Contractual set-off
Contractual set-off

The following Dispute Resolution practice note provides comprehensive and up to date legal information covering:

  • Contractual set-off
  • Purpose of contractual set-off
  • Parties are free to determine how set-off is effected
  • Extending set-off rights—non-monetary claims
  • Extending set-off rights—mutuality
  • Extending set-off rights—unmatured, unliquidated and contingent claims
  • Unmatured claims
  • Unliquidated claims
  • Contingent claims
  • Limiting rights of set-off by contractual agreement (no set-off clauses)
  • More...

Contractual set-off is one of the five main types of set-off described in Practice Note: Types of set-off.

Contractual set-off arises where a right of set-off has been created by an express contractual agreement. It is used when contracting parties want to extend or limit set-off rights which are available under general law (although it cannot be used to alter the scope or operation of insolvency set-off which applies mandatorily regardless of any contractual agreement between the parties—see Practice Note: Types of set-off—Insolvency set-off).

This Practice Note examines:

  1. the reason why contractual set-off is important

  2. how contractual set-off can be used to extend set-off rights available under general law (ie the ways in which it is free from some of the restrictions on the other main types of set-off)

  3. how contractual set-off can be used to limit set-off rights available under general law

  4. what contractual set-off cannot do

Purpose of contractual set-off

Contractual set-off is important in transactional dealings because it can confer a right of set-off in circumstances where it would not otherwise exist or in ways which are different to rights of set-off which are available under general law.

For example, contractual set-off can be used to:

  1. enable the parties to determine how and when the set-off should take effect

  2. permit set-off of claims which are not mutual

  3. permit set-off of certain types of claim which are

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