Gye v McIntyre; Perkes v McIntyre

[1990] HCATrans 99

i~-~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S50 of 1990

B e t w e e n -

CLEMENT ANTHONY GYE

Applicant

and

ITALA BELINDA McINTYRE

Respondent

Office of the Registry

Sydney No S51 of 1990

B e t w e e n -

RAYMOND DAVID PERKES

Applicant

and

ITALA BELINDA McINTYRE

Respondent

Gye

Applications for special

leave to appeal

MASON CJ
BRENNAN J

DEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 MAY 1990, AT 3.17 PM

Copyright in the High Court of Australia

S1Tl4/1./PLC 1 11/5/90

MR D.M.J. BENNETT, QC:  In both these matters, if Your Honours

please, I appear for the applicant with my learned

friend, MR V.R.W. GRAY. (instructed by Gye & Perkes)

MR C. DARVALL, QC:  If the Court pleases, in both these

matters I appear for the respondent with my learned

friend, MR P.R. GARLING. (instructed by Price Brent)

MASON CJ:  Hr Bennett.

MR BENNETT: If Your Honour pleases. Your Honours, these

applications involve a number of aspects of

section 86 of the BANKRUPTCY ACT which have not been

explored. I hand to Your Honour five copies of an

outline which set out very briefly the points which

arise in relation to section 82.

MASON CJ:	Thank you.
MR BENNETT:	Your Honours will see section 82 is, in fact,

reproduced on the last page of that document. It is

a very short section. Section 86 I should have said.

It was 82 when I learnt bankruptcy. Your Honours,

those are three reasons why we would submit

section 86 does not apply.

The first is that this was a case where the debt

did not pass to the trustee. Under the terms of the

composition, the asset constituted by this debt was

not one of the assets which passed. Now, if one goes

to the section on the back page of the pamphlet,

Your Honours see that it provides:

where there have been mututal credits -

et cetera, between the bankrupt and the third party,

there is an account taken of what is due from each

to the other -

the sum -

against one is -
set off against -
the other.	And then the effect is set out in

paragraph (c):

only the balance of the account may be
claimed in the bankruptcy, or is payable

to the trustee ..... as the case may be.

It is concerned with two situations, both matters of

bankruptcy law, (a) where the trustee sues the third

party and he says, "I want to set off the amount which

the bankrupt owes me"; secondly, where the creditor

claims in the bankruptcy and the trustee sets it off.

S1Tl4/2/PLC	11/5/90
Gye

Where the claim does not pass to the trustee, the claim against the third party, then surely the policy

of the law, as that section, in my respectful submission

indicates, would be that the normal State law of set-off

applies: if there is a set-off, they are set off;
if there is not, it is not, and one goes to State law,

not to section 86.

I have referred in the submissions to the words

"a person claiming to prove a debt in the bankruptcy".

Those words have not been construed literally and I

have set out the cases which have said it applies where

the trustee sues the creditor but the reason for that

is obvious. The reason, as we have said, is that in

paragraph (c) it specifically refers to:

only the balance ..... is payable to the

trustee -

but that is where the trustee makes the claim. And

none of those cases involved cases like, this one where

the claim did not pass to the trustee. That is the

first point. If that is right, the appeal would be

allowed. That would be the end of the case.

The second point is that there is no right of

set-off where the claim by the bankrupt is an unliquidated

claim in tort which could not, in the converse situation,

be proved in the bankruptcy. There is no case where

section 86 has been applied to such a claim.

The case relied on by Mr Justice Pincus is a case

which we attack called JACK V KIPPING.	Your Honours
have the reference.	It is an old case but I think it is

sufficiently referred to here. There was a liquidated

claim under a contract against the third party and

an unliquidated claim in tort by the third party against

the bankrupt for fraudulently inducing the very contract

in question. What the court said was: "Well, the two

claims relate to the same contract. It would be

inequitable if a bankrupt induced a contract by fraud

to require the third party to pay the money due under	it while recovering back his damages as a dividend."
And the court accepted - this seems a little surprising -
that the debt - the fraud claim was sufficiently connected with the contract not to be characterized
as an unliquidated claim in tort. That seems hard to
justify.

It was followed by Mr Justice Hamilton in

TILLEY V BOWMAN LTD, an English case, although with

some reservation, and a different aspect was applied

by Mr Justice Lush, in the case I have referred to,

but in each case with some reluctance. It was

referred to in passing by Mr Justice Isaacs in

BANK OF AUSTRALASIA V HALL.	We would submit it does
not establish that.

SlT14/3/PLC	3	11/5/90
Gye

I should, while I am dealing with that, just refer

to one minor matter in relation to which the affidavit

may give a misleading impression which my friend has

brought to my attention. If Your Honours go to page 95

of the application book Your Honours will see at

line 19 the words:

The fraud did not induce and was not

intended to induce Gye to enter into a

contract with McIntyre.

What really should have been said, to be more precise, is that there was no evidence either way nor was it

part of Gye's case that the fraud induced or was intended to induce Gye to enter into a contract. That sentence looks as if there was a negative finding

and there was no negative finding.

DEANE J: Except there is a most unusual relationship between

these debts i~ there not, in that the debt owed to

your client in respect of the fraud includes, as an
element, the debt owed by your client under the

mortgage, that being part of the moneys which is claimed

to have been lost?

MR BENNETT:  Your Honour, we would submit - - -

DEANE J: Well now, if that is wrong, I have misunderstood it

but - - -

MR BENNETT: Well, Your Honour, it is a question of how one

characterizes it, really. The facts were these: that

the fraud induced the entering into a contract of

purchase with the owner of the land. The party who

committed the fraud subsequently advanced money which

was used to supply part of the purchase price.	So,
in that sense there is a relationship.

DEANE J:  Yes.

MR BENNETT:  And I accept what Your Honour says that

that is unuaual.

DEANE J:	Which carries with it the even stranger result that your client is entitled to recover on the basis that it is out of pocket in respect of those moneys in a
situation where, if your clients' submissions be
correct, they have the benefit of the composition in
relation to those moneys but have no obligation to
set off the amount against the debt calculated on the
basis that they have incurred that loss.
MR BENNETT:	And, Your Honour, it is a matter for State law

whether or not that submission••··•

to give rise to an equitable set-off.

SlT14/4/PLC	4	11/5/90
Gye

DEANE J:  I was not suggesting it was decisive but it is a

consideration which would incline one to ask how could

the law be that way.

MR BENNETT:  Your Honour, if the effect of a composition or a

bankruptcy is to remove a debt, then something which

is not properly set off against it remains and that

consequence follows.

DEANE J: That may be the answer, Mr Bennett, but, as I say,

it does lead me to have a predisposition to wonder

whether the law could really produce that result,

but we are dealing with the statute, of course.

MR BENNETT:  Yes. Well, Your Honour, in my submission, it does.

And may I say this about the other aspect: Your Honour's

question carries with it an independent sting, if I may

respectfully so describe it, that because it is unusual

the result may not be important on that question but we

would submit that the determination of where the line

lies in respect to a relationship which falls within

section 86 is a matter of importance and this case is

a convenient vehicle for deciding that even if the

precise situation is an unusual one.

DEANE J: Well, one, of course, also has an extraordinary

division among four members of the Federal Court.

MR BENNETT:  Yes. The other question, of course, is whether

there was a ground for setting aside the composition

and one of the matters which was raised at one stage,

although it has not been pressed up to this stage,

was an application by the respondent that the

composition be set aside. Now, that was heard at the

same time as this application. It became unnecessary

because of the original result and it is still in limbo

in a sense but that would have been the remedy in

relation to that injustice if it be an injustice and,

of course, we do not concede that it is.	Well, it
is a case of fraud, after all.

The third aspect is that set out on page 4. I

am sorry, I did not remind Your Honours of the

decision of Mr Justice Webb, when sitting in the

Supreme Court of Queensland, in exercising federal

jurisdiction in bankruptcy in RE CANADA CYCLE AND

MOTOR AGENCY (QUEENSLAND). I hand up to Your Honours

four copies of that judgment. It is a case which is

directly contrary to JACK V KIPPING,although it did

not cite it, in that it was a case where a company

director was alleged to have misappropriated sums of

money and he filed a proof of debt agains the company

for a debt owing and the liquidator sought to set off
the amounts which he claimed to be misappropriated and

it was held that there was no set-off under section 82.

S1Tl4/5/PLC	5	11/5/90
Gye

If Your Honours go to the second holding in the

headnote on page 27, just below the reference to

MILAN TRAMWAYS:

Held, also, on the facts, that, since

the liquidators' claims did not arise out

of contract, no right of set-off was given -

so it was put as highly as that in this case.

I will not take Your Honours through the judgment,

that is a matter of detailed law, but, in my respectful

submission, it at least casts considerable doubt on the

approach taken by the Full Court.

That case was relied on by Mr Justice Hill at

first instance. It was referred to in argument before

the Full Court. It is not referred to in any of the

Full Court judgments.

The third aspect is whether there can be a set-off where the claim against the third party

arises after the date of the composition, and we

submit there the whole policy of section 86 is to

rule off the ledger at the date of the composition

and thus enable the claims to be set off, and

where there was a contingent contractual liability

future claims are simply not the subject of it.

Now, there is an exception in the two cases in this

and, in my respectful submission, the exception is

limited to claims in contract or at least to claims

closely analogous to contract. I simply remind

Your Honours that the proposition we put is supported

by Halsbury - I have not taken you to all the cases

to show it. There is no case directly in point -

but Halsbury states - and this is page 5, the last

item in my submissions:

The result of the authorities is that it is

not necessary that there should be mutual

debts existing at the date of the receiving

order; it is sufficient if there are

contractual obligations the breach of which
may give rise to a claim for damages provable

in the bankruptcy.

That was extended by the Full Court to the case where

there was an unliquidated claim in tort which had not

yet come to trial. And one has to remember that in

the converse situation that claim would not have been

provable in the bankruptcy because it was a claim in

tort and an unliquidated claim in tort, of course,

cannot be claimed in a bankruptcy. So, in so far as

mutuality is the purpose of the section, that is defeated

by the Full Court's decision.

For those three reasons, we submit that it is

strongly arguable the Full Court's decision was wrong;

S1Tl4/6/PLC	6	11/5/90
Gye

the points are of importance. Section 82 is a

section of significance. These are matters which

have not been decided. There are, as I have said,

miscellaneous lower court decisions on various

aspects of section 82 and it has come before this

Court on a couple of occasions but not this aspect

and this case provides an opportunity for these

problems to be solved by this Court.	May it please
the Court.

MASON CJ: Thank you, Mr Bennett. Yes, Mr Darvall?

MR DARVALL:  May it please Your Honours 1 ,the Federal Court

here applied the principles stated in HILEY's case

which, in turn, where approved and applied in DAY & DENT

and one looks at this first on the basis of contingency.

And if I may hand to Your Honours the copies of

DAY & DENT.

MASON CJ:  But those two cases do not resolve this question,

do they?

MR DARVALL:  They resolve the question, Your Honour, so far as

the fixing of the time, being the time of the

composition, and that no other transactions took place

after that except the fixing of the sum which was

claimed against my client in deceit and to that

extent HILEY's case and DAY & DENT have application.

Then we move to the next stage, that the

Federal Court said, well, what they were considering

when it came before them in the bankruptcy petition

against my client was two judgments; not a question

of unliquidated damages but a judgment either way

and that applying all the - and taking into account

all the surrounding circumstances of the case and
the transaction of the type that Your Honour spoke
of earlier, that you must look at both the lending

and the purchasing and the deceit as part of the

one transaction. As Your Honour Justice Deane said,

and I take it down to the bare bones, the applicant

says, "I paid too much for the land because of

deceit but I borrowed money from the respondent so

that I could pay that amount which was too much."

And he does not repay the debt but claims the amount
which he says is too much because of this shuffle

which has occurred by the entering into of these

deeds of composition at a time when there was a stay

of proceedings in respect of my client's debt. And

so that my client's hands were tied; could not prove;

could not take steps to set aside the composition

as no further step could be taken by her because of

the order.

Their Honours then, having regard to - Their Honours

took into account what Your Honour the Chief Justice

had said in DAY & DENT at page 108:

S1Tl4/7/PLC	7	11/5/90
Gye

It is reasonable to impute to Parliament

an intention that the provision, which is

a protective provision, be given "the widest

possible scope".

And it would seem clear that in a case such as this

that the protection is needed by my client and that

the application of the mutual dealings should be

applied so that substantial justice is done.

The next point that I would make is it is

necessary for the applicant to show that section 86

is limited to mutual dealings in respect of debts

falling within section 82 which defines the debts

approval in bankruptcy. My friend referred to

section 86(l)(c) as claims:

may be claimed in the bankruptcy, or is

payable to the trustee in the bankruptcy -

there is nowhere that says that in looking at the
mutual dealings, that what is to be off set one against
the other must each be a provable debt. Indeed, as
was pointed out in HILEY's case, the claims need not

arise from the same contract and, in any case, by the

time that it was being considered by the Full Court of
the Federal Court, the matter was one of judgment to

judgment. And so, if one is giving the widest possible

scope to cover cases such as this which would result

in obvious injustice if my friend's propositions are

correct, one must read the mutual dealings in their

broad sense and having regard to the whole of the

transaction which took place.

Now, in our submission, the legal principles

so far as the contingency of claim is concerned

have long been settled and the issues here really

go not to that but merely to the point of how far

should the mutual dealings be extended to give

protection in a case such as this. There is no question

of public interest at large which arises, it is merely

a question upon the facts and a factual basis was
established by the Federal Court.	I think that is

all that I can say to Your Honours apart from the fact

that I do seek to adopt and be wedded closely to

the judgments and reasoning.

MASON CJ: Yes. Well, we received that message, I think. Yes,

Mr Bennett?

MR BENNETT:	Only two matters, Your Honour. First; the stay of the judgment did not, of course - would not have prevented
a proof of debt being filed.  The stay of a judgment
simply means that one - it is a stay of execution, one
cannot enforce it. There is absolutely no reason why
they could not have lodged a proof of debt and the

S1Tl4/8/PLC	8	11/5/90
Gye

suggestion that the stay prevented that is, in my

respectful submission, quite wrong.

Secondly, in relation to the wide scope of the

section~ it must, of course, be given that wide

scope consistently with its words and with the

fact that it appears in an Act dealing with bankruptcy

and that it is concerned with the problem of claims

by a trustee and the proof of debt in the bankruptcy.

Its wide scope must be read within that context and

not in any wider context. May it please the Court.

MASON CJ: There will be a grant of special leave in this

matter.

AT 3.40 PM THE MATTER WAS ADJOURNED SINE DIE

SlT14/9/PLC	9	11/5/90
Gye