1. Recognised as part of Malaysian law
In Permodalan Plantations Sdn Bhd v Rachuta Sdn Bhd [1985] 1 MLJ 157, the Federal Court was faced with the question of whether equitable and legal set-off were part of Malaysian law vis-à-vis the Civil Law Act 1956 and ultimately held:
“… only equitable and not legal set-off is part of our law, and consequently the court can only deal with an equitable set-off.”[1]
Maintenance fees under the Strata Management Act 2013 have successfully been the subject of an equitable set-off, as seen in Amber Court Management Corp v Lonely Planet Inn Sdn Bhd & Ors [2026] MLJU 776 (“Amber Court”):
“We have perused the Strata Management Act, and found that it is silent on whether a proprietor or management corporation may set off maintenance fees against other sums owed to them by the other party. This silence leaves room for equitable principles, such as equitable set-off, to apply in the present case.”[2] (Bold and underline ours)
2. To reduce or extinguish claim
This was pointed out by the Court of Appeal in Amber Court:
“… Equitable set-off is generally raised as a defence rather than as an independent cause of action. Its function is to reduce or extinguish the litigant’s claim to the extent of the opponent’s cross-claim.”[3]
3. Requires close connection with the claim
The Federal Court in Newacres Sdn Bhd v Sri Alam Sdn Bhd [2000] 2 MLJ 353 referred to the observations of Lord Denning in Federal Commerce Ltd v Molena Alpha Inc [1978] 1 QB 927 CA:
“But the courts of equity, as was their wont, came in to mitigate the technicalities of the common law. They allowed deductions –– by way of equitable set off whenever there were good equitable grounds for directly impeaching the demand which the creditor was seeking to enforce: see Rawson v Samuel (1841) Cr & Ph 161 at pp 178-179, per Lord Cottenham LC.
…
But one thing is quite clear: it is not every cross-claim which can be deducted. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff’s demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.”[4] (Bold and underline ours)
The Court of Appeal in Amber Court shared the same sentiment when it held:
“The essential requirement for equitable set-off is that the competing claims must be so closely connected that it would be unjust or inequitable to allow one party to enforce its claim without recognising the other. This close connection usually arises where both claims stem from the same transaction, contract, or relationship, or where one claim directly impeaches or undermines the other.”[5]
4. An unliquidated sum is permitted
Support for this proposition can be found in the Court of Appeal decision of Bukit Cerakah Development Sdn Bhd v L’ Grande Development Sdn Bhd [2008] 3 MLJ 547 (“Bukit Cherakah”) where it was held:
“Equity has always permitted a litigant to plead an unliquidated sum by way of a set off.”[6]
More recently, Evrol Mariette Peters JCA made a similar observation in Amber Court:
“… equitable set-off is not confined to liquidated sums or debts that are presently due and ascertainable. It may apply even where one or both claims are unliquidated or where the precise quantum has yet to be determined. What matters is not the form of the claims, but the substantive justice of taking them into account together.”[7]
5. Could be relied on as a defence to a counterclaim
In YTY Industry Sdn Bhd v Higard (M) Sdn Bhd [2026] MLJU 1266, albeit a decision of the High Court, the Plaintiff admitted the sums claimed by the Defendant in the counterclaim but pleaded the defence of equitable set-off.[8]
The sums awarded to the Plaintiff were ultimately set-off against the sums awarded to the Defendant.[9]
[1] Permodalan Plantations Sdn Bhd v Rachuta Sdn Bhd [1985] 1 MLJ 157 (FC), at 161
[2] Amber Court Management Corp v Lonely Planet Inn Sdn Bhd & Ors [2026] MLJU 776 (CA), at para 52
[3] Amber Court Management Corp v Lonely Planet Inn Sdn Bhd & Ors [2026] MLJU 776 (CA), at para 48
[4] Newacres Sdn Bhd v Sri Alam Sdn Bhd [2000] 2 MLJ 353 (FC), at 383
[5] Amber Court Management Corp v Lonely Planet Inn Sdn Bhd & Ors [2026] MLJU 776 (CA), at para 50
[6] Bukit Cerakah Development Sdn Bhd v L’ Grande Development Sdn Bhd [2008] 3 MLJ 547 (CA), at para 18
[7] Amber Court Management Corp v Lonely Planet Inn Sdn Bhd & Ors [2026] MLJU 776 (CA), at para 51
[8] YTY Industry Sdn Bhd v Higard (M) Sdn Bhd [2026] MLJU 1266 (HC), at para 15
[9] YTY Industry Sdn Bhd v Higard (M) Sdn Bhd [2026] MLJU 1266 (HC), at para 89(iv)