Day & Dent Constructions Pty Ltd v North Australian Properties Pty Ltd

[1982] HCA 20

HIGH COURT OF AUSTRALIA

Gibbs C.J., Stephen, Mason, Murphy and Aickin JJ.

DAY &DENT CONSTRUCTIONS PTY. LTD. v. NORTH AUSTRALIAN PROPERTIES PTY. LTD.

(1982) 150 CLR 85

30 April 1982

Company

Company—Winding up—Mutual dealings—Set-off—Debt of party proving in liquidation contingent at commencement of winding up—Debt subsequently fixed—Whether proving party entitled to set-off against mutual claim by company in liquidation—Bankruptcy Act 1966 (Cth), s. 86(1)—Companies Act 1963 (N.T.), s. 291.

Decisions

1982, April 30.
The following written judgments were delivered:-
GIBBS C.J. The appellant, Day &Dent Constructions Pty. Ltd. (In liquidation) ("Day &Dent") as plaintiff, brought proceedings in the Supreme Court of the Northern Territory against the respondent, North Australian Properties Pty. Ltd. (Provisional Liquidator Appointed) ("N.A.P."), claiming $100,000 as moneys lent by the plaintiff to the defendant. Gallop J., who tried the action, gave judgment for the defendant (1980) 5 NTR 22 . An appeal was brought to the Full Court of the Federal Court which, by a majority, dismissed the appeal (1981) 54 FLR 277; 34 ALR 595 . This appeal is brought from that decision. (at p88)

2. The facts are not in dispute. On 18 October 1976, Day &Dent applied to Esanda Limited ("Esanda") for a loan of $100,000 for one year at interest and requested Esanda to disburse the money for the use and benefit of N.A.P. On the same day N.A.P. gave Esanda a mortgage over certain of its property to secure repayment of any loans made by Esanda to N.A.P. or to Day &Dent. The mortgage was executed by Day &Dent as well as by N.A.P. and both companies undertook liability to repay principal and interest; in addition, N.A.P. guaranteed payment thereof. Also on the same day N.A.P. executed a guarantee in favour of Esanda for any indebtedness of Day &Dent; a further guarantee in similar terms was executed by N.A.P. on 3 June 1977. In November 1976 the $100,000 was paid by Esanda in the manner requested by Day &Dent, for the use and benefit of N.A.P. On 18 May 1978 Day &Dent was wound up. At that date none of the money lent had been repaid to Esanda, although it had become due for repayment at the end of November 1977. On 6 June 1978 Day &Dent demanded repayment by N.A.P. of $100,000 and on 2 August 1979 Esanda demanded repayment by N.A.P. of all moneys secured by the mortgage. N.A.P. paid nothing to Day &Dent but paid Esanda in full - the payment to Esanda of course included the $100,000 borrowed by Day &Dent. (at p88)

3. Gallop J. held that although there was no loan by Day &Dent to N.A.P., the latter company was indebted to Day &Dent in respect of the $100,000 applied, at the direction of Day &Dent, for the use and benefit of N.A.P. However, Gallop J. held that N.A.P. was entitled to set off against its debt to Day &Dent the amount it had paid to Esanda with the result that it owed Day &Dent nothing. Counsel for Day &Dent challenges this conclusion on the ground that at the date of the winding up the liability of Day &Dent to N.A.P. was purely contingent, since at that date N.A.P. had not been called on by Esanda to pay, and had not paid anything; accordingly, it was submitted, there was no sum to set off. If this submission is correct, the result will be indeed surprising: Day &Dent, which has paid nothing to Esanda, and now can never be called on to pay anything, will be entitled to receive $100,000 from N.A.P., which has already paid that sum to Esanda. It is true that N.A.P. will be entitled to lodge a proof of debt and to be paid a dividend, assuming funds are available for that purpose. (at p89)

4. It is common ground that the decision of the appeal depends on the effect of s. 86(1) of the Bankruptcy Act 1966 (Cth), as amended, which is rendered applicable to the winding up of an insolvent company by s. 291 of the Companies Act 1963 (N.T.), as amended. Section 86(1) provides as follows:

"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." The effect of this section was considered by this Court in Hiley v. Peoples Prudential Assurance Co. Ltd. (1938) 60 CLR 468 . There the appellant, a policy-holder in a life assurance company, borrowed money from the company in pursuance of a scheme enabling holders of such policies to purchase homes and as security for its repayment gave a mortgage over certain land and deposited his policy. The mortgage was transferred by the assurance company by way of security to another company and later, also by way of security, by that other company to a bank. Later the assurance company was ordered to be wound up, and the liquidator notified the appellant that the assurance company would not carry out its obligations under the policy. Later still, the bank agreed to re-transfer the mortgage to the assurance company. In a suit brought by the assurance company, to recover the moneys due by the appellant under the mortgage, the appellant sought to set off against the mortgage debt the damages sustained by reason of the company's repudiation of its obligations under the policy. The appellant's claim was based on s. 82 of the Bankruptcy Act 1924 (Cth), as amended, which corresponded to the present s. 86. On behalf of the assurance company it was argued that the fact that the mortgage had been assigned and was vested in the bank at the date of liquidation meant that there was no mutual credits or mutual dealings. This Court, by a majority (Rich, Starke and Dixon JJ., Latham C.J. dissenting), held that the appellant was entitled to a set-off under s. 82. There was no difference between Latham C.J. and the other members of the Court as to the principles to be applied, although there was a difference as to their application. The Court held that the date of the liquidation is the date at which mutual credits, mutual debts or mutual dealings must exist if the section is to apply (1938) 60 CLR, at pp 480-481, 487, 490, 495-496 . It was further held that it was not necessary that any money should have been payable by the appellant to the assurance company at the date of the winding up; it was enough that there was then a liability which later matured into a debt. Latham C.J. said "that it 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" (1938) 60 CLR, at p 483 . Rich J. said (1938) 60 CLR, at p 487 : "The date of the commencement of the liquidation corresponds with the date of the sequestration order in bankruptcy. But this statement does not mean that at the time when the winding up commences there must exist claims which then and there can be made the subject of account and set off . . . Rights must be vested in the creditor and in the company which, without any new transaction, grow in the natural course of events into money claims capable of forming items in an account or capable of settlement by set-off."

Starke J. (1938) 60 CLR, at p 490 cited Eberle's Hotels and Restaurant Co. v. Jonas (1887) 18 QBD 459, at p 465 , as authority for the proposition that the dealings on each side must be such as "would end in a money claim". Later, his Honour said (1938) 60 CLR, 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 . . . 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."

Dixon J. said (1938) 60 CLR, at pp 496-497 :

". . . 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 enough 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."

The reason why Latham C.J. differed from the other members of the Court in the result was that he considered that the assurance company at the date of the liquidation had no right the enforcement of which could put it in a position to make a money claim against the defendant, since its rights were acquired by virtue of the transfer of the mortgage, to which it became entitled by reason of a completely new transaction, whereas the majority considered that the assurance company's rights in relation to the mortgage arose out of rights subsisting at the time when the winding up began. (at p91)

5. The principle upon which Hiley v. Peoples Prudential Assurance Co. Ltd. was decided in my opinion governs the present case. Indeed, Starke J., in the passage cited, expressly recognized that the principle applies to the case of a surety who pays off the principal creditor after the commencement of the bankruptcy. The "cases in the books" to which Starke J. refers appear to be Jones v. Mossop (1844) 3 Hare 568; (67 ER 506) and Re Moseley Green Coal &Coke Co. Ltd.; Barrett's Case (No. 2) (1865) 12 LT (NS) 193; 4 De G J &S 756 (46 ER 1116) . The former case depended upon equitable principles but Wigram V.C. considered that the same result - namely that the surety who had paid off the principal creditor after the insolvency was entitled to a set-off - would have been reached if the case had been one of bankruptcy (1844) 3 Hare, p 571 (67 ER, at p 508) . In the latter case, Barrett was liable as a contributory to a company which was being wound up. Before the winding up, Barrett had become a surety to one Lea for repayment of a debt in respect of which the company gave Lea a promissory note. After the winding up, Barrett arranged for his sister to pay off Lea and to take a transfer of the promissory note, which she then transferred to Barrett. It was held that Barrett was entitled to set off the company's indebtedness on the promissory note against his own liability as a contributor of the company. In Hiley v. Peoples Prudential Assurance Co. Ltd. (1938) 60 CLR, at p 500 , Dixon J. said that the decision in that case justified, if it did not require, the conclusion reached in Hiley's Case. (at p91)

6. The principle that it is enough that at the date of the liquidation there existed on the one hand a debt and on the other hand a liability which in due course might mature into a debt is supported by other decisions. In Sovereign Life Assurance Co. v. Dodd (1892) 1 QB 405 , the debt set off was an amount which became payable under policies of insurance if the insured person lived until a particular date; he did live until that date but the insurance company, of which he was a debtor, was wound up in the meantime. Charles J. said (1892) 1 QB, at pp 411-412 :

" . . . there was no new transaction. The loans on the one hand and the insurance on the other, were both prior in date to the winding-up petition, and there was, when the petition was presented, a debt due from the defendant, and a contract with him which would probably result - and has in fact resulted - in a debt due to him."

A similar case is In re Daintrey; Ex parte Mant (1900) 1 QB 546 . D, who was indebted to M in the sum of 86 pounds, sold his business to M under an agreement which fixed as the price a portion of the profits expected to be earned for three years from the business sold. At the time when a receiving order was made against D no profits had been earned from the business but at the end of three years 300 was found to be due from M to D under the agreement. It was held that M was entitled to set off the 86 against the 300 due to D's trustees. In that case obviously the question whether anything became payable under the agreement for the sale of the business depended on the contingency whether any profits were earned. In In re Taylor; Ex parte Norvell (1910) 1 KB 562 , Phillimore J., whose judgment was accepted by the Court of Appeal, apparently viewed In re Daintrey; Ex parte Mant as a case of contingent liability for, after referring to that decision, he said (1910) 1 KB, at p 568 :

"Any obligation prospective or contingent to which the bankrupt is subject, and which, if it becomes an attaching obligation, will result in a money claim, is, under s. 37, sub-ss. 3 and 4, of the Bankruptcy Act, 1883, to be estimated as at the date of the receiving order, and if the obligation arises out of mutual dealings between the debtor and a creditor it is the subject of set-off under s. 38."

(See also In re City Life Assurance Co. (1926) 1 Ch 191, at p 204 .) (at p92)

7. However, in spite of these authorities counsel for the appellant asked us to hold that if there is only a contingent liability in existence at the date of the liquidation there is nothing which can be set off. The principal authority cited in support of this proposition is the decision of the Court of Appeal in Re a Debtor; Ex parte the Debtor v. Trustee of the Property of Waite (1956) 3 All ER 225 . In that case C. borrowed money from a bank in order to purchase goods which he supplied to W. on credit and W. guaranteed C.'s overdraft with the bank and deposited with the bank some title deeds. At the date when a receiving order was made against W. he owed 101 to C. in respect of goods supplied. Subsequently, in order to obtain release of the title deeds, W.'s trustee in bankruptcy paid to the bank 133 and subsequently obtained judgment against C. for that amount and costs. C. failed to comply with a bankruptcy notice issued in respect of the judgment debt and the question was whether a receiving order could properly be made against C. It was held that the receiving order was rightly made because on the relevant date for the consideration of mutual debts there was no debt due to W. from C. It is to be noted that in this case the surety was the person who became bankrupt and the payment of the debts guaranteed was made by the bankrupt's trustee. This circumstance was relied upon in the judgment of the Divisional Court from which an appeal was brought to the Court of Appeal. Danckwerts J. said (1956) 2 All ER 94, at p 97 :

"It appears to us to be a very odd result, if the expenditure by the trustee of 133 14s. of Waite's creditors' money, in order to complete the sale of an asset, enables the appellant to secure payment in full of the debt for which up to that time he had only a right of proof, while at the same time he has been freed from his overdraft at the bank."

Later he said (1956) 2 All ER, at p 100 :

"There was nothing due from the appellant to Mr. Waite at the date of the receiving order. It was only later, when the trustee in bankruptcy paid off the bank, that a debt became due from the appellant and that payment was made not by Mr. Waite but by the trustee, and out of assets which then were no longer vested in Mr. Waite but in the trustee. It seems to us, therefore, that the decision in the action by Waite's trustee against the appellant was right in declining to admit the set off. There was in fact no mutuality at the date of the receiving order in Waite's bankruptcy and the debt on which the action was founded was due not to Mr. Waite but to his trustee."

The Divisional Court regarded the facts that it was the surety who was insolvent, and that his trustee paid off the debt, as distinguishing the case before them from Jones v. Mossop (1844) 3 Hare 568 (67 ER 506) and Re Moseley Green Coal &Coke Co. Ltd.; Barrett's Case. However, in the Court of Appeal, although Evershed M. R. did mention that it was unusual for the trustee of a bankrupt surety to pay off the amount due by the principal debtor to the judgment creditor before any demand had been made (1956) 3 All ER, at p 228 , the ratio of the decision does appear to have been that if the liability of the surety is only contingent at the relevant date, the fact that he subsequently makes payment under the guarantee does not entitle him to a set-off (1956) 3 All ER, at pp 229-230, 235 . Lord Evershed M.R. considered that the decision in Re Moseley Green Coal &Coke Co. Ltd.; Barrett's Case depended on its own special facts (1956) 3 All ER, at p 229 . All the members of the Court distinguished In re Daintrey; Ex parte Mant (1900) 1 QB 546 on the ground that in that case there was an obligation already incurred which remained only to be quantified (1956) 3 All ER, at pp 227, 233 , and, on the other hand, were of opinion that dicta in the earlier decision of the Court of Appeal in In re Fenton; Ex parte Fenton Textile Association Ltd. (1931) 1 Ch 85 , supported their conclusion. That was a case in which neither the surety nor his trustee had ever paid anything under the guarantee, and it was, for that reason, distinguishable, as of course the members of the Court in Re a Debtor recognized. (at p94)

8. The facts that in Re a Debtor the surety was the bankrupt, and the payments were made by the trustee to enable him to obtain the bankrupt's property, may justify a conclusion that there were no mutual dealings between the trustee and the debtor. Since the case may on that ground be distinguished from the present, I would leave open the question whether it was rightly decided. However, with all respect the reasons given in support of the decision cannot be regarded as satisfactory. Although the facts in Re Moseley Green Coal &Coke Co. Ltd.; Barrett's Case (No. 2) (1865) 4 De G J &S 756 (46 ER 1116) were complicated, the case clearly enough decided that the fact that Barrett entered into the contract of suretyship before the winding up was enough to entitle him to set off the rights he subsequently acquired under the promissory note against his liability as a contributory. As I have already indicated, I consider that In re Daintrey; Ex parte Mant was a case in which the obligation to pay was, at the date of the receiving order, contingent on profits being made in future. The dicta in In re Fenton; Ex parte Fenton Textile Association Ltd on which the Court relied in Re a Debtor and which are set out in the judgment of Lord Evershed M.R. (1956) 3 All ER, at pp 230-231 in the latter case appear to be ambiguous, if not conflicting. The authorities discussed in Re a Debtor do not in my opinion support the conclusion that if the surety has not paid the principal creditor at the date of the liquidation, he will not be entitled to a set-off, notwithstanding that he subsequently makes a payment. (at p94)

9. Counsel for the appellant also relied on the decision of Adam J. in Re Bruce David Realty Pty. Ltd. (In liq.) (1969) VR 240; (1968) 14 FLR 56 . That was a case which, like In re Fenton; Ex parte Fenton Textile Association Ltd., was one in which no payment was ever made by the surety. In the course of his judgment Adam J. said (1969) VR, at p 243; (1968) 14 FLR, at p 60 :

"The principle of mutual dealings does not permit of a surety setting off his claim to be indemnified by the bankrupt principal debtor, save to the extent that at the commencement of the bankruptcy the surety has paid the guaranteed debt to the principal creditor."

Although there is no reason to doubt the correctness of the decision reached by Adam J. in that case, this obiter dictum, which was obviously influenced by some of the dicta in In re Fenton; Ex parte Fenton Textile Association Ltd. cannot be accepted as correct. (at p95)

10. Sheppard J., in his dissenting judgment in the Federal Court, referred to the fact that some of the cases cited by Dixon J. as authority for the passage in his judgment (1938) 60 CLR, at p 497 , which I have already cited, appear to accept the rule, laid down in Rose v. Hart (1818) 8 Taunt 499, at p 506 (129 ER 477, at p 480) , that mutual credits "meant such credits only as must in their nature terminate in debts": see Naoroji v. Chartered Bank of India (1868) LR 3 CP 444, at p 450 ; Astley v. Gurney (1869) LR 4 CP 714, at p 722 and cf. Palmer v. Day &Sons (1895) 2 QB 618, at p 622 . However, I consider that no more was meant than that there may only be a set-off in respect of "all such credits and dealings as in the natural course of business would end in debts" to use the words of Montague Smith J. in Naoroji v. Chartered Bank of India (1868) LR 3 CP, at p 452 ; see also per Keating J. The modern authorities favour this view - that it is enough that the dealing would naturally, and does, terminate in a debt. It is well understood that the law which relates to the set-off of mutual dealings in bankruptcy, which has a long history, exists to prevent the injustice of a man who has had mutual dealings with a bankrupt from having to pay in full what he owes in respect of such dealings while only receiving a dividend on what the bankrupt owed him in respect of them: see Ex parte Barnett; In re Deveze (1874) 9 Ch App 293, at p 297 . On the other hand it would be unjust to the creditors of the bankrupt if a debtor of the bankrupt could after the bankruptcy buy up liabilities of the bankrupt for the purpose of setting them off against his own indebtedness. Both injustices can be avoided by the application of the principle stated in Hiley v. Peoples Prudential Assurance Co. Ltd. In my opinion that decision should be followed and it governs the present case. (at p96)

11. For these reasons I consider that the respondent was entitled to the set-off and that the appeal should be dismissed. (at p96)

STEPHEN J. I have had the advantage of reading the reasons for judgment of Mason J. with which I am in full agreement, both as to his resolution of the point in issue in this case and also concerning the question of the relevant time for the ascertainment of whether, for the purposes of s. 86(1), mutual dealings exist. I would accordingly dismiss this appeal. (at p96)

MASON J. In this appeal the Court is called upon to resolve a controversial point concerning the entitlement under the provisions of s. 86 of the Bankruptcy Act 1966 (Cth) ("the Act") of persons involved in mutual dealings, where one or both becomes bankrupt, to set off against each other sums due from one party to the other. (at p96)

2. The facts are not in dispute. On 18 October 1976 the respondent granted a mortgage to Esanda Ltd. ("Esanda") over its leasehold estate in certain land in the Northern Territory. The mortgage was given in consideration of any loans, advances, credits or accommodation made or given by Esanda to the respondent or to the appellant. The appellant was referred to in the mortgage as the "borrower". A term of the mortgage provided that the respondent as mortgagor and the appellant as borrower undertook personal liability to pay the principal and interest payable under the mortgage. The mortgage was executed by both the respondent and the appellant. (at p96)

3. Also on 18 October 1976 the appellant applied to Esanda for a loan. The application was accepted by Esanda on 29 November 1976. The amount of the loan was $100,000 and it was to bear interest of 17.5 per cent per annum, repayable in monthly instalments over one year. In the form of loan document, which was headed "Memorandum of Contract for Loan", the appellant requested Esanda to disburse the amount of the loan by paying $99,750 to Arizona Virginia Jape and John Sidney Greenleaf and $250 to the solicitors for Jape and Greenleaf. The payments were made on 29 November 1976 and it was agreed that they were made for the use and benefit of the respondent. The payment to Jape and Greenleaf was made in order to discharge a mortgage over the land in relation to which the respondent gave the mortgage to Esanda. (at p96)

4. The contract of loan between the appellant and Esanda stipulated that in the event of a default the unpaid principal and the interest calculated up to the date of demand by Esanda were to become due and payable on the day following the demand. The principal and interest payable were stated to be secured by the mortgage given by the respondent to Esanda. (at p97)

5. A further event occurring on 18 October 1976 was the execution by the respondent and certain individuals of a guarantee in favour of Esanda, whereby they guaranteed the payment of all sums of money, interest and damages to which the appellant should become indebted or liable to Esanda. On 3 June 1977 the respondent executed a further guarantee similar in terms to the earlier guarantee. (at p97)

6. On 18 May 1978 an order was made that the appellant be wound up. The appellant was by that time in default under the contract of loan of 18 October 1976, the entire principal sum being still outstanding. The appellant came under a liability to pay that amount at the end of November 1977, regardless of any demand by Esanda. (at p97)

7. On 6 June 1978 the appellant demanded the repayment by the respondent of the sum of $100,000. This was the sum borrowed by the appellant from Esanda and paid at the appellant's request to Jape and Greenleaf. The primary judge, Gallop J., found this sum to be owing by the respondent to the appellant as a debt, this finding arising from the agreement of the parties that the payment to Jape and Greenleaf was made for the use and benefit of the respondent. His Honour's finding was not challenged. The respondent failed to discharge this debt. (at p97)

8. On 2 August 1979 Esanda demanded the payment by the respondent of loans, advances and credits made or afforded by it and secured by the mortgage of 18 October 1976. As a result, payments were made to Esanda before 16 November 1979 by or on behalf of the respondent in total discharge of its indebtedness to Esanda. The total sum paid was $212,032.56. Included in this sum was the sum of $100,000 borrowed by the appellant from Esanda, the respondent, as surety under the two guarantees, being obliged to make good the appellant's default. Thus the $100,000 is no longer owing to Esanda by either the appellant or the respondent. Consequently Esanda has not lodged, and could not lodge, a proof of the debt in the appellant's liquidation. (at p97)

9. The appellant sued the respondent in the Supreme Court of the Northern Territory to recover the $100,000 which was paid by Esanda at the request and direction of the appellant and used by the respondent to discharge the mortgage to Jape and Greenleaf. Gallop J. held that the respondent was entitled to set off against this claim the sum of $100,000 paid by the respondent to Esanda as surety pursuant to the guarantees given by the respondent to secure advances to the appellant (1980) 5 NTR 22 . An appeal to the Full Court of the Federal Court was dismissed by majority (Forster and McGregor JJ.; Sheppard J. dissenting (1981) 54 FLR 277; 34 ALR 595 ). From that decision the appellant now appeals to this Court. (at p98)

10. The only question for decision is whether the Full Court was correct in holding that the respondent was able to bring itself within the provisions of s. 86 of the Act, sub-s. (1) of which provides:

"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."

Section 86 (1), along with other bankruptcy provisions, applies in the liquidation of companies by virtue of s. 291 (2) of the Companies Act 1963-1978 (N.T.). (at p98)

11. The opening words of s. 86 (1) are satisfied. The appellant does not dispute that there were "mutual credits, mutual debts or other mutual dealings" between the parties. And the respondent is a company claiming to prove a debt in the appellant's winding up, the proof of debt for the sum of $100,000 as a contingent liability being lodged on 8 June 1978. The problem which confronts the respondent is that the liability remained contingent until the payment to Esanda in late 1979. The appellant went into liquidation on 18 May 1978. On that date the appellant was under no actual or fixed liability to the respondent. The authorities universally accept that the relevant time for ascertaining whether there are mutual debts, mutual credits or other mutual dealings between the debtor and other persons for the purposes of s. 86 (1) is the date of liquidation of the company: see Hiley v. Peoples Prudential Assurance Co. Ltd. (1938) 60 CLR 468, at pp 480, 487, 490, 495-496 ; In re Fenton; Ex parte Fenton Textile Association (No. 1) (1931) 1 Ch 85, at p 105 ; In re Daintrey; Ex parte Mant (1900) 1 QB 546, at pp 555, 572 . Whether this means the date when the liquidation is deemed to commence, i.e., the date of presentation of the petition, or the date when the administration of the winding up commences, i.e., the date of the winding up order, has been a matter of controversy. In Motor Terms Co. Pty. Ltd. v. Liberty Insurance Ltd. (1967) 116 CLR 177 , Barwick C.J. (1967) 116 CLR, at p 179 favoured the former and Kitto J. (1967) 116 CLR, at p 180 the latter. In Stein v. Saywell (1969) 121 CLR 529 , their Honours reaffirmed their conflicting views (1969) 121 CLR, at pp 538, 555 . Subsequently, in In re Northside Properties Pty. Ltd. (1971) 2 NSWLR 320 , Street J. concluded that the view of Kitto J. should be accepted in preference to that of Barwick C.J. and that the date of the winding up order is the date for determining what debts are provable (1971) 2 NSWLR, at p 323 et seq . See also Re H. &S. Credits Ltd. (1969) 90 WN (Pt 1) (NSW) 495 . I agree, for the reasons given by Kitto J., which I need not repeat, that his view is to be preferred to that of Barwick C.J. Like Street J., I find it difficult to accept that all debts incurred after presentation of the petition are not provable. Although in the present case the controversy does not require to be resolved, it is as well that I express my opinion in view of the practical importance of the point. (at p99)

12. The real question to be resolved is whether, notwithstanding that the relevant date is the date of the commencement of the liquidation, it is sufficient that at that date the liability of one of the parties is merely contingent and only at some time later becomes a fixed liability. It is at precisely this point that the difference of opinion in the present case arose between, on the one hand, Gallop J. at first instance and Forster and McGregor JJ. in the Full Court and, on the other hand, Sheppard J. in the Full Court. (at p99)

13. This question has been the subject of much discussion in the cases. It will be necessary to examine this body of case law and then to consider whether the answer suggested by the authorities conforms to legal principle and to the purpose and policy which underly the statutory provisions. (at p99)

14. An appropriate starting point is Re Moseley-Green Coal &Coke Co. (Ltd.); Re Joint-Stock Companies Acts 1856 and 1857; Ex parte Barrett (1865) 12 LT (NS) 193; 4 De G J &S 756 (46 ER 1116) . In that case a company entered into a contract for the purchase of mines, which were subject to a 7,000 mortgage. Barrett, a shareholder in the company, was a surety to the mortgagee for the original mortgagor (the vendor of the mines). The company failed to pay off the mortgage as stipulated by the agreement and they gave the mortgagee a promissory note for 7,000 at six months dated September 1862. In October 1862 the company was wound up. In February 1863 the mortgagee pressed for his money from Barrett, and Barrett induced his sister to pay off the debt. The promissory note was transferred to Barrett's sister and shortly after fell due and was dishonoured. Barrett then arranged a transfer of the company's promissory note from his sister, giving her a promissory note of his own. Calls were made on Barrett as a contributory of the company. Against the claim for unpaid calls Barrett sought to set off his claim on the company's promissory note. It was held that Barrett was entitled to so set off. Lord Westbury L.C. said (1865) 12 LT, at p 195; 4 De G J &S, at p 560 (46 ER, at p 1118) :

"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 . . .".

The report then states that the Lord Chancellor later adhered to that "impression". (at p100)

15. The next case to which reference should be made is Fenton (1931) 1 Ch 85 . Fenton guaranteed advances by certain banks to a company (in which he was interested). He became insolvent and executed two deeds of arrangement. The company went into liquidation. Fenton was indebted to the company and the company proved for these debts in Fenton's estate. The trustee of Fenton's estate sought to set off against the debts the sums advanced to the company by the banks for which Fenton was surety. It is important to note that the banks proved against Fenton's estate under the guarantees but received no payment. It was held by the Court of Appeal that no set-off was possible. The decision is based on two grounds, neither having any direct relevance to the present case. First, where nothing is ever paid to the principal creditor by the surety the liability remains contingent. Only payment can transform it into a fixed liability which can be the subject of a set-off. That position may be contrasted with the circumstances of the present case - where payment has been made, but only after liquidation. The second ground of the decision was that where no payment has been made to the principal creditor by the surety the rule against double proofs prevents a set-off. It is a well established rule of bankruptcy that there cannot be two claims in respect of the same debt, and to allow the set-off in Fenton would have raised that possibility. The judgments in Fenton rest on a combination of these two principles. However, they also contain relevant dicta. (at p101)

16. Lord Hanworth M.R. (1931) 1 Ch, at pp 106-107 seems to have accepted the decision in Barrett. He summarized it in this way (1931) 1 Ch, at p 107 :

"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."

His Lordship continued:

"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."

However, in a later passage the Master of the Rolls (1931) 1 Ch, at p 109 appears to have asserted the surety had no right of set-off unless he had paid the debt "at the date of the liquidation when his rights became determined". (at p101)

17. Lawrence L.J., speaking of the case where the principal debtor is bankrupt, said (1931) 1 Ch, at p 114 :

"In such a case the claim of a surety, who has been called upon to pay but has not yet paid anything to the principal creditor, is in effect a claim for damages for the breach by the principal debtor of his obligation to indemnify his surety on the ground that his bankruptcy has rendered it impossible for him to perform his obligation and has made it possible to estimate the amount which the surety can properly claim by way of damages. 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."

Romer L.J. (1931) 1 Ch, at p 120 took a similar view, saying that the only reason why the surety "is prevented from proving his claim is that his claim is in respect of the same debt as is that of the banks" (the principal creditors) "and as between him and the banks the latter have the prior right of proof", there being no evidence that the latter had renounced their right to prove. To the extent that the decision in Fenton rested on the judgments of Lawrence and Romer L.JJ., it turned on the rule against double proofs. As I read their judgments, the surety would have been entitled to a set-off once he made payment of the principal debt. (at p102)

18. The question arose indirectly in this Court in Hiley (1938) 60 CLR 468 . Hiley borrowed money from a life assurance company in which he was a policy holder, and as security for its repayment he gave a mortgage over certain land and deposited his policy. The company transferred the mortgage by way of security to another company, and that company transferred the mortgage as security to a bank. The assurance company was wound up and the official liquidator gave notice to Hiley that the company would not carry out its obligations to him under the policy. After the commencement of the liquidation the bank retransferred Hiley's mortgage to the assurance company. The liquidator sued for a declaration that Hiley's mortgage was valid and subsisting. Hiley sought to set off against the mortgage debt the damages sustained by him by reason of the company's repudiation of its obligations under the policy. It was held that the mortgage was valid and subsisting and that Hiley was entitled to the set-off. (at p102)

19. Latham C.J. dissented, holding that the debt due from Hiley to the asurance company was not a debt which existed at the time of liquidation, but arose rather from a transaction subsequent to the liquidation. Only in the former situation would Hiley be entitled to a set-off, since only then would there be a debt against which he could set off the debt due to him. But his Honour made it clear that a debt arising after winding up out of a contract made before could become the subject of a set-off saying (1938) 60 CLR, at p 483 :
" . . . it 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." (at p102)

20. Rich J. said that the principle that "the line is drawn" at the date of the receiving order (1938) 60 CLR, at p 487 :

" . . . does not mean that at the time when the winding up commences there must exist claims which then and there can be made the subject of account and set-off (In re Daintrey; Ex parte Mant (1900) 1 Q.B., at pp. 571, 574. ). Rights must be vested in the creditor and in the company which, without any new transaction, grow in the natural course of events into money claims capable of forming items in an account or capable of settlement by set-off." (at p103)

21. Daintrey was a case where the price of a business was to be payable three years from the purchase date, to be calculated as a proportion of the profits in that time. Sheppard J. in the Full Court thought that the case therefore concerned a fixed debt, the precise amount of which remained to be quantified. For my part, Daintrey is indistinguishable. There may in fact have been no profits and no debt may ever have become payable. The debt was truly contingent. (at p103)

22. In Hiley Dixon J. said (1938) 60 CLR, at pp 496-497 :

". . . 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 enough 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."

In support of this proposition Dixon J. cited Naoroji v. Chartered Bank of India (1868) LR 3 CP 444, at pp 451-452 ; Astley v. Gurney (1869) LR 4 CP 714 ; Palmer v. Day &Sons (1895) 2 QB 618, at p 622 ; and Daintrey (1900) 1 QB, at pp 568, 574 . Sheppard J. in the Full Court thought that these cases did not stand for the proposition for which they were cited. Again his Honour sought to distinguish them as dealing with claims involving fixed, as opposed to contingent, liabilities. He referred to constant references in the judgments in Naoroji, Astley and Palmer to the fact that the claims in question "must", rather than may, have resulted in a debt. (at p103)

23. What was meant by these statements is, I think, illustrated by the remarks of Byles and Montague Smith JJ. in Naoroji, Byles J. said (1868) LR 3 CP, at p 451 :
"Mutual credits I conceive to mean simply reciprocal demands which must naturally terminate in a debt. It seems to me that the transaction described in this case would naturally terminate in a debt." (Emphasis supplied.) (at p103)

24. Montague Smith J. (1868) LR 3 CP, at p 452 said:

"The object of the enactment seems to me to have been, that, where merchants have had mutual dealings, each giving credit to the other, relying upon each other's solvency, in the event of the bankruptcy of one of them, the account shall be taken between them of all such credits and dealings as in the natural course of business would end in debts, and the balance shall be the debt due from the one to the other."

(emphasis supplied). It is enough that the transaction would naturally, or in the ordinary course of business, end in a debt, as, for example, when property is delivered with authority to sell it and apply the proceeds in reduction of a liability or for some other purpose. It is sufficient if the sale takes place after liquidation and before the account is taken to ground the right to a set-off. The right is not defeated by the possibility at the date of liquidation that there may be no sale. It is not necessary that the transaction must of necessity result in a debt. (at p104)

25. Moreover, Dixon J. in Hiley recognized that the more recent authorities extended the principle to contingent liabilities as well as to fixed or absolute liabilities. He rightly regarded Lee &Champman's Case (1885) 30 ChD 216 as an instance of the application of the principle to "future obligations" (1938) 60 CLR, at p 498 . And he said that the decision in Barrett "justifies, if it does not require, this conclusion" (1938) 60 CLR, at p 500 . Reference should also be made to In re National Benefit Assurance Co. (1924) 2 Ch 339 and Sovereign Life Assurance Company v. Dodd (1892) 1 QB 405 where future debts under insurance policies maturing on the happening of a future event were the subject of a set-off. In the second of the two cases, Charles J. (1892) 1 QB, at pp 411-412 said that it was sufficient if at the commencement of the winding up there was a contract "which would probably result - and has in fact resulted - in a debt due to him", that is, the defendant bankrupt by the plaintiff company then being wound up. And in In re West Australian Lighterage, Stevedoring and Transport Co., Ltd.; Ex parte Bank of New South Wales (1903) 5 WALR 132, at p 137 , the Full Court of the Supreme Court of Western Australia held that if a liability exists at the date of commencement of the bankruptcy it is not necessary that the amount should be immediately payable on that date, it "is sufficient if the account can be taken when the set-off arises". (at p104)

26. This brings me to the main thrust of the appellant's case - the decision in Re a Debtor; Ex parte the Debtor v. Trustee of the Property of Waite (1956) 3 All ER 225 . In that case Clark borrowed money from a bank to purchase goods which he supplied to Waite on credit. In consideration of the granting of credit Waite guaranteed Clark's overdraft up to 200 pounds. On 1 October 1954 a receiving order was made against Waite. At this time the amount of the price of the goods sold to Waite by Clark remaining undischarged was said to be some 101 pounds. On 20 July 1955 Waite's trustee in bankruptcy paid the amount of Clark's overdraft, approximately 133 pounds, to the bank. On 6 October 1955 the trustee obtained leave to sign judgment against Clark for this amount plus costs, totalling about 150 pounds. A bankruptcy notice, with which Clark failed to comply, was issued in respect of the judgment debt. On 9 February 1956 a receiving order was made against Clark. Clark appealed against this order, claiming to set off against the judgment debt of 150 pounds the 101 pounds which Waite owed him, thereby reducing the debt to less than the 50 pounds required to support the petition. It was held that Clark was not entitled to the set-off. (at p105)

27. In his judgment Lord Evershed M.R. posed the question of whether there was on the date of the receiving order against Waite anything "due" from Clark to Waite under the equivalent provision of s. 86. He stated (1956) 3 All ER, at pp 227-228 :
"In my judgment, there was not. The rights of Mr. Waite against the appellant were the special but contingent rights of a surety who had not been called on to make any payment by the principal creditor and had not exercised what has been called the protective right of a surety to require the principal debtor to relieve him of his liability by paying the debt owed to the principal creditor. Nor was the case one in which all that remained to be done was to quantify the extent of an obligation already incurred, the amount of the indebtedness when finally ascertained being exclusively referable to an obligation to pay that sum entered into prior to the relevant date, such as was the case in Re Daintrey; Ex p. Mant (1900) 1 Q.B. 546. . . . If and when a sum certain became due from the appellant to Mr. Waite or his trustee, that debt would be referable to the contract of guarantee with the bank or to the rights flowing from such contract, entered into by Mr. Waite with the bank subsequently to and independently (albeit in consequence) of the mutual dealings between himself and the appellant." (at p105)

28. Lord Evershed, after examining Barrett (1865) 12 LT (NS) 193; 4 De G J &S 756 (46 ER 1116) , seemed, for reasons not specifically spelt out, to regard that case as anomalous and dependent "on its own special facts" (1956) 3 All ER, at p 229 . He also considered Fenton (1931) 1 Ch 85 . In a curiously contradictory statement (1956) 3 All ER, at pp 229-230 , he said that that case:

". . . 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 . . ."

The words "and so long, at least, thereafter as that situation continues" are contrary to the very essence of Lord Evershed's judgment. (at p106)

29. Lord Evershed (1956) 3 All ER, at pp 230-231 concentrated on the later observations of Lord Hanworth M.R. in Fenton (1931) 1 Ch, at p 109 and concluded that the judgments in Fenton were "more consonant" with the principle which he expounded than not (1956) 3 All ER, at p 231 . Hodson L.J. (1956) 3 All ER, at pp 234-235 came to the same conclusion with regard to Fenton. (at p106)

30. We should not follow Re a Debtor. The clear and persuasive dicta in Hiley were not referred to in Re a Debtor. Viewed in the light of the earlier case law it is an anomalous development. The decision in Barrett is not, despite the attempt of the Court of Appeal in Re a Debtor, readily distinguishable. The interposition of Barrett's sister in the events in that case was not relevant to the principles which were applicable. In his capacity as surety Barrett paid the debt of the principal debtor pursuant to the guarantee, albeit indirectly. It was still a payment pursuant to the guarantee and it was made after the date of the receiving order against the principal debtor. Dixon J. in Hiley (1938) 60 CLR 468 clearly saw Barrett as such a case. (at p106)

31. The appellant's case derives no support from the decision in Re Bruce David Realty Pty. Ltd. (In Liq.) (1969) VR 240; (1968) 14 FLR 56 . The surety never paid the debt which it had guaranteed. In accordance with the principles applied in Fenton, a surety in that position is not entitled to a setoff. However, Adam J. said (1969) VR, at p 243; (1968) 14 FLR, at p 60 :

"The principle of mutual dealings does not permit of a surety setting off his claim to be indemnified by the bankrupt principal debtor, save to the extent that at the commencement of the bankruptcy the surety has paid the guaranteed debt to the principal creditor."

Although this sentence reflects the view accepted in Re a Debtor, it was not based on an examination of Re a Debtor, Hiley or Barrett and, accordingly, I attach little importance to it. The same comment necessarily applies to the earlier decision of the Ontario Court of Appeal in Lyall &Sons Construction Co. v. Baker (1933) 2 DLR 264 . (at p106)

32. In In re Northside Properties Pty. Ltd. (1971) 2 NSWLR, at p 323 Street J. said "The date for determining whether a set-off is to be struck is the same as the date as at which the determination must be made of what debts are provable". This comment was based on the remark of Rich J. in Hiley (1938) 60 CLR, at p 487 that "the commencement of the liquidation is the date at which the existence of 'mutual credits, mutual debts, or other mutual dealings' must be ascertained for the purposes of set-off". In my view this comment does not compel the conclusion that the debt sought to be set off must actually arise before the commencement of the liquidation; cf. MPS Constructions Pty. Ltd. (In liq.) v. Rural Bank of New South Wales (1980) 4 ACLR 835, at p 845 . (at p107)

33. The language of s. 86 supports the Hiley view. Paragraphs (a) and (b) of s. 86 (1) are expressed in the present, not the past, tense, indicating that the ascertainment of what is due and the allowance of the set-off is to take place at the time of the taking of the account. This is inconsistent with what we would have expected s. 86 (1) to have referred to, namely what "was" due and what "was" payable to the trustee in bankruptcy (i.e. at the date of bankruptcy), if the Re a Debtor approach were correct, yet par. (a) requires the taking of account of what "is" due and par. (c) refers to what "is" payable. The surety's right to a set-off may be subject to the rule against double proof but that rule has no application in this case. (at p107)

34. The conclusion which I have reached is reinforced when we consider the policy or purpose which underlies the statutory provisions. In Fenton (1931) 1 Ch, at pp 104-105 Lord Hanworth M.R. made clear that the essential notion of s. 86 is the protection of those who engage in mutual dealings with the bankrupt. The section protects the surety by relieving him from the necessity of proving in the bankruptcy for the debt owed to him with the likelihood of receiving only a proportion of it, whilst he remains fully liable for the debt he owes to the bankrupt. The view taken in Re a Debtor (1956) 3 All ER 225 severely limits this protection. Default by the principal debtor may often take place a very short time before his bankruptcy so that the surety has little or no opportunity to pay the principal creditor before the date of bankruptcy. If s. 86 operated so as to strictly draw the line at the date of the bankruptcy, the surety would remain liable to the principal creditor on his guarantee with no opportunity to avail himself of the set-off provisions in relation to his mutual dealings with the bankrupt, except in those cases in which he happened to pay the creditor before bankruptcy. Moreover - and this is an even more telling point - default by the principal debtor may occur after the date of bankruptcy, and then on the basis of Re a Debtor the surety would have no opportunity at all to make the payment to the principal creditor so as to bring himself within the set-off provisions. Although, as Romer L.J. said in Fenton (1931) 1 Ch, at p 121 , the hardship on the surety who is disentitled to the set-off provisions "is one that he has brought upon himself by becoming surety for the debts of a person who is unable to pay them as they fall due", this does not justify a restrictive interpretation of s. 86. It is reasonable to impute to Parliament an intention that the provision, which is a protective provision, be given "the widest possible scope": see Eberle's Hotels and Restaurant Co. v. Jonas (1887) 18 QB 459, at p 465 . (at p108)

35. Section 82 (1), though not directly advancing the respondent's case, does provide some indirect assistance. The sub-section provides:

"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 may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his bankruptcy."

It is not disputed that the surety may prove in the bankruptcy of the principal debtor for his (the surety's) claim for his indemnity. The fact that the liability is future or contingent at the date of bankruptcy because the principal creditor has not been paid is not to the point; it is a liability to which the bankrupt may become subject before his discharge. As the surety's claim is a provable debt under s. 82 (1), it is natural that it should also be capable of being set off under s. 86, provided of course that it has become an actual liability by the time the account is taken. (at p108)

36. I acknowledge that until the surety pays the principal debt he has only a future chose in action since, until default, he has nothing more than a prospect or expectancy that the principal debtor will default on the payment of the debt which is guaranteed. In the words of Latham C.J. in Bakewell v. Deputy Federal Commissioner of Taxation (S.A.) (1937) 58 CLR 743, at p 754 :

"It cannot in any sense be described as a debt . . . The liability may, it is true, be described as a contingent debt, but the phrase 'contingent debt' merely means the possibility of a debt. Until the possibility becomes an actuality there is no debt . . .".

After default, the possibility remains that the principal debtor may himself discharge his liability to the principal creditor. Until the surety makes payment he (the surety) is owed no debt at all. But this does not matter. The important factor is that, by virtue of a guarantee given before bankruptcy or liquidation as the case may be, the surety has undertaken an obligation which on payment to the principal creditor will result in a debt owing to him (the surety) by the principal debtor. There is no reason why the liability thus undertaken, once payment is made, should not ground the right to set off the debt created by the payment. (at p109)

37. In this case payment had been made by the respondent to Esanda at the time of the claim to the set-off. At that time there was clearly a debt "due" from the appellant to the respondent. And it is at the time of the claim to the set-off, and no earlier, that the respondent needed to establish the existence of the debt. The respondent had also to establish the existence of mutual dealings at the date of liquidation. The existence of mutual dealings at that date was satisfied by the giving of the guarantee in the circumstances already outlined. The giving of the guarantee resulted in a debt which came into existence by the time when the account was taken and this was enough to ground a set-off. (at p109)

38. The Full Court was correct in upholding the trial judge's decision that the respondent was entitled to a set-off under s. 86. For the reasons which I have given the appeal should be dismissed. (at p109)

MURPHY J. The decision of Gallop J. was clearly correct. The legislative scheme is that mutual dealings between the creditor and the company in liquidation prior to the winding up order are subject to set-off (s. 86, Bankruptcy Act 1966 (Cth)). These are ascertained by an account of what "is due", that is, due by the completion of the accounting. If any mutual dealing raises a liability which is contingent only at the date of the winding-up but at the accounting has ceased to be contingent, and becomes "absolute" and due, it is taken into account. (at p109)

2. In the Federal Court of Australia Sheppard J. dissented from the affirmation of Gallop J.'s decision. Although expressing misgivings, he considered that ". . . we should not depart from a decision of the English Court of Appeal unless we are convinced that it is wrong . . ." and stated that this was the duty of the Federal Court as well as of the Appeal Courts of the States. This statement is of considerable importance. It explains his Honour's dissent from what otherwise seemed to be a clear cut case, especially in the light of the earlier observations by judges of this Court (see Hiley v. Peoples Prudential Assurance Co. Ltd. (In liq.) (1938) 60 CLR 468 even if they were not strictly binding. It is a strong statement about the judicial duty of the members of the Federal Court and one with which I so strongly disagree that it should not be allowed to pass unquestioned. It is understandable because of similar statements made in this Court. His Honour referred to Barwick C.J.'s statement that as a general rule the Supreme Court of a State would be well advised to follow the decisions of the English Court of Appeal (see Public Transport Commission (N.S.W.) v. J. Murray-Moore (N.S.W.) Pty. Ltd. (1975) 132 CLR 336, at 341, 349 ) and to Gibbs J. in the same case that the New South Wales Court of Appeal should have treated a decision of the English Court of Appeal "as an authority binding upon them" although Sheppard J. thought that "it may be that the latter view goes too far". (at p110)

3. Such attitudes were appropriate to the colonial era (see Trimble v. Hill (1879) 5 AppCas 342, at p 345 ). Perhaps the most extreme expression of this attitude occurred in this Court in Waghorn v. Waghorn (1942) 65 CLR 289 . In an earlier case, Crown Solicitor (S.A.) v. Gilbert (1937) 59 CLR 322 , the High Court interpreted a certain provision of the Matrimonial Causes Act 1929 (S.A.) (the provision and the correctness of the interpretation are irrelevant). Later, Merriman P. of the English Divisional Court, although aware of Crown Solicitor (S.A.) v. Gilbert interpreted similar provisions in the English Act contrary to the decision by the High Court (Herod v. Herod (1939) P 11 ) and the English Court of Appeal without referring to Crown Solicitor (S.A.) v. Gilbert did likewise (see Earnshaw v. Earnshaw (1939) 2 All ER 698 ). The same issue came again before the High Court in relation to the New South Wales Act - Waghorn v. Waghorn. The Court (McTiernan J. dissenting) followed the English Court of Appeal. Of the majority, Dixon J. stated that he still believed in the correctness of the High Court's previous decision in Crown Solicitor (S.A.) v. Gilbert, but would defer to the English Court of Appeal. He stated "English courts cannot be expected to receive the decisions of the Dominions with the traditional respect which the courts of the Dominions pay to the decisions of the English courts" but found it ". . . disappointing . . . that . . . the Court of Appeal did not take an opportunity of considering . . . Crown Solicitor (S.A.) v. Gilbert" (1942) 65 CLR, at pp 297-298 . He concluded that in the circumstances ". . . it is better that we should give up our own view" (1942) 65 CLR, at p 299 ). Rich J. said that as one of the justices (Dixon J.) who decided Crown Solicitor (S.A.) v. Gilbert ". . . is willing to give up his own view, I shall not stand in the way" (1942) 65 CLR, at p 293 . Williams J. (1942) 65 CLR, at p 305 , for the reasons given by Dixon J., thought it advisable to follow Herod's Case. Starke J. thought Crown Solicitor (S.A.) v. Gilbert was erroneous and should not be followed. McTiernan, on the basis that Crown Solicitor (S.A.) v. Gilbert was correctly decided, declined to depart from it stating that if it were necessary to alter the law to achieve uniformity, this was the province of the appropriate legislature. Thus, a majority of the High Court refused to give effect to what they were convinced was the authentic will of the New South Wales Parliament, because a single English Judge and an English Court of Appeal having no authority over them thought otherwise. (at p111)

4. The approach taken by the majority (except Starke J.) in Waghorn's Case is, in my opinion, inconsistent with the Constitution, Ch. III, Judicature. Under the Constitution, the duty of the courts in the interpretation and application of Acts and State Acts is (subject only to those judicial authorities binding on them) to give effect to their own opinion of the meaning and effect of the Acts. (at p111)

5. The only judicial authorities binding on courts in Australia are Australian courts. I leave aside the anomalous relationship of State Supreme Courts to the authority of the Privy Council in cases which, according to Southern Centre of Theosophy Incorporated v. South Australia (1979) 145 CLR 246 can still be appealed to that body, which itself claims that it is not an English or United Kingdom institution but is part of the judicial system of the place appealed from. (See Ibralebbe v. The Queen (1964) AC 900, at pp 921-922 ). Otherwise no Australian court is bound by any English or other foreign court. Of course the decisions of English courts as well as the courts of Scotland, Ireland, New Zealand, Papua New Guinea, United States of America and others are regarded with respect. Apart from the special respect accorded to individual judges because of their reputation, the intermediate or ultimate courts of England are entitled to no more and no less respect than those of the courts of other countries. (at p111)

6. The decisions of other common law countries, especially their ultimate tribunals, are persuasive. The courts of Australia are right to turn to them as well as to textwriters and others for assistance in arriving at a correct interpretation of Acts or a wise common law rule. But having decided the true interpretation of an Act, it is a denial of judicial duty to fail to give effect to that decision because a foreign court, however eminent, thinks otherwise. It is just as bad as altering one's decision because an executive officer, local or foreign, thinks otherwise. It is wrong, although not to the same degree, to adopt a practice of declining to depart from the decisions of a foreign court (especially on the interpretation of an Act) "unless convinced that it is wrong". Subject only to the binding authority of the Australian judicial system, though no doubt assisted by the views of any foreign court, the judicial duty is to arrive at the court's own view free of any doctrine that it must follow the decisions of the English Court of Appeal (or other court) unless convinced that they are wrong. There is no justification for treating the English courts as superior in some way to courts of all other countries. No one would suggest that the Federal Court or a State Court of Appeal should, in construing an Act or State Act, refuse to depart from the view taken by an intermediate appellate court of New Zealand (or any other country) unless convinced that it was wrong. (at p112)

7. The appeal should be dismissed. (at p112)

AICKIN J. In this appeal I have had the advantage of reading the reasons for judgment prepared by the Chief Justice and those prepared by my brother Mason. I agree with their reasons for concluding that this case is governed by the principle applied by this Court in Hiley v. Peoples Prudential Assurance Co. Ltd. (1938) 60 CLR 468 and there is nothing that I can usefully add. I would therefore dismiss the appeal. (at p112)

Orders

Appeal dismissed with costs.