Australia: Securing contractual rights destroys mutuality and right to claim set-off

The recent WA Supreme Court decision of Hamersley Iron Pty Ltd v Forge Group Power Pty ltd (in Liquidation) (Receivers and Managers Appointed) [2017] WASC 152 illustrates the risk of relying on contractual and statutory set-offs where the counterparty has granted security to lenders in an insolvency situation.

The Court held that mutuality was destroyed, and that contractual and insolvency set-off were unavailable to a counterparty to a construction contract, where the other party secured its rights under the contract to a financier. This decision will impact the negotiation and drafting of contracts in the future, as well as how and what security is granted over rights under a contract.


In 2012, Forge contracted with Hamersley to construct the West Angelas and Cape Lambert Power Stations (Contracts). Forge granted its lender, ANZ, security over all of its property, including its rights under the Contracts, under a general security agreement (GSA).

On 11 February 2014, both administrators and receivers and managers were appointed to Forge. On 24 February 2014, Hamersley terminated the Contracts. Liquidators were subsequently appointed to Forge.

Both Hamersley and Forge made claims against each other under the Contracts. Hamersley claimed that it was entitled to a sum of more than $235 million for liquidated damages and the extra costs for completing the works under the Contracts. Forge made claims for payments for work performed prior to the termination of the Contracts.

Hamersley alleged that it did not owe any further monies to Forge under the Contracts because it was entitled to a contractual and statutory set-off under section 553C of the Corporations Act 2001 (Cth) (s553C).

Forge argued that Hamersley was not entitled to contractual or equitable set off and that Hamersley was not entitled to rely on statutory set-off under s553C because there was no mutuality of interest once Forge secured its rights under the Contracts in favour of ANZ.


Clause 16.12 of the contract gave Hamersley the entitlement to set-off money due to Forge against any debt or claim which Forge owed to it. Justice Tottle considered whether under this clause, the amounts Hamersley owed Forge never became due because they were subject to Hamersley's rights to set-off. Justice Tottle held that:

  1. money certified as due in a payment certificate became a debt at the time a payment certificate was issued;
  2. this amount certified was then subject to any amounts deducted by Hamersley in accordance with the set-off provisions, provided such amounts were deducted prior to the due date for payment of the payment certificate;
  3. although the payment obligation was expressed to be 'subject to' the rights of set-off, Hamersley had a discretion as to whether to exercise that right, and therefore the set-off did not apply automatically; and
  4. the right to be paid the 'money due' was unaffected unless and until Hamersley exercised its rights.

Failure to exercise its set-off rights meant that the amount certified in the payment certificate was a debt due and Hamersley was required to make payment. As Hamersley did not exercise its set-off rights until the administrators were appointed, Hamersley's reliance on the contractual set-off was too late, and it could not rely on clause 16.12.


Justice Tottle held that s553C cannot be contracted out of. This section creates a 'code' that regulates set-off between an insolvent company and a person asserting a claim or debt against the company, to the exclusion of contractual and equitable set-off. Even if section 553C does not apply, no other type of set-off may be relied upon.


Effect of the PPSA on Hamersley's contractual set-off rights

Section 80 of the Personal Property Securities Act 2009 (Cth) (PPSA), provides that a transferee of an "account" is subject to the terms of the contract (which may include a right of set-off). Therefore, Hamersley argued that the transfer of the rights under the Contracts to ANZ pursuant to the GSA would be subject to the contractual set-off rights under the Contracts.

Justice Tottle held that s80 of the PPSA does not interfere with s553C nor give Hamersley any right of set-off in the liquidation of Forge other than that permitted by s553C.

Although it may seem unfair that Hamersley cannot rely on s80(1) to assert contractual set-off, its rights must be determined in the context of the liquidation of Forge in which is seeking to prove a claim.

Is mutuality destroyed by the creation of a security interest?

S553C requires mutuality of interest between the parties.

Justice Tottle held that the mutuality of interest between Hamersley and Forge was destroyed when the GSA was entered into because a statutory proprietary interest was created in favour of ANZ.

The GSA provides that the security interest granted to ANZ was by way of charge over all collateral. The charge has attached (see below) and conferred an equitable interest to ANZ and a proprietary interest in Forge's claims. This proprietary interest in the collateral is a statutory interest which is recognised for all purposes. It is fixed at the time of attachment.

Attachment of the charge will occur where the grantor has rights in the collateral or power to transfer the collateral to a secured party and value is given for the security interest or the grantor does an act by which the security interest arises (s19(2) PPSA).

In relation to circulating security interests, attachment occurs immediately, that is, it is a fixed security interest coupled with a licence to the grantor to deal with the assets in the ordinary course


Justice Tottle also held that the pre-PPSA concept of crystallisation and a floating charge as a mechanism for taking security over circulating assets, are redundant.


Hamersley was unable to assert any contractual right of set-off or set-off under s553C because of the lack of mutuality of interest. Forge was left with a claim against Hamersley (for the benefit of ANZ). Hamersley can only prove in Forge's liquidation for amounts owing under the Contracts as an unsecured creditor.


This decision may impact the way in which counterparties contract in the future, where financing is required for the contract. The risk for counterparties is that set-off may not be available where the other party to the contract grants security over its accounts in the scenario where this party enters into liquidation. The counterparty will be left with an unsecured claim in the other party's liquidation and be forced to pay out any claims it owes under the contract, without the reliance on set-off.

Additionally, this decision illustrates the importance of a party understanding and exercising any contractual right to set-off at the appropriate time under the contract. Attempts to claw back outstanding amounts after the expiry of the relevant period are likely to be unsuccessful.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions