Aliferis v Kyriacou

[2000] VSCA 123

SUPREME COURT OF VICTORIA

Not Restricted

 

COURT OF APPEAL

No. 8974 of 1993

EFSTATHIA ALIFERIS (IN HER PERSONAL CAPACITY AND AS EXECUTRIX OF THE ESTATE OF SPIRO ALIFERIS)

Appellant

v

CHRISO KYRIACOU

Respondent

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JUDGES:	BROOKING, PHILLIPS and CHARLES, JJ.A.
WHERE HELD:	Melbourne
DATE OF HEARING:	3 February 2000
DATE OF JUDGMENT:	20 July 2000
MEDIUM NEUTRAL CITATION:	[2000] VSCA 123

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BANKRUPTCY – Provable claims – Negligence – Unliquidated damages sought against solicitor – Retainer relied upon – Whether claim in tort “arising otherwise than by reason of a contract” -  Chittick v. Maxwell (1993) 118 A.L.R. 728 discussed – Bankruptcy Act 1966 (Cth.) s.82(2).

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APPEARANCES:	Counsel	Solicitors
For the Appellant	M.J. Mackinnon	Hughes Watson Marks Kennedy
For the Respondent	S.W. Stuckey	Hunt & Hunt

BROOKING, J.A.:

1. The judgment of Charles, J.A. shows that this appeal must succeed.  What follows is intended to be supplementary to his Honour’s reasons.

1. It is perhaps worth noting that the history of the legislation dealing with what debts may be proved in bankruptcy was considered, albeit in a different connection, in Something Better Pty. Ltd. v. Pyramid Building Society (In Liq.)[1].  When the Imperial Bankruptcy Acts of 1861 and 1869 were enacted, the forms of action, although reduced in importance by the then fairly recent Common Law Procedure Act 1852, had yet to be dispatched by the Judicature Acts 1873-5.  Lawgivers and lawyers dealt with legal questions by using technical legal terms, not the language of popular journalism:  Salter v. Lask[2].  When s.153 of the 1861 Act spoke of liability, by reason of any contract or promise, to a demand in the nature of damages which had not been and could not be otherwise liquidated or ascertained, and when s.31 of the 1869 Act spoke of demands in the nature of unliquidated damages arising otherwise than by reason of a contract or promise, the strong probability is that they were concerned with contracts and promises the breach of which was recognised by the law as a wrong.  One approach, as a matter of textual construction, is to say that “contracts” meant those recognised by the law as binding, that is to say, simple contracts (also called contracts by parol) and contracts by deed (also called contracts by speciality), and that “promises” meant promises contained in simple contracts or contracts by deed.  But I am disposed to prefer the view that in the phrase “contract or promise” the word “contract” referred only to simple contracts (contracts by parol) and “promise” referred only to promises which were binding by reason of being made by deed; compare Blackstone’s definition of “promise”, cited by Charles, J.A.  On this approach, “promise” was used in the sense of formal promise, by which I mean a promise deriving its binding force from the form employed (a promise under seal).  Compare the distinction drawn between formal and informal promises in Anson, Law of Contract, 2nd ed., 1882, pp. 38 et seq.  Both views of the proper construction of s.153 and s.31 lead to the same result, but the distinction drawn in those sections between a contract and a promise rather suggests to my mind that “contract” meant simple contract and “promise” meant formal promise – one under seal.  Burn’s Law Dictionary, 1792, deals with “promise” in the same way as Blackstone, drawing on the first edition of the Commentaries (1768).  Another example of the use of “promise” in the sense of a promise made by deed will be found in the classification of actions founded on contract contained in Smith’s Action at Law, 8^th ed., 1863, p.47.

   [1][1996] 2 V.R. 352.

   [2][1925] 1 K.B. 584 at 588 per MacKinnon, J.

1. Liability “by reason of any contract or promise” to a demand (s.153) meant that a contract or promise was an element of the cause of action.  Similarly, a demand arose “by reason of a contract or promise” (s.31) where a contract or promise was an element of the cause of action.  Possibly the first expression – that used in s.153 – is slightly stronger in this regard than the second, but the same view should be taken of both. 

1. Since the outset, text-writers and judges have taken the view of the effect of the legislation put forward above.  It is worth quoting at length from Griffiths and Holmes, Bankruptcy, 1869, vol. 1, pp.588-9 on the effect of s.153: 

“This section will give a right of proof in every case where it is clear that a contract has been broken before the date of the adjudication or the act of bankruptcy;  but not unless the contract has then been broken.  Thus damages have been allowed to be proved on breaches of covenant to keep in repair, where the dilapidations had occurred before bankruptcy;  and on covenants for title, where the bankrupt before his bankruptcy fraudulently affected to sell free from incumbrances property which he had already mortgaged, the costs incurred in defending a suit for foreclosure by the mortgagee being allowed to the covenantee as part of the damages.  (See post, Proof on Covenants.)

The enactment above set out seems, however, only to extend to cases of damages upon breach of contract, leaving damages in cases of tort exactly as they were before the statute;  but it would seem open to doubt, whether if the action might be framed in tort, though it be virtually an action in contract, the damages recoverable will come within the benefit of the enactment or not.

The enactment will in all probability give rise to many difficulties, as it is extremely difficult in many cases to say what is a cause of action for breach of an agreement, and what a cause of action in tort merely;  the great majority of causes of action might be considered as either one or the other, according as the plaintiff chooses to frame his action.  All actions for breach of duty arising out of a certain relation or employment, may be considered as actions in tort, or as actions for breach of contract, e.g. an action against a banker for not honouring a cheque;  it is not clear whether such cases fail within this enactment or not.  So, under the former law, A., as surety for a firm, joined with the members of the firm in making and delivering to the creditor a joint and several note on the faith that a co-surety should join in it, the creditor being party to the arrangement;  and it was held, that by the arrangement the creditor had no right to negotiate the note without obtaining the signature of the co-surety;  he did so, however, and an indorsee recovered against A. on the note, the creditor having become bankrupt and obtained his certificate;  it was held, that A.’s debt was not proveable, and so not barred.  It does not seem clear whether such a debt would or would not be proveable now, though it appears probable that it would.  If the demand be not proved, however, as a plaintiff has his option in such cases to sue either in tort or in contract, it is apprehended that he might, notwithstanding the bankrupt’s discharge, sue him afterwards;  if he proved of course he could not do so, having by proof determined his election.”  (Citations omitted.)

1. The section was considered by the Court of Queen’s Bench in Johnson v. Skafte[3], which has been cited in the texts and not, so far as I am aware, been doubted:  Lee, Bankruptcy, 1871, p.241;  Robson, Bankruptcy, 3^rd ed., 1876, p.239;  Chitty, Contracts, 9^th ed., 1871, pp.805-6;  Duffy & Higgins, Insolvency, 1882, p.133;  Leake, Digest on the Law of Contracts, 2^nd ed., 1878, p.1033;  7^th ed., 1921, p.775.  Much more recently, the case turns up in a footnote in Goff & Jones, Law of Restitution, 5^th ed., 1998, p.440.  In Johnson v. Skafte the right of action against his own landlord of a sub-tenant whose goods had been seized by the head landlord by way of distress was held not to be affected by the defendant landlord’s bankruptcy.  The argument is interesting.  The defendant’s counsel relied on s.153, contending that the action was “brought upon an implied contract for quiet enjoyment and to indemnify the tenant against the acts of the superior landlord” and that the action was “founded upon an implied promise”.  The plaintiff argued that s.153 permitted the proof only of “a demand arising out of an express contract”, contending that the action was founded on a breach of duty arising out of the relation of the parties and was an action of tort.  The word “contract” in s.153 was, he said, controlled by the word “promise” and meant a contract strictly so called, not an implied promise to indemnify for a breach of duty. 

   [3] (1869) L.R. 4 Q.B. 700.

1. Lush, J. said of the section, at 705: 

“Looking at the cases which preceded this enactment, I have no doubt it was intended to apply to express contracts for a breach of which the damages had not been ascertained at the date of the bankruptcy.  It applies only to contracts popularly so called.  Is this a contract of this description?  I am clearly of opinion it is not.  It is a claim for damages caused by a distress levied on the plaintiff’s goods by the superior landlord for rent which the defendant had omitted to pay.  The action is not founded on an express contract of the defendant to pay the rent.  It is founded on a liability arising out of the relation of the parties from which the law implies a contract, and the plaintiff can sue in assumpsit for this breach of duty on the part of the defendant.  Though for the sake of convenience it is called a contract, it is not one within s.153, which contemplates only express contracts.”

1. I set out the judgment of Hayes, J. in its entirety:

“Section 153 was chiefly passed with reference to mercantile contracts.  A good illustration of the law on this point prior to the passing of that enactment is given in a note to Chitty on Contracts, 7^th ed. p.177, note (y):  ‘Formerly damages, which were in their nature unliquidated, and which could be ascertained only by a jury, and had not been ascertained at the time of the bankruptcy, could not be proved under it, although the right to recover them was founded on a contract:  Green v. Bicknell[4].  And therefore where a person who had contracted for a certain quantity of oil to be delivered to him at a future day at a certain price became bankrupt before that day arrived and obtained his certificate, it was held that he was nevertheless liable to an action for not accepting and paying for the oil:  Boorman v. Nash[5].  That state of the law was supposed to be a great grievance to the bankrupt, and it is now remedied by s.153.  This is a contract of a description totally different to that contemplated by that section.  Here the contract is one arising out of the relation of landlord and tenant, and the action is accurately stated in the case to be ‘brought to recover compensation for the injury and loss sustained by the plaintiff in consequence of the defendant’s wrongfully allowing certain rent payable by him as a tenant of a warehouse to be in arrear and unpaid.’  This is a claim founded on an implied contract, and not within s.153.”

[4]8 Ad. & E. 701.

[5]9 B. & C. 145.

1. Two years earlier Lord Chelmsford, L.C. had said of s.153 that it “seems to apply only to cases where the bankrupt admits the breach of his contract or promise, but requires the amount of the damages to be proved against him, for it speaks of the assessment of the damages as if the breach of the contract or promise was not in question”:  Ex parte Wilmot[6].  This remark proceeds upon the basis that the section is concerned with claims for damages for breach of the bankrupt’s contract or promise.  The same may be said of the decision of the Court of Queen’s Bench in Johnson v. Skafte and of the discussion of s.153 in the first edition of Williams on Bankruptcy, 1870, p.43.

   [6](1867) L.R. 2 Ch.App. 795 at 799.

1. In 1982 Michael Maxwell made a promise to his father-in-law, without consideration, that he would draw up a document to protect him.  This was regarded in Chittick v. Maxwell[7] as important among the circumstances giving rise to a duty of care in tort. It was not, however, such a promise as the two Imperial Acts of the 1860’s contemplated, and in my respectful opinion it was not such a promise as is contemplated by s.82(2) of the Bankruptcy Act 1966 of the Commonwealth. Nor can I accept that the words “arising … by reason of” in s.82(2) are a loose expression, intended to comprehend some connection with an underlying transaction. When the looseness of the notion of “promise” accepted in Chittick is coupled with the looseness of the notion of some connection, or some causal connection, between the “demand” and the “promise”, or between the “demand” and some “transaction” associated with the “promise”, I find myself constrained, with respect, to differ from the view taken by Young, J. in Chittick, endorsed by Weinberg, J. in Re Sharp;  ex parte Tietyens Investments Pty. Ltd. (in liq.) & Anor[8] and expressed by Vincent, J. in Re Pyramid Building Society (in liq.)[9]. What is required by s.82(2), so far as is presently relevant, in order that the demand shall not be provable, is that a “contract” or “promise” (in the sense I have already attributed to those expressions) shall not be an element of the cause of action.

   [7](1993) 118 A.L.R. 728.

   [8][1998] 1367 FCA

   [9](1991) 6 ACSR 405.

1. Because Johnson v. Skafte was decided before the forms of action had been dispatched, it is a decision given in the days when claims which could not be framed in tort had to be “dressed in the language of contract”:  Pavey & Matthews Pty. Ltd. v. Paul[10].  It is unnecessary to deal in this judgment with the history of the law of contract and the development of “quasi-contract” and the controversy concerning the “implied contract theory”.  It is enough to mention, in addition to the decision just cited, the case of Baltic Shipping Co. v. Dillon[11] and to refer to some of the texts:  Cheshire & Fifoot’s Law of Contract, 7^th Australian ed., by Seddon & Ellinghaus, chapter 26;  Stoljar, Law of Quasi-Contract, 2^nd ed., chapter 1;  Goff & Jones, Law of Restitution, 5^th ed., pp.3-11;  Birks, Introduction to the Law of Restitution, chapter 2;  Foreword by Gummow, J. to Jackman, The Varieties of Restitution, pp.(iv)-(v);  Davenport & Harris, Unjust Enrichment, chapter 4;  McInnes (ed.), Restitution:  Developments in Unjust Enrichment, pp.5-7;  Halsbury’s Laws of Australia, “Restitution”, paras.370-40–370-55.  The suggestion made, for example, by Mason, C.J. in Baltic Shipping Co. v. Dillon, at 355-6, and by Goff & Jones, at p.9, that after the Common Law Procedure Act 1852 lawyers sought a new means of classifying claims and found it in the dichotomy between contract and tort, is illustrated by the passage from Griffith & Holmes (1869) cited above and by the decision in Johnson v. Skafte.

   [10](1987) 162 C.L.R. 221 at 256 per Deane, J.

   [11](1993) 176 C.L.R. 344 at 356-7 per Mason, C.J. and at 376 per Deane and Dawson, JJ.

1. It will be recalled that in Johnson v. Skafte plaintiff’s counsel described the action as brought upon an implied contract, while defendant’s counsel said that the action was one of tort and that “contract” in s.153 meant contract strictly so called.  (As to how the particular cause of action would be viewed nowadays, 131 years later, see, for example, Goff & Jones, Law of Restitution, chapter 15 (Johnson v. Skafte is cited at p.440);  Mason & Carter, Restitution Law in Australia, paras.624, 625;  Laws of Australia, title “Restitution”, paras.68 and 69;  Birks, Introduction to the Law of Restitution, pp.185-191).  Lush, J. said that s.153 applied only to “express contracts”, not to contracts which the law implied;  he used the phrase “contracts popularly so called” as synonymous with “express contracts”.  Hayes, J. described the contract set up by the plaintiff as “one arising out of the relation of landlord and tenant” and as “an implied contract”.

1. I think that Lush, J., in speaking of “express contracts”, was not seeking to exclude what Brennan, J. in Pavey & Matthews Pty. Ltd. v. Paul at 234 described as an actual but tacit agreement: he was concerned to exclude what Brennan, J. described in these words:

“Sometimes a contract is said to be implied where there is no actual agreement but the law imposes an obligation as though there were a contract between the parties.”

This is what is often described, in discussions of the “implied contract theory”, as a “fictional contract”.  Compare Deane, J.’s reference in Pavey & Matthews, at 256, to the tendency of lawyers to speak in terms of implied contract rather than in terms of an obligation imposed by law, which tendency his Honour described as “but a reflection of the influence of discarded fictions, buried forms of action and the conventional conviction that, if a common law claim could not be properly framed in tort, it must necessarily be dressed in the language of contract”.

1. In my opinion, just as Lush, J. meant by “express contract” an actual (even if tacit) as opposed to a fictional contract, so Hayes, J. meant by “implied contract” one that was fictional.

1. While the forms of a bygone age should not impede the principled enunciation and development of the law (Baltic Shipping Co. v. Dillon per Deane and Dawson, JJ. at 376), I doubt very much whether this makes it permissible to give to the words with which we are concerned in s.82(2) of the present Bankruptcy Act a meaning different to that which was borne by their early Imperial predecessors. In my opinion the Court of Queen’s Bench was right in the view which it took of the scope of s.153 of the Act of 1861. I consider that a demand arises otherwise than by reason of a contract or promise within the meaning of s.82(2) if there is no actual contract (whether express or tacit) which is an element of the cause of action. This is not, however, to say that the claim in contract in the present case is not a provable debt: true it is that the implied term of reasonable care arose by operation of law; but there is an actual contract and its existence is an element of the cause of action.

1. I have made these further observations about Johnson v. Skafte because it seemed undesirable to say nothing about what the Court of Queen’s Bench meant when it defined the scope of s.153. It would be enough to dispose of the present appeal, however, to say that, whatever the Court meant by “express” and “implied”, the decision shows that s.153 (and the present s.82(2)) are concerned only with contracts and promises the breach of which the law recognised as a wrong and only with contracts and promises which form an element of the cause of action. (I am of course for present purposes ignoring the reference to breach of trust in s.82(2).)

PHILLIPS, J.A.

1. I agree with Charles, J.A. that this appeal should be allowed, and substantially for the reasons given by his Honour.  I agree also in the supplementary remarks made by Brooking, J.A.  I add briefly some further comments of my own. 

1. This appeal was argued over whether the plaintiff’s claim in tort was within s.82(2) of the Bankruptcy Act 1966: was it a claim “arising otherwise than by reason of a contract”? If it was, then the plaintiff’s claim, which was for unliquidated damages, lay within s.82(2) and, being on that account not a provable claim under s.82(1), it could still be maintained by the plaintiff without regard to the deed of arrangement which the defendant entered into under Part X on 21 February 1995.   On the other hand if the claim which the plaintiff was seeking to pursue by administering interrogatories was properly regarded as "arising … by reason of a contract", then the claim was provable and accordingly prejudiced by the Part X deed[12]. That is what the judge held and on that account he dismissed the application for answers to interrogatories, the plaintiff not having leave to pursue the claim from the Federal Court under s.232(2)(b)(ii) of the Bankruptcy Act.

   [12]Bankruptcy Act ss.187(2), 237(2). The consequences of the latter were, in effect, considered by Brooking, Tadgell and McDonald, JJ.A. in Something Better Pty. Ltd. v. Pyramid Building Society (in liq.) [1996] 2 V.R. 352, which involved the equivalent section (s.243) affecting compositions under Part X. .

1. Thus, unlike those cases in which a claimant seeks to prove in the bankruptcy of an individual, it was in the plaintiff’s interest to argue that the claim in tort was within s.81(2) and so excluded from any right to participate under the Part X deed. There may be some difficulty in language when s.82(2) is under consideration because within the exclusion effected by s.82(2) from the apparent width of s.82(1), there is further exception in the words “arising otherwise than by reason of a contract, etc.”. It became a question whether the plaintiff’s claim in tort could be so described in this instance because the plaintiff had pleaded the retainer of the defendant to act as solicitor for herself and her late husband. But a claim in tort is not a claim in contract and I agree with Charles, J.A. that the answer to the question raised by the words of exception in s.82(2) depends upon the cause of action, not the attendant circumstances.

1. One of the assumptions underlying the application for answers to interrogatories, and this appeal, was that the plaintiff was indeed pursuing a claim in tort, not in contract (meaning in reliance directly upon the terms of a contract).   I describe this as an assumption, because presumably, in the circumstances of this professional retainer, the plaintiff had, or had had, the power to choose between these two[13] and we know little if anything about any such choice.  We have the pleadings but they relate equally to both causes of action.  According to the statement of claim, the plaintiff is claiming damages in her own right and also as executrix of the estate of her late husband.  She alleges that they retained the defendant in or about June 1990 “to act for them and advise them” over the re-financing of a certain business being run by another and which later failed.  The writ was filed on 8 October 1993 and both the statement of claim and defence followed shortly thereafter.  Further and better particulars of the statement of claim were delivered on 2 March 1994, well before the Part X deed was entered into. 

   [13]Astley v. Austrust Ltd. (1999) 73 A.L.J.R. 403. See also the judgment of Charles, J.A. para. [37]. Astley was decided by the High Court after judgment in this case was given below (on 23 June 1998).

1. Paragraphs 6 and 7 of the statement of claim were as follows:-

“6.The solicitors owed a duty to exercise reasonable care and skill in acting on behalf of Spiro Aliferis and his wife Efstathia and advising them in relation to the transactions referred to in paragraph 5 hereof.

7.Further and in the alternative, it was a term of their engagement and retainer that the solicitors would exercise reasonable care and skill in acting on behalf of Spiro Aliferis and his wife Efstathia Aliferis and advising them in relation to the transactions referred to in paragraph 5 hereof.”

While those two paragraphs plainly distinguish between the claim in tort and the claim in contract, the distinction does not really figure in subsequent paragraphs.  Thus, paragraphs 8 and 9 allege what, it is said, the solicitor knew or ought to have known about matters relevant to his acting and the allegations of breach in paragraph 10 are referred alike to the “duty of care referred to in paragraph 6” and to “the term of the engagement and retainer referred to in paragraph 7”.  In breach of both (it is said) the solicitors failed to exercise reasonable care and skill “in acting for the late Spiro Aliferis and his wife ... and advising them in relation to” the relevant transactions.  Paragraphs 11 and 12 then allege that the plaintiff and her husband acted upon the advice given and, indeed, “in reliance upon the belief that they had been given complete advice”.  Loss and damage is ascribed - as usual - “by reason of the matters aforesaid”. 

1. Not only was it assumed in argument that the plaintiff was not now pursuing the claim in contract, but it was also assumed - not surprisingly - that, had the plaintiff sought to pursue it, the claim in contract would have been prejudiced by s.82(1) and the Part X deed, as a claim "arising … from a contract" (and as such excepted from s.82(2)). The contrary was not even suggested. I mention this because the older cases to which Brooking, J.A. has made detailed reference (especially Johnson v. Skafte[14]) seem to indicate that under one or other of the precursors to s.82(2) the reference to “a contract” was taken not to include an "implied contract”. The meaning of this expression was not argued before us, but, like Brooking, J.A., as at present advised I too am of opinion that "implied contract" (as used in those early cases) referred to that which was then thought to underlie the common counts - claims quasi ex contractu – such as for money had and received, money paid, quantum meruit and the like: see, for example, Steele v. Tardiani[15].  “Implied contract” did not mean an implied term of the kind upon which the plaintiff would be relying here (to use due care), were she to pursue her claim in contract[16]. Such a claim, founded on an implied term in an express contract, has been treated as a demand “arising … by reason of a contract” within the meaning of provisions such as s.82(2): see, for example, In re Southern Cross Coaches[17] (in which the bus passengers who were injured in a collision were held entitled to sue in contract the bus owner in liquidation but the passengers in the other vehicle were not) and In re Great Orme Tramways Co.[18] (a like decision, and one which has not since been questioned, save for its application of bankruptcy rules in a company liquidation[19]).  Great Orme Tramways is still cited in the texts:  Williams & Muir Hunter on Bankruptcy (19th ed., 1979) 161, McDonald Henry & Meek, Bankruptcy Law in Australia (5th ed.) para. 82.2.10; Halsbury's Laws of Australia, para. 415-100; McPherson, The Law of Company Liquidation (4th ed., 1999) 551, footnotes 204, 205. 

   [14](1869) L.R. 4 Q.B. 700. See the judgment of Brooking, J.A., paras [5], [6] and [7].

   [15](1946) 72 C.L.R. 386; and see generally, Mason & Carter, Restitution Law in Australia (1995) paras.[115] to [123].   Unjust enrichment now seems to provide a different foundation for such claims:  Watney v. Mass (1954) 54 S.R.(N.S.W.) 203 at 222, Pavey & Matthews Pty. Ltd. v. Paul (1987) 162 C.L.R. 221, David Securities Pty. Ltd. v. Commonwealth Bank of Australia (1992) 175 C.L.R. 353, Baltic Shipping v. Dillon (1993) 176 C.L.R. 344 at 356-7 per Mason, C.J. It should not be forgotten, however, that the common money counts became generally regarded as giving rise to a "debt or liquidated demand" (within the meaning of the old Order III rule 4 of Ch. I of the R.S.C., as to which see the discussion in Alexander v. Ajax Insurance Co. Ltd. [1956] V.L.R. 436 especially at 444-5) and that would presumably have taken such cases beyond the reach of s.82(2) anyway.

   [16]Contrast the use of the expression “implied contract” by Lord Radcliffe in Lister v. RomfordIce & Cold Storage Co. Ltd. [1957] A.C. 555 at 597.

   [17](1932) 49 W.N. (N.S.W.) 230. Re Brown & Sons Pty. Ltd. [1964-5] N.S.W.R. 575 seems to have been a like case: see especially at 579 per McLelland C.J. in Eq.

   [18](1934) 50 T.L.R. 450

   [19]In re Berkeley Securities (Property)Ltd [1980] 1 W.L.R. 1589 at 1608-9, a decision which itself was not followed in In re Islington Metal & Plating Works Ltd. [1984] 1 W.L.R. 14.

1. In my opinion, there is therefore no occasion, by reason only of the early cases cited by Brooking, J.A., to doubt the assumption upon which the argument before us proceeded: namely, that if the plaintiff sought to pursue her claim in contract for breach of an implied term to exercise due care she would be inhibited by s.82(1), such a claim falling outside s.82(2) as one "arising … by reason of contract". By the same token, because the claim in contract would be inhibited by s.82(1), it is implicit in the conclusion that the plaintiff may still proceed with her claim in tort despite s.82(1) that the plaintiff, either personally or on behalf of the estate of her deceased husband, never sought to participate under the deed of arrangement which was entered into by the defendant on 21 February 1995 and under which a final dividend was paid by the trustee on 27 August 1996[20].  In other words, the plaintiff having had the right to elect between the two remedies (one of which was presumably barred and the other not), it is necessarily implicit in the foregoing that the plaintiff has not hitherto made an election which is inconsistent with her now proceeding with the claim in tort.  That such an election may even be required in circumstances like this has been long established in bankruptcy law[21], as Charles, J.A. mentions[22], but, again, no argument was addressed to us on this point and so I say no more about it. 

   [20]A copy of the Part X deed was not before the Court and the effect of payment of the final dividend on the continuance of the deed was not mentioned.

   [21]Parker v. Norton (1796) 6 T.R. 695 at 699, 101 E.R. 777 at 779, Ex Parte Baum (1874) L.R. 9 Eq. 673, Re Hopkins (1902) 86 L.T. 676, Williams & Muir Hunter on Bankruptcy (19th ed., 1979) 160-1.

   [22]see the judgment of Charles, J.A. para [36].

1. On the argument that was advanced, which turned solely on s.82, I agree that the plaintiff's claim in tort is within subs.(2) as a claim "arising otherwise than by reason of a contract" and that on that ground the appeal should be allowed.

CHARLES, J.A.:

1. In this action the appellant plaintiff claims unliquidated damages from the respondent defendant for the allegedly negligent performance by the defendant of a legal retainer, founding her claim on the alleged breach of a common law duty of care and of an implied contractual term to take reasonable care. 

1. The writ was filed on 8 October 1993.  The statement of claim alleges that at some time in the first half of 1990, the plaintiff and her husband (who died on 8 June 1993) retained the defendant as their solicitor.  The scope of the retainer is in dispute, but it involved, at the least, the discharge and re-financing of two mortgages granted previously by the plaintiff and her husband to the National Australia Bank Ltd. registered over properties belonging to them at 50 Langridge Street, Northcote and 79 Arthur Street, Fairfield, both in Victoria.  The plaintiff claimed that the defendant owed the plaintiff and her husband a duty to exercise reasonable care and skill in acting for them pursuant to the retainer and the retainer also contained a term to the same effect as this duty.

1. The plaintiff then alleges that the defendant's legal services were negligently performed.  She claims that the registered mortgages purportedly secured her husband's liabilities to the Bank as guarantor in favour of one George Missailidis and his businesses, and that the defendant negligently failed to advise her husband and herself that the guarantee was unenforceable or arguably so.  The plaintiff alleges that the defendant negligently permitted her and her husband to grant a substitute mortgage over the already encumbered properties.  She claims that she and her husband's estates have suffered loss and damage as a consequence of the alleged negligence.

1. The defendant delivered a defence which disputes the scope of the retainer, denies negligence and, inter alia, alleges that the plaintiff and her husband never instructed the defendant about the guarantee at any material time.  The defendant also denies that the plaintiff and her husband's estates suffered damage in consequence of any alleged negligence.

1. On 21 February 1995 the defendant entered into a deed of arrangement pursuant to Part X of the Bankruptcy Act (Commonwealth) 1966 and on 27 August 1996 the trustee under the deed of arrangement paid a final dividend.  By clause 7.1 of the deed of arrangement the deed was terminated upon the making of payment of the final dividend.  By clause 7.2 the defendant was released from all provable debts within the meaning of s.187(2) of the Bankruptcy Act upon the deed being terminated by the Trustee making payment of the final dividend.

1. On 18 July 1997 the plaintiff delivered interrogatories for the examination of the defendant and in April 1998 issued a summons seeking answers by the defendant to her interrogatories.  On 7 May 1998 the plaintiff's application for answers to interrogatories came before Master Evans, who referred the application to a judge of this Court sitting in the Practice Court.  The matter was then heard by a judge on 18 May 1998 and on 23 June the judge dismissed the application with costs on the ground that at no stage had the plaintiff sought or obtained leave of the Federal Court to take any further step against the defendant in this proceeding, including to administer interrogatories to the defendant.  On 24 July 1998 this Court ordered that the plaintiff have leave to appeal against the orders made by the judge on 23 June.

1. In the Practice Court, the defendant contended that the plaintiff required, but had not obtained, leave to administer interrogatories pursuant to s.233(2)(b)(ii) of the Bankruptcy Act, in that the plaintiff's claims were a "provable debt". The plaintiff, on the other hand, contended that her tortious claim was a demand in the nature of unliquidated damages arising otherwise than by reason of a contract and was not, therefore, a provable debt. The judge held that the plaintiff's tortious claim only arose by reason of a contract between the plaintiff, her deceased husband and the defendant, and that, as s.82(2) of the Bankruptcy Act did not therefore apply, leave was required of the Federal Court to serve interrogatories on the defendant.

1. The plaintiff now challenges the finding that her tortious claim arose by reason of the contract between the parties, and maintains the submission that her claim for common law damages is not a provable debt for the purpose of s.233(2)(b)(ii) of the Act.

1. Section 82 of the Act provides under the heading "Debts provable in bankruptcy" that –

"(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy. 

...

(2)Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy."

1. In this Court Mr. Stuckey for the defendant argued that s.82(1) adopted the prima facie position that all claims existing at the date of bankruptcy are provable, which is then subject to the exclusion in sub-s.(2). He submitted that in interpreting the scope of the exclusion provided by this sub-section, a construction should be given which would promote the purpose or object underlying the Act. It was submitted that the object and purpose of the Act has been repeatedly articulated as being to bring in all the assets of the bankrupt and distribute them rateably amongst his or her creditors, while the bankrupt is then to be freed from liability for existing debts of every kind. Mr. Stuckey submitted that the language of s.82(2) is not directed at causes of action but at the cause or basis for the demand. He argued that the approach taken by the authorities is to examine whether the demand arose by reason of a contract, even though the cause of action giving rise to liability was not for breach of contract. This approach was said to be consistent with the purpose or object of the Act, since expanding the scope of the exclusion in s.82(2) would dilute the operation of s.82(1). Mr. Stuckey submitted that the existence of the contractual, or at least promissory, relationship between the solicitor and the client was the foundation of the existence of the duty of care and that the plaintiff's argument would have the result that in commercial settings, a bankrupt would remain liable in tort for the same wrongs that he or she had been released from in contract. The submission continued that the creditor would on this erroneous interpretation appear to be entitled to prove on the contract and later sue on the claim in tort.

1. Section 82(2) has a long history. As Kennedy, J. observed in Cornelius v. Barewa Oil & Mining (NL) (In liq)[23], essentially the purpose of the bankruptcy legislation has been to grant a bankrupt a discharge from all personal liability arising contractually, and only such liabilities could be the subject of proof:  see Victor v. Victor[24].  Unliquidated damages in tort have for long stood in a separate position, and for good reason.  In the second edition of Eden's Bankrupt Law (1826), it was said[25]–

"Where damages are contingent and uncertain, as in some cases of demands founded in contract, and in all cases of torts;  where both the right to any damages at all, and also the amount of them, depend upon circumstances of which a jury alone can properly judge, and which therefore it requires the intervention of a jury to ascertain, such damages are not capable of proof under a commission."

If the demand was of a mixed nature, and the creditor could claim either as founding upon contract or as for a tort, however, the creditor might "make his election and will be entitled to prove or not accordingly"[26].  If the creditor chose to pursue tortious damages, he could not prove, according to Eden[27] because the damages were uncertain and contingent.  But

"in such cases he may make his election, and if, waiving the tort, he demands only the money for which the goods were sold under the execution, the money paid for the goods agreed to be delivered, the sum actually received upon discounting the bill, or what was paid in order to redeem the debenture, he will be permitted to prove;  for then the demand may be ascertained, and he may swear to the amount: ..."

[23](1982) 42 A.L.R. 83 at 90.

[24][1912] 1 K.B. 247 at 252-3.

[25]At 129-30.

[26]Op. cit. 130.

[27]Op. cit. 130-131.

1. The Bankruptcy Act of 1819, to which Eden's second edition was specifically directed, had no provision comparable to s.82(2) nor did the Bankruptcy Act of 1849. The genesis of s.82(2) is, I think, to be found in s.153 of the Bankruptcy Act of 1861 which provided that –

"If any bankrupt shall at the time of adjudication be liable, by reason of any contract or promise, to a demand in the nature of damages which have not been and cannot be otherwise liquidated or ascertained, it shall be lawful for the court acting in prosecution of such bankruptcy to direct such damages to be assessed by a jury ..."

and once assessed such damages were provable as a debt due at the time of bankruptcy.  The Bankruptcy Act 1869 included a new provision, s.31, which commenced "Demands in the nature of unliquidated damages arising otherwise than by reason of a contract or promise shall not be provable in bankruptcy ..."  Although the section did not mention "breach of trust", such a claim was, however, held to create a debt in equity and as such was provable.[28]  The phrase "or breach of trust" was introduced in the Bankruptcy Act 1883 in s.37(1), which replaced s.31(1) of the 1869 Act, and thus demands in the nature of unliquidated damages arising by reason of a breach of trust were by express words made provable.[29] Section 37(1) provided that "Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust, shall not be provable in bankruptcy." The section had thus arrived at the same form as the present s.82(2) of the Australian Act, save only for the tense being in the future rather than the present, a difference which seems to me to be immaterial. By 1883, the approach to the interpretation of the Bankruptcy Act of which Kennedy, J. spoke in Cornelius was already well-established.  In Ex parte Llynvi Coal and Iron Company;  In Re Hide[30], James, L.J. said of the 1869 Bankruptcy Act –

"A great number of cases occurred, before the passing of the late Act [i.e. the 1861 Act], in which the bankrupt was left liable to several claims of various kinds, and the persons to have those claims were entirely excluded from any participation in the general division of the assets.  Then came the Act of Parliament, which – dealing in express terms with almost every one of the cases which had ever previously occurred, and excluding nothing but demands for damages for personal torts – provided that there should be nothing whatever for which a right to proof should not be given.  Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury.  The broad purview of this Act is, that the bankrupt is to be a freed man – freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind.  On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets."

[28]Williams on Bankruptcy (1870) 44, and the cases there cited.

[29]Williams on Bankruptcy, 8th ed. (1904) 121.

[30](1871) L.R. 7 Ch.App. 28, at 31-32.

1. By 1914 s.37(1) had become s.30(1) of the U.K. Act, the wording being identical.  The section had by then been in place for more than 30 years.  In 1915 the 11th edition of Williams on Bankruptcy said of it[31] –

"Unliquidated damages in all cases of mere tort are, however, still not provable, but if the demand arises from a contract, it is not the less provable, because the action for the demand might properly be shaped in tort, e.g., actions against carriers, or actions against bailees to recover the pledge after the determination of the bailment, which might be either in trover or assumpsit.  (Johnson v. Spiller, Douglas, 168, per Buller, J.)  And in the case of Parker v. Norton 6 T.R. 695, Lord Kenyon said: 'I understand Mr Justice Buller to have meant this – that if a person has his election of two remedies and may bring either trover or any other action, the possibility his electing to bring trover shall not prevent his proving his debt, if he will waive the tort.' Thus a patentee was held entitled to prove for the amount of profits made by an infringement of his patent as money had and received. (Watson v. Holliday, 20 Ch.D. 780.) The claimant, however, in such cases is put to his election between his remedies, and if he proceeds with and fails in his action for the tort, he will not be allowed to prove in respect of the breach of contract; nor if he get judgment in contract will he be allowed afterwards to proceed in tort. (Ex p. Baum, Re Edwards, L.R. 9 Ch. 673; ...)"

[31]At 139.

1. Parker v. Norton was decided by Lord Kenyon in 1796.  It is still cited in the textbooks[32] for the view that if a claimant has his election of two remedies, the possibility of his electing to bring the claim in tort will not prevent his proving the debt, if he will waive the tort.  It has thus been maintained now for over 200 years that if a claimant has concurrent remedies, and chooses to pursue a claim in negligence against a bankrupt, that claim may be maintained, but is not provable in the bankruptcy.  Conversely, examples of a person being permitted to prove in a liquidation based on a breach of contract when an alternative cause of action in negligence was available are to be found in Re Southern Cross Coaches Ltd.[33];  and Re Great Orme Tramways Company[34].

   [32]Compare McDonald Henry and Meek's Australian Bankruptcy Law and Practice 3rd ed. (1953) 210;  McDonald Henry and Meek's Bankruptcy Law and Practice, Service 1996, 4074-4075.

   [33](1932) 49 W.N. 230 per Harvey, C.J. in Eq. at 231.

   [34](1934) 50 T.L.R. 450.

1. Mr Stuckey, for the respondent in this Court, emphasized the purpose of the bankruptcy legislation as being to free the bankrupt from liability for existing debts and accordingly submitted that the exclusionary aspect of s.82(2) (i.e. the words of exception commencing "arising otherwise than") should be narrowly construed. He drew support for that submission from the judgment of James, L.J. in Ex parte Llynvi Coal and Iron Company;  Storey v. Lane[35];  Official Trustee in Bankruptcy v. C.S. and G.J. HandbyPty. Ltd.[36];  and McPherson, The Law of Company Liquidation[37]. A different approach to the construction of s.82(2) was taken by Giles, J. in C.C.A. Systems Pty. Ltd. v. Communications and Peripherals (Australia) Pty. Ltd.[38], his Honour saying that it would be erroneous to give undue weight to any of these general statements, each of which must be seen in the context of the decision in which it was uttered, and that the preferable course was to look to the terms of s.82(2) and seek to apply them to the claim in question. In this respect Sir George Jessel, M.R. seems to have taken a similar approach to the interpretation of s.31 of the Bankruptcy Act 1869 in Emma Silver Mining Company v. Grant[39] when saying "The right mode of reading the section is the literal mode of reading it;  and I so read it."

   [35](1981) 147 C.L.R. 549 at 556, 557.

   [36](1989) 21 F.C.R. 19 at 24-25.

   [37]4th ed, 1999, 551.

   [38](1989) 15 A.C.L.R. 720 at 727-728.

   [39](1880) 17 Ch.D. 122 at 130.

1. Mr Stuckey argued that in construing s.82(2) in the narrow way for which he contended, a meaning should be given to the phrase "arising ... by reason of" which required the tribunal to search not for the cause of action, but the causal basis for the demand. He submitted that it was necessary to examine whether the demand arose by reason of a contract, even though the cause of action giving rise to liability was not for breach of contract. In the present case, it was submitted, the contractual, or at least promissory, relationship between the solicitor and client was the foundation for the existence of a duty of care, and in support of this submission reliance was placed on Chittick v. Maxwell[40].

   [40](1993) 118 A.L.R. 728, especially at 738-739.

1. Before turning to Chittick, I should consider briefly the submission itself.  The expression "arising otherwise than by reason of" suggests that a claim which is excepted from the exclusion from proof of demands in the nature of unliquidated damages must be causally connected to a contract, promise or breach of trust (compare Re Pyramid Building Society[41]). At first impression it might be thought surprising that a claim for damages for professional negligence could be said to be causally connected to a contract or retainer. Such a claim is not based on the contract, at least in the sense that the contractual relationship is not an essential element in the claim, required to be pleaded in the statement of claim. In that regard it would require a very narrow interpretation indeed of the exclusionary aspect of s.82(2) if that sub-section were to be treated as making a tortious claim a provable debt in circumstances where concurrent remedies in tort and contract were available to the claimant.

   [41](1991) 6 A.C.S.R. 405 at 410.

1. In Chittick, an action was brought against a solicitor claiming damages for tortious negligence and breach of fiduciary duty.  The solicitor had entered into a composition with his creditors, and it was argued that the effect of s.240 of the Bankruptcy Act was that the debtor was released from all provable debts other than those (if any) that would not be released by his discharge from bankruptcy.  Young, J. held that the conduct of the solicitor amounted to the incurring of a debt by fraud within the meaning of s.153 of the Bankruptcy Act, and accordingly that the Part X composition did not release him from liability to pay equitable compensation for breach of fiduciary duty.  As for the claim which was made concurrently in tort, counsel for the solicitor had submitted[42] that in considering whether that claim was one for unliquidated damages arising by reason of a contract, promise or breach of trust one looked to the underlying transaction rather than to the form of action.  He put it that the claim in negligence in that case clearly arose out of a contract or promise in the relevant sense and so was released by the Part X composition. This submission was accepted by the judge[43], his Honour saying –

"The case in tortious negligence is one that arises out of a contract or promise in the sense that it was failure to fulfil the promise to protect.  It does not seem to me that it matters that there was no cause of action in contract because there was no promise for consideration.  It is sufficient that there is a claim at law or in equity and that that claim is for damages which arises out of a contract or promise."

[42]The test proposed by counsel for the solicitor, as described by the judge, misquoted the wording of s.82(2); see 118 A.L.R. at 738, lines 24-25.

[43]At 739.

1. A principal difficulty inherent in the test proposed by counsel for the solicitor in Chittick, and upon which Mr Stuckey relied in this Court, is the uncertainty of the test, and the consequent difficulty of its application. In what circumstances can it be said that the "underlying transaction" (rather than the cause of action) assists in determining whether a claim in negligence arises out of a contract or promise? How does one determine what is the underlying transaction? Is it sufficient that in the case of a claim in negligence against a solicitor there may be said to be a promissory assumption of responsibility (albeit implied) at the heart of the plaintiff's claim? Does not the wording of s.82(2) suggest rather that for a claim in unliquidated damages to be included in the general release of a bankrupt's debts, a contract or promise must constitute an essential element of the relevant cause of action?

1. Chittick is itself a good example of the difficulties thrown up by the suggested test.  The judge held[44] on the facts that there had been no retainer of the solicitor, and accordingly "any claim in contract ceased to merit further consideration".  His Honour accepted nonetheless that "[T]here was a promise, even though made without consideration by [the solicitor] that he would protect the plaintiffs by the use of appropriate legal skills."  I would, with great respect, doubt that those who first framed the legislation in 1861 had such a notion of "promise" in mind when they inserted the phrase "contract or promise" into s.153 of the 1861 Act.  Blackstone's Commentaries in 1813[45] asserted that "A promise is in the nature of a verbal covenant, and wants nothing but the solemnity of writing and sealing to make it absolutely the same.  If therefore it be to do any explicit act, it is an express contract, as much as any covenant;  and the breach of it is an equal injury."  In Chittick, it had been held that the promise had been made without consideration.  Cowel's definition[46] of a "promise" was "when, upon a valuable consideration, we bind ourselves by our words to do or perform such an act as is agreed upon and concluded, upon which an action may be grounded;  whereas, if it be without consideration it is called nudum pactum, ex quo non oritur actio".  An assumption of responsibility without consideration would not, I think, have been regarded as a "promise" either by Blackstone or Cowel.

   [44]At 736.

   [45]3 Bl.Com. 157.

   [46]Cowel's Interpreter by Tho. Tanley (1672), under the heading "Promise".

1. A second principal difficulty with the application of the test accepted in Chittick and relied on here by Mr Stuckey is the extent to which it blurs the differences between contract and tort.  In Grant v. Australian Knitting Mills Ltd.[47] Lord Wright said of the decision in Donoghue v. Stevenson[48] that –

"It is clear that the decision treats negligence, where there is a duty to take care, as a specific tort in itself, and not simply as an element in some more complex relationship or in some specialized breach of duty, and still less as having any dependence on contract.  All that is necessary as a step to establish the tort of actionable negligence is to define the precise relationship from which the duty to take care is to be deduced."

The sharp distinction between the two causes of action in a case involving professional negligence was recently highlighted in the judgment of Gleeson, C.J., McHugh, Gummow and Hayne, JJ. in Astley & Ors v. Austreet Ltd.[49], where their Honours said –

"The implied term of reasonable care in a contract of professional services arises by operation of law.  It is one of those terms that the law attaches as an incident of contracts of that class.  It is part of the consideration that the promisor pays in return for the express or implied agreement of the promisee to pay for the services of the person giving the promise.  Unlike the duty of care arising under the law of tort, the promisee in contract always gives consideration for the implied terms.  And it is a term that the parties can, and often do, bargain away or limit as they choose.  Rather than ask why the law should imply such a term in a contract for professional services, it might be more appropriate to ask why should the law of negligence have any say at all in regulating the relationship of the parties to the contract?  The contract defines the relationship of the parties.  Statute, criminal law and public policy apart, there is no reason why the contract should not declare completely and exclusively what are the legal rights and obligations of the parties in relation to their contractual dealings.  The proposition that, in the absence of express agreement, tort and not contract regulates the duty of care owed by a professional person to a person hiring the professional services is inconsistent with the historical evolution of professional duties of care which, until recently, could be the subject of action only in contract.  Moreover, the conceptual and practical differences between the two causes of action remain of 'considerable importance'.  The two causes of action have different elements, different limitation periods, different tests for remoteness of damage and, as will appear, different apportionment rules.

[48] The theoretical foundations for actions in tort and contract are quite separate.  Long before the imperial march of modern negligence law began, contracts of service carried an implied term that they would be performed with reasonable care and skill.  Persons who give consideration for the provision of services expect that those services will be provided with due care and skill.  Reliance on an implied term giving effect to that expectation should not be defeated by the recognition of a parallel and concurrent obligation under the law of negligence.  The evolution of the law of negligence has broadened the responsibility of professional persons and requires them to take reasonable care and skill even in situations where a contractual relationship cannot be established.  But given the differing requirements and advantages of each cause of action, there is no justification in recognising the tortious duty to the exclusion of the contractual duty."

[47][1936] A.C. 85 at 103.

[48][1932] A.C. 562.

[49](1999) 197 C.L.R. 1 at [47] to [48].

1. Chittick was approved by Weinberg, J. in Re Peter Lyle Sharp; ex parte Tietyens Investments Pty. Ltd. (In liq) & Anor[50] where his Honour held that certain claims (inter alia in negligence) against three solicitors in Albury, then undischarged bankrupts, were provable debts within s.82 since the claims "are based in part at least upon the contractual relationship which existed between those individuals and those who ultimately lost their investments.  They therefore arise 'by reason of a contract'."  His Honour also held that they involved allegations of breach of trust.  Weinberg, J. said of the judgment in Chittick that it "provides a cogent rationale for the modern tendency to give a narrow interpretation to the exclusionary aspect of s.82(2)".

   [50](1998) 1367 F.C.A. (26 October 1998),.

1. Notwithstanding this endorsement of the decision in Chittick, in so far as the judgment suggests that the present claim is one for a provable debt and accordingly not excluded from the general release provided by s.82(1), I would, with great respect, not follow it. It seems to me rather that the correct test to apply for the purpose of deciding whether a demand is within the exclusion provided by s.82(2), leaving breach of trust to one side, is whether a contract or promise constitutes an essential element of the cause of action. In a claim for unliquidated damages for professional negligence against a solicitor, the pleading of the retainer will often, if not usually, be necessary, but only for the purposes of delineating and defining the scope of the professional's duty of care. For reasons such as those given by Lord Wright in Grant's Case the pleading of the contract or retainer, however, is not an essential element in the cause of action. 

1. Mr Stuckey also relied on Emma Silver Mining Co. v. Grant;  Jack v. Kipping[51];  and Britter v. Sprigg[52] in support of his submissions that the language of s.82(2) is not directed at causes of action, but rather at the cause or basis of the demand and that the proper approach is to examine whether the demand arises by reason of a contract, even though the cause of action giving rise to liability is not for breach of contract.

   [51](1882) 9 Q.B.D. 113.

   [52](1900) 26 V.L.R. 65

1. In each of these cases the claim was regarded as provable, but, in my view, each is distinguishable.  In Emma Silver Mining the claim was "in the nature of an ordinary debt due by an agent in respect of money had and received by way of secret profit"[53]  and was so treated by Sir George Jessel[54].  The claim was not for unliquidated damages and was regarded as arising under a contract.  Jack v. Kipping was a claim for unliquidated damages for a fraudulent misrepresentation which induced the claimant to contract to purchase shares.  Cave, J., speaking for himself and Mathew, J. said[55] that –

   [53]17 Ch.D. at 123, 126.

   [54]At 130.

   [55]9 Q.B.D. at 117

"It is said that such a fraudulent misrepresentation is a tort;  but we think that it is not a personal tort, but a breach of the obligation arising out the contract of sale."

This decision was doubted by McLelland, C.J. in Eq. in Re N.I.A.A. Corporation Ltd. (In Liquidation)[56] where his Honour said of the passage just quoted –

"Whether this assimilation was justifiable for the purpose of the 'mutual dealings' provision, the application of which is limited to provable claims, is questionable, particularly as no attention was paid in that case to the decision in Ex parte Baum[57].  However, the real thrust of the decision seems to have been that to deny a set-off in the circumstances of that case 'would be inequitable', which suggests that the decision should properly be treated as illustrating the availability in those circumstances of an equitable set-off, making reliance on the 'mutual dealings' provision and the question of whether the claim was provable in the bankruptcy, otiose."

Plainly there were other considerations bearing upon the decision in Jack v. Kipping.  In Britter v. Sprigg it was held, following Emma Silver Mining, that the wrongful receipt by the director of a building society of moneys of the society by way of commission, being both a breach of trust and contractual, constituted a debt provable in insolvency within the meaning of s.114 of the Insolvency Act 1890.

[56]Butterworths Unreported Judgments, BC 9403369, 2 December 1994 at 5,.

[57](1874) 9 Ch.App. 673.

1. I should add that In the Estate of Fitzhardinge (Deceased), ex parte Hely[58], Manning, J. held that a right of action against a bankrupt solicitor for not duly prosecuting an action for his client was in substance for negligence, and damages for such negligence were not capable of proof under s.45(1) of the Bankruptcy Act 1887 (NSW).

   [58](1894) 15 N.S.W.R. (Bankruptcy and Probate) 132.

1. In the judgment now under appeal, the learned judge preferred the decision of Young, J. in Chittick to that of Manning, J. in Fitzhardinge. His Honour said that the exception in s.82(2) should be read very narrowly, relying on Ex parte Llynvi Coal & Iron Company and continued –

"The duty relied upon by the plaintiff in the present case only arose by reason of the existence of the contract between the plaintiff, her husband and the defendant.  That is clear from the pleadings.  The duty and the terms of the retainer are the same.  It is clear, therefore, that the plaintiff's claim is a demand which arises by reason of a contract."

1. The statement of claim did indeed include an allegation that the plaintiff and her husband retained the defendant, as well as pleading some of the terms of the retainer. But I do not accept that the plaintiff's claim in negligence is therefore a demand which arises by reason of a contract. In my view the contract does not constitute an essential element in the plaintiff's cause of action in negligence, and her tortious claim is "a demand in the nature of unliquidated damages arising otherwise than by reason of a contract promise or breach of trust" within the meaning of s.82(2) of the Bankruptcy Act.  It was therefore not provable in the defendant's bankruptcy and the plaintiff was not required to obtain leave from the Federal Court of Australia before pursuing it.

1. I would accordingly allow the appeal.

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