CITATION  WASCA 163 KUNC J
JUDGE/S MURPHY AND MITCHELL JJA AND ALLANSON J
Appeal from Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd  WASC 152. Hamersley owed Forge money for work done under engineering contracts, and possibly also (Forge claimed) for making demand on performance securities in breach of the contracts. Forge was in liquidation. Hamersley claimed that Forge it owed money for breach of the contracts, exceeding the amounts owed by Hamersley, and sought to set the relevant amounts off. ANZ held a general security agreement over all Forge’s assets.
The court held as follows:
Contrary to other findings in the court, Corporations Act s553C allowed Hamersley to set off. ANZ’s security agreement did not destroy mutuality so as to prevent set-off. The critical question in determining whether a security interest destroyed mutuality was whether it prevented the company in liquidation using funds paid to it in respect of the debts for its own benefit. Here, ANZ’s security interest allowed Forge to deal with payments from Hamersley in its business (it attached to them as circulating assets), and so did not destroy mutuality. This conclusion was not affected by the security interest attaching under s19, or by the characterisation (which the court below had adopted) of the attachment as giving rise to a proprietary interest. These factors did not affect Forge’s entitlement to deal with payments for its own benefit.
Even if the nature of a PPSA security interest was seen (as the court below had said) as akin to a fixed charge, it differed from a general law fixed charge in that by its terms it allowed Forge to continue to deal with payments for its own benefit, so as not to destroy mutuality.
Alternatively, if (contrary to the above findings) Corporations Act s553C did not apply so as to allow set-off, then (contrary to the findings in the court below) s553C would:
- not preclude the operation of set-off that might apply at general law, and
- not displace s80(1)(a), which would require Forge’s receivers to take the debts owed by Hamersley subject to any equities, including Hamersley’s right of set-off.
In so finding, the court considered that the reference to a transfer of accounts in s80(1) included an assignment by way of security, not merely an outright transfer. Contrary to other findings, Hamersley’s obligations to Forge for wrongful demands under performance securities (if substantiated) were ‘accounts’, being sufficiently connected to the Forge’s provision of building services under the contracts.
The summary of the pertinent points in this legal case update has been provided by Steve Pemberton, Lawyer and Consultant, as an extract from his digest of PPSA cases.