Day & Dent Constructions Pty Ltd (In Liquidation) v North Australian Properties Pty Ltd (Provisional Liquidator Appointed)
[1981] FCA 37
•18 FEBRUARY 1981
Re: DAY & DENT CONSTRUCTIONS PTY. LTD. (In liquidation)
And: NORTH AUSTRALIAN PROPERTIES PTY. LTD. (Provisional Liquidator Appointed)
(1981) 54 FLR 277
No. NTG. 2 of 1980
Bankruptcy - Companies
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Forster( ), McGregor( ) and Sheppard( ) JJ.
CATCHWORDS
BANKRUPTCY - Set off - A guarantor's liability arose under the guarantee before the date of winding up of the principal debtor - Payment by guarantor after winding up - whether guarantor may set off payment against principal debtor.
Bankruptcy - Set off - Whether Statutes of Set off (2 Geo. II C.22 s.13 and 8 Geo. II C.24 s.5) supplanted by Bankruptcy Act 1966 (Cth) S 86.
Bankruptcy Act 1966 (Cth) S.86.
Companies - Winding up - Mutual debts and credits - Claim by appellant company in liquidation to recover moneys borrowed from finance company for use of respondent - Respondent guarantor of loan after winding-up order - Finance company called up guarantee - Finance company secured creditor of respondent - Finance company realized security and recovered all moneys owed to it by appellant company - Entitlement of respondent to claim set-off against appellant company - Time when set-off arose - Companies Act 1978 (N.T.), s. 291 (2) - Bankruptcy Act 1966 (Cth), s. 86 - Statutes of Set-Off - 2 Geo. 2c. 22, s. 13 - 8 Geo. 2c. 24, s. 5.
HEADNOTE
On 18th October, 1976, the respondent executed a mortgage in favour of Esanda Ltd. over certain land owned by it to secure any specified financial accommodation made by Esanda to the appellant. The respondent also executed a guarantee in favour of Esanda. On 26th November, 1976, the appellant obtained a loan from Esanda in the sum of $100,000. At the request of the appellant the moneys were disbursed to discharge a prior mortgage over the land. The respondent, prior to and after the loan from Esanda, executed other guarantees in favour of Esanda in respect of the appellant's liability to Esanda.
On 18th May, 1978, the appellant was ordered to be wound up. On 6th June, 1978, the appellant demanded repayment by the respondent to it of the sum of $100,000 used to discharge the prior mortgage over the land and borrowed by the appellant for the use and benefit of the respondent; the respondent did not meet the demand of the appellant. On 2nd August, 1979, Esanda demanded repayment of the moneys owed to it and secured by the mortgage of 18th October, 1976. Some payment to Esanda had already been made by this date and other payments were subsequently made by the respondent. In October 1979 Esanda as mortgagee sold the land and in total Esanda received all moneys owed to it by the appellant including the sum of $100,000 borrowed by the appellant for the use and benefit of the respondent. Esanda did not submit a proof of debt in the liquidation of the appellant.
By action commenced by writ the appellant sought to recover from the respondent the sum of $100,000 borrowed by it for the use and benefit of the respondent. At trial of the action it was held that the respondent could set off against such claim the amount of $100,000 paid by it to Esanda pursuant to its guarantees.
On appeal,
Held: Per Forster and McGregor JJ., Sheppard J. dissenting - Appeal dismissed: (1) Per Forster and McGregor JJ. - Although the Statutes of Set-Off (2 Geo. 2 c. 22 and 8 Geo. 2 c. 24) are part of the laws of the Northern Territory, they have no application in the present situation. The law concerning cross-claims between a company in liquidation and its creditors is to be found exclusively in the provisions of s. 86 of the Bankruptcy Act 1966 as applied by virtue of s. 291 (2) of the Companies Act 1963 (N.T.).
(2) Per Forster J. - Where, after insolvency of a principal debtor, a surety pays off a principal creditor so that as between principals the debt is discharged, the surety may set off the amount so paid by him against a claim in respect of a debt due by him to the estate.
Hiley v. People's Prudential Assurance Co. Ltd. (1938), 60 CLR 468, referred to.
Jones v. Mossop (1844), 3 Hare 568; 67 ER 506, followed.
Rowlatt on Principal and Surety (3rd ed.), p. 325; Williams & Muir Hunter on Bankruptcy (19th ed.),p. 201, approved.
(3) Per McGregor J. - (a) If contractual obligations exist at the date of the winding-up order, the enforcement wherof might give rise to a probable claim, an obligation exists which might mature or develop into a pecuniary demand capable of being raised as a set-off. Hiley v. People's Prudential Assurance Co. Ltd. (1938), 60 CLR 468, followed. (b) On the facts in the present case there had been "mutual dealings" within the meaning of s. 86 of the Act prior to the winding-up order. (c) The amount of the outstanding loan was "due" to Esanda from the respondent prior to the winding-up order. Meaning of "due" in s. 86 discussed. (d) Quantification of the liability to Esanda was completed prior to the date of the court hearing. (e) By reason of the matters referred to above prior to the winding-up order there was a debt due from the respondent to the appellant and also: (i) a sum in excess of that indebtedness due by the appellant to the respondent which the respondent was entitled to set off; or (ii) a liability capable of maturing into a sum capable of set-off. Re Moseley Green Coal & Coke Co. Ltd; Ex parte Barrett (1865), 12 LT 193; 46 ER 116; Re Daintrey; Ex parte Mant, (1900) 1 QB 546; Re Fenton; Ex parte Fenton Textile Association Ltd., (1931) 1 Ch 85, referred to. Hiley v. People's Prudential Assurance Co. Ltd. (1938), 60 CLR 468, followed. Re A Debtor; Ex parte Debtor v. Trustee of the Property of Waite, (1956) 1 WLR 1226, explained and distinguished. Re Bruce David Realty Pty. Ltd. (1968), 14 FLR 56, considered and doubted.
(4) Per McGregor and Sheppard JJ. - No independent equitable right to a set-off exists in a situation where the provisions of s. 86 of the Act apply.
(5) Per Sheppard J. dissenting - (a) There is a distinction between a liability which at the date of the winding-up order is uncertain in amount and one which is merely contingent. (b) A liability which at the date of the winding-up order exists but is uncertain because it has not at that time been or been capable of quantification may nevertheless be the subject of set-off pursuant to s. 86 of the Act. Re Daintrey; Ex parte Mant, (1900) 1 QB 546; Naoroji v. Chartered Bank of India (1868), LR 3 CP 444, referred to. Hiley v. People's Prudential Assurance Co. Ltd. (1938), 60 CLR 468, discussed. (c) A liability which is merely contingent at the date of the winding-up order is not capable of being set off pursuant to s. 86. Re A Debtor; Ex parte Debtor v. Trustee of the Property of Waite, (1956) 1 WLR 1226, explained and followed. Re Bruce David Realty Pty. Ltd. (1968), 14 FLR 56, referred to. (d) In the absence of a binding Australian authority the Full Court of the Federal Court should follow a decision of the English Court of Appeal unless it is satisfied that such decision is wrong. Public Transport Commission (N.S.W.) v. J. Murray-More (N.S.W.) Pty. Ltd. (1975), 132 CLR 336, referred to. (e) The facts of the present case are indistinguishable from the facts in Re A Debtor and notwithstanding certain misgivings about that decision it should be followed as it represents the law in Australia.
HEARING
Darwin, 1980, June 3 ,4; 1981, February 18. #DATE 18:2:1981
APPEAL.
Appeal from decision dismissing the plaintiff's (appellant's) claim against the defendant (respondent) on the ground that the respondent was entitled to set off against the claim the amount of $100,000 paid by it to Esanda pursuant to certain guarantees.
J. B. Waters, for the appellant.
G. E. Hiley, for the respondent.
Cur. adv. vult.
Solicitors for the appellant: Waters, James & O'Neil.
Solicitor for the respondent: Danny Masters.
D. LEVIN
ORDER
The Court orders that the appeal be dismissed with costs.
JUDGE1
In this matter the learned trial judge made certain findings of fact which were not disputed and it will be convenient to set them out.
"1. 29 November 1974 the plaintiff transferred to the defendant its right, title and interest in Portion 1662 Hundred of Bagot, subject to existing mortgages, including a second mortgage to Esanda.
17 September 1976 Jape and Greenleaf transferred to the defendant their right, title and interest in Portion 1218 Hundred of Bagot.
17 September 1976 the defendant granted a mortgage over the said property to Jape and Greenleaf.
18 October 1976 the plaintiff contracted with Esanda for loan of $100,000 and directed payment of the principal sum to be made to Jape and Greenleaf and their solicitors.
29 November 1976 Esanda advanced the sum of $100,000 to the plaintiff and made payment as directed by the plaintiff. Such monies were applied in discharge of the mortgage referred to in 3 above. Registration of discharge of mortgage was in fact made on 26 November 1976.
26 November 1976 a mortgage from defendant to Esanda over Portion 1218 Hundred of Bagot was registered. The Memorandum of Mortgage had been executed on 18 October 1976. It secured loans to the plaintiff as well as loans to the defendant and contained a personal covenant and a guarantee by the defendant in respect of the principal and interest payable under the mortgage.
At the same time as the execution of the mortgage by the defendant in favour of Esanda, i.e. on 18 October 1976, the defendant and its respective directors executed a form of guarantee in favour of Esanda in respect of all sums of money for which the plaintiff may then or thereafter be indebted or liable or contingently indebted or liable on any account whatever, including any account relating to leasing, hire purchase or loan.
On 3 June 1977 the defendant executed a further form of guarantee in favour of Esanda guaranteeing all sums of money for which the plaintiff company was then or may thereafter become indebted in the same terms as the guarantee referred to in 7 above.
On 18 May 1978 the plaintiff was wound up.
On 6 June 1978 the plaintiff by written notice requested the defendant to repay the sum of $100,000. The defendant failed or refused to do so.
On 2 August 1979 Esanda demanded of the defendant repayment of the principal and interest due under the mortgage referred to in 6 above, as payments were then overdue.
On 16 October 1979 Esanda in exercise of its power of sale as mortgagee entered into a contract to sell Portion 1218 Hundred of Bagot.
On 16 November 1979 the sale was completed and Esanda retained out of the purchase monies a sum of $84,475.82 being the balance of monies owed to it by the plaintiff.
Taking into account other monies paid by the defendant to Esanda on account of the plaintiff since the plaintiff was wound up, the total sum paid by the defendant to Esanda at the request of the plaintiff then totalled $212,032.56. Accordingly all liability of both the plaintiff and the defendant to Esanda has been discharged."
The plaintiff is the appellant before this court and the defendant the respondent.
In addition it should be noted that the respondent lodged a proof of debt dated 8 June 1978 in the winding-up of the appellant including the sum of $100,000 as a contingent liability from the appellant to the respondent.
The money which was borrowed by the appellant from Esanda and paid by its direction to the use of the respondent never passed through the appellant's hands. It was repaid by the respondent to Esanda pursuant to its guarantee of the appellant's debt to Esanda and it is no longer owing to Esanda by either the appellant or the respondent. Esanda apparently never demanded repayment of the $100,000 from the appellant and has not proved in the appellant's liquidation. I pause to observe that in these circumstances an intelligent but legally uninformed member of the public might be surprised to know that the question of whether the respondent should now repay the same sum to the appellant has been the subject of hard-fought argument.
The appellant sued the respondent to recover the sum of $100,000 borrowed by it and paid by Esanda to the use of the respondent. The learned trial judge decided that the respondent might set off against the claim made against it by the appellant the amount of $100,000 paid by it to Esanda pursuant to the guarantees given by the respondent to that company to secure advances to the appellant. The appellant appeals to this court against that decision.
Section 291(2) of the Companies Act 1963-1978 is as follows:
"291.(2) Subject to section 292, in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and debts provable and the valuation of annuities and future and contingent liabilities as are in force for the time being under the law of the Commonwealth relating to bankruptcy in relation to the estates of bankrupt persons, and all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company may come in under the winding up and make such claims against the company as they respectively are entitled to by virtue of this section."
Section 292 of the Act deals with the order of the payments to be made in priority to other unsecured debts and is for this purpose irrelevant.
Section 86 of the Bankruptcy Act (Commonwealth) 1968-1980 is as follows:
"86.-(1.) Subject to this section, where there have been mutual credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy -
(a) an account shall be taken of what is due from the one party to the other in respect of those mutual dealings;
(b) the sum due from the one party shall be set off against any sum due from the other party; and
(c) only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be.
(2.) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the person who has become a bankrupt or at the time of receiving credit from that person, he had notice of an available act of bankruptcy committed by that person."
It follows that s.86 of the Bankruptcy Act applies with respect to the liquidation of companies as well as to the bankruptcy of persons. In this case it is the appellant which has been wound up and the respondent has lodged a proof of debt in that liquidation. There have been at the least "other mutual dealings" between the parties. It is my view that the question of equitable set off does not arise nor any rights which may accrue under the statutes of set off which are a part of the law of the Northern Territory notwithstanding that they have been repealed in the United Kingdom. The law concerning cross claims between a company in liquidation and its creditors is to be found exclusively in the provisions of the Bankruptcy Act applied by virtue of s.291(2) of the Companies Act (see in Re Daintrey (1900) 1 Q.B. 546 per Bingham J. at p.567).
It is argued by the appellant that in order for there to be a right to set off under s.86 the amount to be set off must have been due and owing at the date of the winding up whereas, in this case, at that date the respondent simply had a contingent liability to pay to Esanda pursuant to its guarantees.
In Hiley v. Peoples Prudential Assurance Co. Ltd. 1938 60 C.L.R. 468, Starke J. says (at p.491) -
"There are cases in the books in which sureties who have been compelled to pay a principal debt after bankruptcy have been allowed to set off the sum so paid against debts due to the bankrupt (Cf. Rowlatt on Principal and Surety, 2nd ed, (1926), p.307). But the obligation of the surety in those cases arose before bankruptcy and was an obligation which might and did in fact end in a money claim."
Page 307 appears not to be on the point but on p.325 of the 3rd edition of Rowlatt on Principal and Surety there appears the following passage -
"A surety becoming bound at the request of the principal before the bankruptcy of the latter, but compelled to pay by the creditor after the bankruptcy, is entitled to set off the sum paid against debts due by him to the bankrupt."
Jones v. Mossop 3 Hare 568 at 571 is cited in support of this proposition.
"Where after the insolvency of a principal debtor his surety pays off the principal creditor so that, as between the principals, the debt is discharged, the surety may set off the amount so paid by him against a claim in respect of a debt due by him to the estate."
(Williams & Muir Hunter on Bankruptcy 19th edition 1979 at p.201.) Jones v. Mossop is also cited here in support.
"As surety he had a right at any moment to 572 pay off the debts which he had guaranteed; and, as debtor upon the bond, he would have had a right to say he had paid off the debts out of the money he owed upon the bond. The only question is whether that equity was superseded by the insolvency, or whether it overrode the rights of the creditors interested under the insolvency. My opinion is that it remained notwithstanding the insolvency."
(Jones v. Mossop supra at ps. 571, 572.)
It seems to me that this case supports in principle the propositions of the two text writers mentioned and I conclude that the respondent was entitled to the set off which it claimed. The appeal should therefore be dismissed with costs.
JUDGE2
The facts are sufficiently set out in paragraphs 1 to 10 in the judgment of Sheppard J. and need not be re-stated. For the most part they are not in dispute, though the implications therefrom are. Nor is it necessary to refer further to the arguments of Counsel summarised by his Honour or to what he describes as the "essence" of the defence to the proceedings; though I understood respondent claimed to be entitled not only to succeed by reference to the Bankruptcy Act 1966 s.86 and upon a defence of equitable set-off, but also by reference to the Statutes of Set Off 2 Geo 11C.22 s.13 and 8 Geo 11 C.24 s.5.
The finding made by the learned trial Judge in favour of the appellant's claim (leaving aside for the moment the defence) was not the subject of any cross appeal and was not attacked in argument by the respondent's Counsel. The finding on the arguments presented to him and on the evidence available was one which was open to him. It is e.g. within the statement in Bullen and Leake "Precedents of Pleadings" (Third Edition) at page 42 where it is said in reference to the common indebitatus count for money paid -
"This count is maintainable where there has been a payment of money by the plaintiff to a third party at the request or by the authority of the defendant express or implied with an undertaking express or implied to repay it."
The issue then is as to the entitlement of the respondent to claim the "set-off" referred to above. In this regard it is common ground that the sum claimed has been or is part of the monies paid by the respondent to Esanda pursuant at least to the former's guarantee in favour of that company. It is further not the subject of any challenge that, and according to the evidence of Mr. James, there will be no claim by Esanda on the appellant for further payment of that sum of money.
It will be convenient first to consider the matter lastly mentioned, viz., the defence in reliance upon the Statutes of Set off.
2 Geo. 11 C.22 s.13 reads -
"Where there are mutual debts between the plaintiff and defendant, or if either party sue or be sued as executor or administrator where there are mutual debts between the testator or intestate and either party, one debt may be set against the other."
and 8 Geo. 11 C.24 s.5 -
"that mutual debts may be set against each other notwithstanding that such debts are deemed in law to be of a different nature, unless in cases where either of the said debts shall accrue by reason of a penalty contained in any bond or specialty where the debt intended to be set off shall be pleaded in bar, in which plea shall be shown how much is truly and justly due on either side; and in case the plaintiff shall recover in any such action or suit, judgment shall be entered for no more than shall appear to be truly and justly due to the plaintiff after one debt being set against the other as aforesaid."
These Statutes were passed in 1723 and 1734 respectively.
Respondent's Counsel submits they are applicable to the Northern Territory (though repealed in the United Kingdom), a matter not challenged in argument and accepted here for that purpose; that the expression "mutual debts" in section 13 does not require for its operation that debts should arise at the same time. His submission was not developed, nor related to any local pleading requirements.
The similarity between section 13 and s.86 (below) will be apparent; yet the Statute refers only to "mutual debts". The present Bankruptcy Act 1966 s.86 must be conceded a wider coverage if only for the additional words which appear in it, giving more comprehensive rights than the right of set-off in the Statutes. (cf. Sovereign Life Assurance Company v. Dodd (1892) 2 Q.B. 573 at pp. 578 and 582). Having regard to the phrases in s.86 additional to "mutual debts" and the purpose that section was intended to serve, it is, I suggest, intended to be a code. Unquestionably, there must always be mutuality (see Re Mid Kent Fruit Factory 1896 1 Ch 567, the disapproval on one aspect of which in the case of in Re D.H. Curtis (Builders) Ltd. 1978 1 Ch. 162 at 168-169 per Brightman J. (Curtis) was not on this point.); and at least in some cases, liquidated debts. Thereafter s.86 will cover and define the relationship between bankrupt and debtor or creditor. For an example of its application rather than that of the Statutes of Set-Off see in re Daintrey; ex Parte Mant (1900) 1 Q.B. 546 at 547 (Daintrey). The wording of s.86 is wide enough to include "set-off" anyway - a phrase which appears in s.86(1)(b) and (2), as if "set off" were assumed to be part of the mechanical operation of the main statements of the section. As to "Set off" see generally Bullen and Leake "Precedents of Pleadings" (Third Edition) at page 678.
Perhaps the defence in this case anyway is rather to be expressed that the appellant's entitlement to recover no longer existed after respondent paid out Esanda than conceding money to be owed by the latter and seeking to diminish or subtract from that indebtedness an amount said to have been paid on its behalf by the respondent.
It would be a curious thing anyway if a section which had had the long history of section 86 and its English forbears should have failed to comprehend and include in its provisions all that was available under the earlier Statutes of Set off, suitably tailored for the purposes of bankruptcy.
The Statutes of Set off would not if able to be employed serve the respondent's case any more than does s.86. In my view they have no application here, and have been supplanted by s.86.
I return to consider the applicability and effect of the Bankruptcy Act 1966 s.86. This reads -
"(1) Subject to this section, where there have been mutual credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy -
(a) an account shall be taken of what is due from the one party to the other in respect of those mutual dealings;
(b) the sum due from the one party shall be set-off against any sum due from the other party; and
(c) only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be.
(2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the person who has become a bankrupt or at the time of receiving credit from that person, he had notice of an available act of bankruptcy committed by that person."
(The Companies Ordinance s.291(2) (now reproduced in the Companies Act 1978) applies the rules of bankruptcy to companies in liquidation.) A short statement of the history of this area of the law, with some reference to its antiquity, may be quoted from Curtis at p.168 -
"So far as set off is concerned the law has for many years recognised the general principle that where there are mutual debts existing between a creditor and a bankrupt, the smaller debt is to be set against the larger debt and only the balance is to be accounted for by the creditor or relegated to proof in the bankruptcy. This principle can be traced back for at least 300 years: see Bailey v. Finch (1871) L.R. 7 Q.B. 34. It received statutory recognition in section 28 of the Bankruptcy Act 1731 which dealt with mutual credits and debts, and required the commissioners to state the balance of the account between the bankrupt and the other person. That section was replaced by section 3 of the Bankruptcy Act 1806, followed successively by section 50 of the Bankruptcy Act 1825, section 171 of the Bankruptcy Act 1849, section 39 of the Bankruptcy Act 1869, section 38 of the Bankruptcy Act 1883, and finally section 31 of the Bankruptcy Act 1914, all in much the same terms."
(As to mutuality see ibid at p.171; cf Daintrey per Bigham J. whose judgment was upheld.)
As to what was intended by the expression "mutual debts and credits", see per Brett LJ, Peat v. Jones 8 Q.B.D. 147 at 149, 150 where he said -
"It seems to me that the expression "mutual debts and credits" was intended to comprise all ordinary transactions between the two persons in their individual capacities, and that "mutual dealings" was added to get rid of any questions which might arise whether a transaction would end in a debt or not. As was said by Malins, V.-C., in Booth v. Hutchinson, the additional words were intended to give a more extended right of set-off than previously existed."
The latter phrase i.e. "mutual dealings" is wider than the former phrase (see Rose v Hart (1818) 8 Taunt 499 at p.506.
The expression "mutual dealings", I note, was added by the English Bankruptcy Act in 1869 to the legislation there.
The various agreements e.g. Memorandum of Contract for Loan, Mortgage signed by the "borrower" (appellant) and "mortgagor" (respondent), the guarantees given to Esanda, the payment first to pay off the Jape and Greenleaf mortgage over respondent's property, creating a liability on the one hand in respondent to pay appellant (as the learned trial Judge found) and finally on the other hand the repayment extracted from respondent by Esanda, pursuant to its guarantees, or the mortgage, extinguishing the debt owed by appellant at least for the loan, satisfy the requirements of that part of section 86 relating to mutuality and are comprehended by the expression "mutual credits, mutual debts or other mutual dealings" as used in the section.
As to when the "line is drawn", I accept, as indeed do the arguments on both sides, that it is the date for the order for winding up of the appellant plaintiff. The cases on this subject are cited in "Australian Bankruptcy Practice", 5th Edit. at p.192. See e.g. Hiley's case cited below per Rich J. at p.487 and Dixon J. (as he then was) at pp.495-6.
The contentious question seems to be as to the state of affairs at the date of the order for winding up of appellant, viz. on 18 October 1978. Accepting as I do that the respondent was indebted to the appellant in the sum of $100,000 (i.e. as found by his Honour), was there a legal entitlement so crystallised and at the date of the order for winding up, as to enable it to be available to the respondent as a defence i.e. within the expression of s.86. If so, is it a defence which can be pleaded without the necessity for proving in a liquidation. See e.g. Peat v. Jones (supra) per Jessel M.R. at p.149 -
"The Statutes, however, contemplate the set-off being allowed in the Bankruptcy Court. This being so, if the debtor were sued in a common law Court, he could apply to the Court of Bankruptcy for an injunction to restrain the assignee from suing him. Then the Courts of common law, having regard to the equity of the statute, went a step further, and allowed the debtor to plead the set-off in the Court of common law itself without being under the necessity of applying for an injunction. This practice has been recognised in a series of decisions. The legislature must be taken to have been aware of the effect of those decisions when it passed the Bankruptcy Act, 1869, and not to have intended to alter the law."
(See also Mitchell v. Purnell Motors 20 A.B.C. 200 at 204) Or did the later payment perfect the defence.
First I wish to refer to in Re Moseley-Green Coal and Coke Company (Limited) . . . . . . Ex parte Barrett x11 L.T.N.S. 193; also (1861-73) A11.E.R. Rep. 459 (Barrett). The facts were that Barrett, a shareholder in the company, was surety to the mortgagee company for the mortgagor vendor. It had been agreed that the company should pay off the mortgage debt in May 1862. The company, however, did not do this but gave to the mortgagee a promissory note for monies due at six months dated in September 1862. In October 1862, following, a winding up order was made. In February 1863 the mortgagee requiring payment of his money, Barrett induced his sister to pay off the mortgage debt and to take a transfer of the securities including the note which shortly after fell due and was dishonoured. Barrett's name appeared on the list of contributories and therefore, prima facie, he was in debt to the company in respect of the relevant amount. He obtained a transfer of the note from his sister and then asserted his right to set off his claim against the company in respect of the note in diminution of the sum due from him to the company for calls. It was held that the payment by Barrett to the transferee of the mortgage (i.e. his sister) related back to the claim of the mortgagee before the winding up order and that Barrett was entitled to a set off in that sum against the company's claim.
The Lord Chancellor, Lord Westbury, said, inter alia, (at p.195) -
"Then comes the mischievous thing, in winding up as in bankruptcy, of permitting a debtor to purchase up counter claims subsequently to the winding up order for the purpose of making a case of set-off; and then, whether there is not an exception in the case when there is an actual ownership of a counter claim, which, though arising subsequently to the winding up order or the bankruptcy, yet is a consequence of some anterior matter. And then comes the material question in the present case: Does the contract of suretyship, incurred as it was by Barrett anterior to the winding up order, with its attendant rights, give such retroactive force to Barrett's possession and ownership of the note as to enable him to refer it back to that contract or relation, before the winding up order was made? My present impression is that it will; that he is a bona fide possessor of the note, and therefore that he has a right to a set-off."
(His Lordship later adhered to his "present impression"). This case is referred to in authorities to which I shall refer later; but it will be noted that, as at the date of the winding up order and since the company had not paid the mortgage debt, Barrett may have been liable as surety for its payment; he was liable anyway as a contributory. Yet at that stage there was nothing owing to him at all and it follows, therefore, nothing which could satisfy the description of a mutual credit. After the winding up, Barrett then gained entitlement to the note given to the mortgagee by the company i.e. by first his sister paying off the mortgage debt and taking the transfer of the securities including the note, and then by his obtaining entitlement to the note. Only then was the note transferred to him. So the mutual debt and credit were respectively to the company by Barrett for calls and to Barrett from the company in respect of its liability for the mortgage debt evidenced by the note which had been but recently obtained by Barrett and certainly since the winding up. He was therefore entitled to the mortgage debt owed (now) by the company to him and presumably as a surety who had paid up the amount of the guarantee to require reimbursement from the company (principal debtor).
In Daintrey (earlier cited) the facts were that Mr. Mant was a Solicitor as also was Daintrey. He owed Mant 86 pounds before 24 December 1892. On that date, Daintrey committed an act of Bankruptcy, Mant having no notice thereof. On 31 December 1892 Daintrey sold his practice to Mant for a sum to be calculated as a share of profits from Mant acting for former clients of Daintrey, the sum to be for three years only calculated annually on 1 January each year. On 17 January 1893, a receiving order was made on Daintrey, when Mant then discovered the act of Bankruptcy. After three years, Mant calculated profits owed to Daintrey as 300 pounds paying this sum less 86 pounds to the Trustee in Daintrey's bankruptcy. The Trustee objected, contending that 300 pounds should have been paid in full, Mant having a right only to prove for the 86 pounds. It was held that these were "mutual dealings" under Bankruptcy Act 1883, so Mant was entitled to set off the 86 pounds. Bigham J. (Divisional Court) whose judgment was upheld in the Court of Appeal, said (568) -
"In the case before the Court. . . . the debt on the one hand, and the agreement out of which the cross debt arises on the other hand both came into existence before the date of the receiving order, and the account, must be taken by placing the one debt against the other and ascertaining the difference."
Lindley M.R. said (572) -
"Under the circumstances it is clear that when this agreement was executed very considerable sums would become payable under it."
Romer L.J. said (573) -
". . . the amount which ultimately became payable by them could not be ascertained until some time later than the date of the receiving order and it was possible the amount might be very small; but whatever sum eventually became payable. . . . . to Daintrey (was) by virtue of this agreement of December 31 1892 and of nothing else."
I note that Wright J. whose judgment in the Divisional Court was not followed had said - and those expressions were not rejected by the Court of Appeal - (547)
". . . . . and the question is whether there ought to be such a set-off of a debt due from the bankrupt before his bankruptcy against a debt to the bankrupt's estate which did not come into existence as a debt, demand, or liability until after the date of the receiving order, but was until after that date a mere possibility of indebtedness. In considering this question there are three things which it is specially important to observe. The first is that there is nothing to shew any connection between the cross demands. They are in respect of entirely separate and independent transactions. The second is that Mant was not under any obligation to carry on the business which he had bought. He might not choose to do any business, or none might be offered to him, or there might not be any profit."
His Honour seems to be stating that the sum later the subject of set off need not before the winding up order be quantified or even certain to become due.
Next it will be convenient to consider the judgment referred to extensively by both Counsel, viz. in Re Fenton; ex Parte Fenton Textile Association Ltd. (1931) 1 Ch 85 (Fenton). Fenton guaranteed advances by certain banks to a Textile association. Later he executed two deeds of arrangement in favour of creditors. The Association went into liquidation. Its Liquidator lodged a proof against Fenton's estate in respect of the sum of money due by him to the Association. Fenton's trustee rejected the proof (he wished amounts owing to be fixed by the Court) and claimed to set off various sums advanced by the banks to the association which were the subject of Fenton's guarantee. At least one bank had submitted a proof in Fenton's Estate; nothing had been paid to them.
The question for determination was whether Fenton could set off his contingent liability to the banks against the amount claimed by the Association.
It was held that Fenton or his trustee, not having paid any sums due under the guarantees to the Banks, his Trustee was not entitled under the Bankruptcy Act 1914 s.31 (equivalent to s.86) to set off the contingent liability under the guarantees against sums due from him to the Association.
There are various statements in the judgment of Lord Hanworth M.R., (the emphasis in whose judgment was somewhat different to those of the other Lord Justices), to which I would refer. He said (104) -
"The right of a surety to be protected from the liability that will fall upon him in case of default by the principal debtor is clear, and is not confined to cases in which he has paid the creditor. As soon as any definite sum of money has become payable to the creditor, the surety has a right to have it paid by the principal and his own liability in respect of it brought to an end: see the cases collected in Rowlatt on Principal and Surety, 2nd ed. p.186. . . . . The right, however, as pointed out in the latter case is for protection and does not enure to the surety so as to justify an order to pay him the sum for which he stands in peril; for the surety who has not paid the principal creditor cannot give a discharge as against the principal creditor. . . . . . . . This being the right of the surety it also seems clear that the time for ascertaining what mutual debts, credits and dealings were existing between the debtor and other persons is the date of the receiving order."
(His Lordship referred to Daintrey in respect of his last statement).
He continued (p.106) -
"In Ex parte Barrett Lord Westbury decided that where a surety, who was such before the winding-up, paid off the debt of his principal debtor after the winding-up and received the securities held by the creditor, he was entitled to be treated as being in the same position as if he had paid off the debt before the winding-up and to set off his payments so made, because he had fulfilled his contract made before the winding-up and his right arose not by reason of dealings after, but before the windingup order. The Lord Chancellor clearly laid stress not only on the fact that the liability was outstanding at the date of the winding-up, but had in fact been fulfilled by payment which turned the surety into an actual creditor, and he was, therefore, no longer merely under a contingent liability.
Then he summed up what he took from the cases to that point as follows:- (p.107)
"Thus, so far as the cases go, it had been decided that a surety is entitled to a right to prove if (a) his liability arose under a guarantee given before the date of the receiving order or winding-up order, and (b) he has in fact paid to the creditors the sum that he seeks to set off. No case has decided that he can set off his contingent liability before he has changed that, by payment to the creditor, into an actual debt due to himself. Several cases have indicated a doubt whether there could be right to prove before such a payment."
Particularly, coming after the reference to Barrett, it seems that His Lordship did not regard as crucial, that payment must be before the date of the order for winding up. At p.107, he referred to two further authorities, namely, Sampson v. Burton (1820) 2 Br. & B.89, and Rose v. Hart (supra) from which he quoted. He went on - (108
"These two cases taken together explain the intention of the statute. The intention was to confine mutual credits to precuniary demands, or to those subjects, which at some subsequent time might become of a pecuniary nature."
(Emphasis is mine.)
His Lordship continued
"To the words in previous Bankruptcy Acts, the Bankruptcy Act of 1869 added "mutual dealings" to the section, and we have to consider its exact terms to see whether a set-off can be allowed on such facts as are now present to the Court. If the contra right were one which was effective before the receiving order, though its quantum was measured afterwards the system of set-off would apply: see In re Daintrey; ex Parte Barrett; and Palmer v. Day & Sons, where an authority given before the receiving order resulted in a money claim after the receiving order."
He referred to Daintrey thus - (108)
"In re Daintrey, when the datum line was fixed by the receiving order being made, it was clear, as Lord Lindley M.R. said, that very considerable sums would become payable under the agreement entered into between the parties before the date of the receiving order, that is, if the agreement was carried into effect according to the intention of the parties. It is true that there was no express obligation by Mant to carry on the business; but if he fulfilled his agreement, he would do so and thus provide a sum payable to the bankrupt. At the date of the judgment he had carried out his agreement and there was a sum of 33 pounds due to the bankrupt."
(Emphasis is mine); the reference I suggest being to what was said in the judgment of Wright J. which I have quoted earlier. His judgment was not followed though there was no criticism of the words in the passage I cited.
His Lordship continued (109)
"In the present case, as I have pointed out, the liability of Fenton at the date of the receiving order was uncertain, though he might have made his position certain by payment. The words of the section seem clearly to connote an account capable of ascertainment on either side if not immediately, yet based upon authority or liability definitely undertaken. I find it difficult to construe those words or adapt that system to dealings in which there was a debt on one side due to the other, and per contra there was not a debt or a certain liability, but one in respect of which there was a right of protection and no more; a liability which could not be turned into a direct contra money claim, unless and until the debt had been paid by the surety, who then, and not till then, would become entitled to give a discharge for the sum paid to him. This he had not done at the date of the liquidation when his rights became determined."
Next his Lordship went on to consider the question of double proof as another reason why the claim of Fenton's trustee should fail. He said (110) -
"If the trustee of Fenton's estate were allowed to set off the debt due to the banks which Fenton guaranteed, he would exercise that right in respect of the same debt for which the largest creditor bank has already proved, and the other two can prove. It would in effect be a double proof. But it would be more: it would be an allowance to Fenton's estate in full of a debt due to another which Fenton has not paid himself; with the result that Fenton's general creditors would benefit to the extent of the debt which is primarily due from the Association to the banks. The rule, therefore, against double proof also prevents Fenton's trustee from setting off this liability of Fenton's to the banks which has not crystallized into a debt due to Fenton."
Lawrence L.J. at p.112 examined the circumstances as to what may or may not be the subject of set off under the section. After referring to various authorities including Daintrey, he said (113) -
"The question therefore is, whether (assuming that there were mutual dealings within the meaning of the section and assuming that there were provable debts on both sides resulting from such dealings) there was any sum due from the estate of the principal debtor to the estate of the surety at the time when the right to set off was claimed by the trustee of the surety, regard being had to the fact that at that time nothing had been paid by or on behalf of the surety to the principal creditors and the estate of the principal debtor was still liable for the whole amount of their debts."
Returning to the Fenton case, he said (114) -
"The reason why, in my opinion such a claim (although it apparently has the requisite attributes for a set-off under the section and although it is one from which the principal debtor would be released by the order of discharge) cannot be set off is because so long as the estate of the principal debtor remains liable to the principal creditor the surety will not be permitted to prove against the estate of the principal debtor, as such a proof would be a double proof for the same debt, and would therefore be inadmissible as being contrary to the established rule in bankruptcy."
In refusing the entitlement of Fenton's trustee, he said (115)
"I am of opinion that although the claim to indemnity by the trustee of Fenton's estate is a provable debt arising out of a mutual dealing between the Association and Fenton, it cannot be set off against the debt due from Fenton's estate to the liquidator of the Association under s.31, because the mutual dealing, at the time when the account under s.31 has to be taken, has not by reason of the rule against double proof resulted in any sum becoming due from the Association to the trustee of Fenton's estate which could properly be entered on the debit side of the account."
It is apparent then that the judgment is related to the problem of double proof rather than founded upon any other basis.
Romer L.J. summed up what he described as the first question as follows (117) -
"The first question to be determined on this appeal, and one which if answered in the negative is in my opinion conclusive, is this. Is a claim by a surety, who has not paid off the principal creditor, in respect of the contingent liability to the surety of the principal debtor one that can be proved by the surety in the principal debtor's bankruptcy?"
He continued (118) -
"But I cannot agree that a surety who has not paid off the principal creditor can prove in the bankruptcy of the principal debtor so as to share in the distribution of his assets unless the principal creditor has renounced in some way his right to lodge a proof himself while preserving, of course, his rights against the surety. To allow such a sharing in the assets would be to subject the assets to two claims in respect of the same debt, and this is contrary to the well established rule in bankruptcy against double proof."
The judgment continued in a way which indicates his Honour's overall view (120) -
"The claim of Fenton against the Association in either case would be a claim in respect of the same debt as that claimed by the banks. In both cases the claim of Fenton would come within the definition of debts provable in bankruptcy contained in s.30 of the Bankruptcy Act. But so does the claim of the banks, and the only reason why Fenton is prevented from proving his claim is that his claim is in respect of the same debt as is that of the banks, and as between him and the banks the latter have the prior right of proof. I am accordingly of opinion that the claim of Fenton's trustee cannot be proved in the liquidation of the Association, there being no evidence that the banks have in any way renounced their right to prove."
In my view, on the reading at least of the judgment of Lord Hanworth M.R., the Fenton case does support the respondent's arguments here; and insofar as Lawrence and Romer LJJ have found against the Fenton trustee, they did so upon the basis of double proof, a matter which cannot arise in this case upon the evidence of Mr. James referred to earlier.
However, some statements in re A Debtor (1956) 3 All.E.R. 225 appear to require in the judgment of Lord Hanworth to be read as if essentially the payment relied on by the surety would have had to have been made before the order for winding up. So I turn next to in re A Debtor even though slightly out of chronological order in referring to the authorities. There are, be it noted, factual differences between in re A Debtor, Fenton and the case before us.
Relevant facts in re A Debtor were -
W guaranteed C's overdraft account to a Bank
W owed C some 100 pounds.
October 1954 Receiving Order made against W.
July 1955 W's Trustee (to recover title
deeds) paid 133 pounds to the Bank in discharge of C's overdraft.
October 1955 W's Trustee enters judgment
against C for the 133 pounds.
December 1955 W, having served a Bankruptcy
Notice on C (who failed to
comply therewith) caused to be
issued a Bankruptcy Petition
against C.
February 1956 A Receiving Order was made
against C.
C appealed against this order contending he should have been allowed to set off against W's debt the amount due to him viz. 101 pounds.
It was expressly conceded (the concession (being) of "the first importance") on behalf of C that the relevant date for the application of s.31 was that of the receiving order against W.
So, the trustee for the surety W (plaintiff) suing the principal debtor C (defendant) for a debt which arose after the surety's receiving order was met with a claim for set off in respect of a debt incurred by the surety to the defendant (principal debtor) before the date of the surety's receiving order.
But in the case we are considering, the principal debtor (appellant) suing for a debt which arose before the date of the order for winding up of appellant is met with a claim of set off (if that be the correct term) for an amount paid by the surety (respondent) after the date of the order for winding up of the appellant (principal debtor) to discharge principal debtor's liability to the principal creditor; but in respect of a liability which arose before the winding up order.
It is necessary to bear in mind the words of Lord Evershed (p.231) viz. that the precise point with which his Lordship dealt was not raised in Fenton; and Hodson L.J., after referring to Fenton, said (p. 234) -
"The decision there turned mainly on the point that to allow the set-off would be to allow a double proof in respect of the same debt in the winding up of the association, and the question now at issue, whether a surety who has paid the debt which he has guaranteed can relate that payment back to a date before the liquidation or bankruptcy in question, was not decided. It is true that the members of the court emphasised that Fenton had paid nothing under his guarantee, but they must have had in mind payment or non-payment before the date of the liquidation."
The decision records that the receiving order the date of which was conceded to be relevant for the application was that against the estate of W (guarantor). Since the action by W's trustee to recover on the guarantee was against C (principal debtor) and C was contending that he had the right to set off what was owed to him by W already, namely some 101 pounds, to the end that thereby the sum which W's trustee might have recovered against him would be insufficient to support a bankruptcy petition, one wonders what the position may have been if no such concession was made. Had it not one might argue the debt to W's trustee preceding the order against C appointing a receiver could have been reduced by off setting against it the amount owed C by W earlier - i.e. that the "relevant date" more appropriately should have been treated as the date of the receiving order against C.
Except for the expressions in Re a Debtor (e.g. per Hodson L.J. p. 234 H) it did not appear that members of the Court in Fenton did have in mind payment or non payment before the date of liquidation. It is of importance to note what Lord Evershed said of Fenton at p. 229 -
"It will be observed that the case is in certain respects analogous to that now before us, where the parts of Fenton and the association are, as it were, taken by Mr. Waite and the appellant respectively. It is, however, to be noted that in Re Fenton, Ex p. Fenton Textile Assocn., Ltd. (1) (unlike in the present case) the relevant date was treated as that of the association's liquidation. Moreover, as already noticed, nothing had been paid to the bankers by Fenton or his trustee. The question with which we are now concerned, the question what the situation would have been had Fenton's trustee paid off the sums due to the association's bankers which Fenton had guaranteed, did not therefore directly arise for the determination of the court. The decision turned primarily on the court's view that to allow the set-off would, in effect, be to allow a double proof in respect of the same debt in the association's winding up. The reasoning of the judgments, however, is clear authority for the proposition which I have earlier invoked - that, if at the relevant date a guarantor has not paid the principal creditor (and has not taken any other step to enforce his rights against the principal debtor), and so long at least, thereafter as that situation continues, there is no "debt due" to the guarantor from the principal debtor capable of forming the subject of a set-off, under s.31 of the Bankruptcy Act, 1914, against a debt due from the guarantor to the principal debtor."
(Emphasis is mine)
He considered, therefore, that he was "thrown back" on the terms of s.31 of the Bankruptcy Act 1914 for the right of set off claimed as a special right defined and ordained as he said by the Statute. He said (231) -
"I have already expressed my view that, as I read the language of the section, and on the footing, which Counsel for the appellant has conceded, that the relevant date for the application of the section . . . . . . . is the date of Mr. Waite's receiving order, there was then nothing "due" from the appellant to the bankrupt; and that the sum paid nearly ten months later by the respondent trustee to discharge the sum then due to the appellant's bankers which may well have been quite different from the sum due on October 1954 cannot be treated as a mere quantification of an obligation in the nature of a debt already existing on the last mentioned date."
Reference must also be made to Hiley v. The Peoples Prudential Assurance Company Limited (In Liquidation) and Others (1938) 60 C.L.R. 468 (Hiley)
The facts in that case I proceed shortly to summarise.
A policy holder (Hiley) borrowed money from an Assurance Company. As security he gave a mortgage over land and deposited the policy as collateral security. The mortgage was transferred by the Assurance Company by way of security to another company. That company later transferred it by way of security to a bank. Subsequently the Assurance Company was wound up. The liquidator notified Hiley that the Assurance Company would not carry out its obligations under the policy. Hiley had made all payments of interest and premiums under the mortgage though not always punctually. The Assurance Company accepted the payment; the mortgage was never called up; at the date of liquidation no interest or premium was overdue. After the liquidation, litigation was commenced by the company raising an issue, inter alia, whether the transferring of mortgages by the company had been ultra vires. This was settled by compromise; the Bank retransferred to the Assurance Company, amongst others, the Hiley mortgage. The suit was continued by the Company against Hiley for the recovery of the moneys secured by the mortgage. He claimed to be entitled to set-off against the amount secured by the mortgage, the damages suffered by him by the repudiation of the policy.
It was held (Latham CJ dissenting) that the entire amount of the mortgage became subject to the Bankruptcy Act 1924 s.82 right of set-off (equivalent to s.86) i.e. Hiley was entitled to set-off against any amount claimed by the plaintiff under the mortgage, the damage suffered by the repudiation by Assurance Company of its obligations under the policy.
The words of Latham C.J. although a dissentient in the result, at page 483 are I consider in point -
". . . . . . . that is sufficient to justify a set off if at the date of the winding up there existed contractual obligations the enforcement of which might give rise to a claim provable in the winding up."
See also Starke J. at p. 490, 491 where he said -
"There are cases in the books in which sureties who have been compelled to pay a principal debt after bankruptcy have been allowed to set off the sum so paid against debts due to the bankrupt (cf. Rowlatt on Principal and Surety 2nd Edit. (1926) page 307) but the obligation of the surety in those cases arose before bankruptcy and was an obligation which might and did in fact end in a money claim."
Having read the page 307, it may be that page 319 was intended where his Honour mentioned 307. There the passage reads -
"A surety becoming bound at the request of the principal before the bankruptcy of the latter, but compelled to pay by the creditor after the bankruptcy, is entitled to set off the sum paid against debts due by him to the bankrupt."
Authority cited was Jones v. Mossop (1844) 3 Hare 568. But, note the admission set out (ibid) p.571; i.e. it is a right based on equitable principles rather than bankruptcy legislation with which the jdugment is concerned. But see "Williams and Muir Hunter on Bankruptcy" 19th Edit. p.201.
A similar statement occurs in the 3rd edition of Rowlatt though by this time incorporating a reference to Fenton; so suggesting the author accepted that the Fenton decision made no difference to the statement set out in the earlier edition. Also, with respect, very much in point is the statement of Dixon J. (as he then was) ibid p.496.
"If the liquidator in the present case be regarded as having acquired on behalf of the respondent company a new right to Hiley's mortgage not subsisting in the company at the commencement of the winding up, then it is easy to understand why the company's liability on Hiley's life policy should not be set off against Hiley's liability for the mortgage moneys which the company would thus have acquired after the commencement and in the course of the liquidation. As against the bank, assuming it to have been a bona fide transferee of the mortgage for value, Hiley could claim no such set off. If the liquidator on behalf of the company simply obtains the bank's rights in the course of liquidation and stands in the bank's shoes, no right of set off arises, because the credits are not mutual at the commencement of the winding up. But, in my opinion, the foundation of this reasoning is incomplete and the conclusion is unsound. It leaves out of account more than one consideration. In the first place, the general rule does not require that at the moment when the winding up commences there shall be two enforceable debts, a debt provable in the liquidation and a debt enforceable by the liquidator against the creditor claiming to prove. It is enought that at the commencement of the winding up mutual dealings exist which involve rights and obligations whether absolute or contingent of such a nature that afterwards in the events that happen they mature or develop into pecuniary demands capable of set off. If the end contemplated by the transaction is a claim sounding in money so that, in the phrase employed in the cases, it is commensurable with the cross demand, no more is required than that at the commencement of the winding up liabilities shall have been contracted by the company and the other party respectively from which cross money claims accrue during the course of the winding up (Naoroji v. Chartered Bank of India (1); Astley v. Gurney (2); Palmer v. Day & Sons (3); In re Daintrey; Ex parte Mant (4))."
Later he said (499)
In my opinion the answer is that the entire amount of the mortgage becomes subject to the statutory right of set off. All the respondent company's rights in relation to the mortgage arise out of and are referable to rights subsisting at the time when the winding up began. It pursued or prosecuted whatever rights then belonged to it with the result that it obtained a right to call for an unencumbered legal title to the mortgage to which, unless the transfers or one of them were in truth invalid, it was entitled, on liquidation, only in equity subject to encumbrances. But this was the consequence of pursuing rights subsisting at that time and involved no new and independent transaction."
The dicta from the various cases, e.g. Barrett, Daintrey, Fenton (Lord Hanworth M.R.), Hiley and In re a Debtor, passage at p.28 hereof, support the respondent's contentions. In particular, I note that Dixon J. at p.496, in the passage quoted did not insist that at the commencement of the winding up the then state of the dealings was that they must "mature or develop" into pecuniary demands capable of set off. To the same effect were the words of Lord Hanworth in the passage at p.107 in Fenton cited earlier at p. 19 hereof. On the other hand Re Bruce David Realty Pty. Ltd. 1969 V.R. 240; 14 F.L.R. 56 might be said to support the appellant's arguments. There the facts were -
If this matter were to be approached as one whereby, at the date of winding up, the respondent had a subsisting right against the appellant for contribution apart from any right which it had to be subrogated to Esanda's remedies against the appellant upon payment out of Esanda, the amount which would be involved in any set-off would be half the amount of the indebtedness, namely, $50,000. No argument was put to us based upon a subsisting right, at the date of the winding up of the appellant, to contribution. Nor would it appear that such an argument was put to the learned trial judge. It is questionable whether it could have been raised without the filing of a notice of contention (Order 52 Rule 22(3)). Accordingly, it is not a matter upon which I have reached any final conclusion, nor considered further than is indicated by what I have said.
It follows that I would allow the appeal, set aside the judgment entered by the learned trial judge, enter judgment for the appellant in the sum of $100,000 and order the respondent to pay the appellant's costs of the appeal and of the hearing at first instance.
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