter to the Chairman of the New South Wales Law Reform Commission (26 September 1997).
4. New South Wales Law Reform Commission, Application of Imperial Acts (Report 4, 1967) at 34.
5. Imperial Acts listed in Schedule 1 to the Act are excluded from the operation of s 11.
6. See Imperial Acts Application Act 1969 (NSW) s 11(4) and (5).
7. Imperial Acts Application Act 1969 (NSW) s 11(2).
8. Southern Textile Converters Pty Ltd v Stehar Knitting Mills Pty Ltd [1979] 1 NSWLR 692 at 700.
9. See above at para 1.17.
10. See above at paras 1.7-1.10.
11. Australia, Netting Sub-Committee of the Companies and Securities Advisory Committee, Netting in Financial Markets Transactions (Final Report, June 1997) at para 3.1. See also Australia, Corporate Law Economic Reform Program, Electronic Commerce: Cutting Cybertape - Building Business (Proposals for Reform: Paper No 5, 1997) at 37-40.
12. Australia, Netting Sub-committee of the Companies and Securities Advisory Committee, Netting in Financial Markets Transactions (Background Paper, December 1996) at 24.
13. Law Reform Committee of South Australia, Relating to the Reform of the Law of Set-off (Report 75, 1983).
14. Law Reform Committee of South Australia, Relating to the Reform of the Law of Set-off (Report 75, 1983) at 9.
15. Law Reform Committee of South Australia, Relating to the Reform of the Law of Set-off (Report 75, 1983) at 9.
16. Law Reform Commission of Western Australia, Report on United Kingdom Statutes in Force in Western Australia (Project 75, 1994) at 63.
17. Law Reform Commission of Western Australia, Annual Report, 1 July 1996 - 30 June 1997 at 19.
18. Law Reform Commission of British Columbia, Report on Set-Off (Report 97, 1988) at 25.
19. Law Reform Commission of British Columbia, Report on Set-Off (Report 97, 1988) at 26.
20. Law Reform Commission of British Columbia, Report on Set-Off (Report 97, 1988) at 46.
21. Australian Law Reform Commission, Legal Risk in International Transactions (Report 80, 1996).
22. Australian Law Reform Commission, Legal Risk in International Transactions (Report 80, 1996) at paras 5.40-5.45.
23. Australian Law Reform Commission, Legal Risk in International Transactions (Report 80, 1996) at para 5.45.
24. Australian Law Reform Commission, Legal Risk in International Transactions (Report 80, 1996) at para 5.45. See also the proposals of McCracken at paras 4.7-4.8.
