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“No Set-Off Clauses” and How to Strike Them Out Weaponizing an Unconscionable Conduct Claim


A bank forecloses and sells the property.

The guarantors are sued by the bank for balance monies owed.

The guarantors claim that the bank sold the property at an under value and counterclaim against the bank.

Guarantors are usually left with little or no remedy against a bank who sues the guarantor for monies owed by the borrower.

Disputes by a guarantor that receivers appointed by a bank have failed to take reasonable care to sell the property for market value or the best price reasonably obtainable are common.

“No Set-Off Clauses”

Banks cover themselves by including clauses in their contracts with borrowers and guarantors that prevent a guarantor from setting off any counterclaim for damages against the bank for selling a property at an undervalue. These are known as “no set-off clauses”.

There has been a number of cases where a clearly expressed “no set-off clause” will exclude an equitable set-off of a claim for damages or compensation for example, Hausman v Abigroup Contractors Pty Ltd (2009) 29 VR 213, 219 [24]–[26] and Westpac Banking Corporation v Leckenby [2015] QSC 363.

The Weapon: Power of Variation/Strike Out

However if there is an allegation of unconscionable conduct pursuant to section 12CA of the Australian Securities and Investments Commission Act 2001 (Cth) against the bank then an aggrieved party could:

  • rely on 12GM which provides for a power to vary a contract (eg a Business Loan Agreement and guarantee agreement) for conduct that is unconscionable; and

  • seek damages under s12GF of the Act.

The variation would be the striking out of the “no set-off clause” to prevent a bank from relying on the “no set-off clause” under its contracts.

A bank will probably rely on the case of Palaniappan v Westpac Banking Corporation [2016] WASCA 72 to support the conclusion that a defendant is not able to raise a real prospect of successful defence by set off or reduction of debt by relying ons12CA and s12GM.

However, on 21 October 2016 the Supreme Court of Queensland in Westpac Banking Corporation v Zilzie [2016] QSC 238, provided guarantors with a life raft. The defendants in that case were given the right to amend their pleadings to seek a variation of the loan agreement to strike out the “no set-off clause”.

The persuading and differentiating factors appear to be that:

  1. the amount of damages or reduction claimed by the defendants exceeded the amount claimed by the plaintiff bank; and

  2. there was evidence that the defendants will become insolvent if the plaintiff’s claim proceeded to judgement without set-off or reduction thereby causing the loss.

Per Jackson J: “In my view, that difference means that it is possible to distinguish this case from Palaniappan, as the insolvency of the appellant does not appear to have been considered in that case as a potential source of loss or damage under s 243 of the ACL. If there were no loss or damage likely to be suffered because of insolvency in the present case, my own analysis otherwise would have supported the conclusion that there is no loss or damage that might support the proposed s 12GM orders.”


The case sets a powerful precedent that can be used by aggrieved guarantors or borrowers in dealing with banks.

“No set-off clauses” also appear in commercial leases, franchise documents and other types of commercial dealings. Some of the reasoning in that case could also be used to assist aggrieved parties to those documents where unconscionable conduct is alleged.

For more information contact: Evan Sarinas on 0418150111 or


This publication is intended as general information only and not specific legal advice. All liability is specifically disclaimed for reliance on same. Seek professional legal advice.

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