The right to setoff arises when two parties provide goods or services to one another and each of the parties owes a debt to the other. The state law right of setoff permits each party to setoff or Page 2 net out its claim against the amounts owed to its counter party.

What are the conditions of set-off?

Legal set-off requires the satisfaction of two conditions where parties to an action allege competing obligations against one another. The first condition is that both obligations must be debts, so that the claims are liquidated in nature. The second condition is that both debts must be mutual cross-obligations.

What is set-off and when is it available?

Legal set-off. This can only be resorted to as a defence to a court action and is available where the two claims are liquidated or ascertainable with certainty and are both due and payable at the commencement of the action. The two claims do not have to arise from the same transaction or closely connected transactions.