Gye v McIntyre; Perkes v McIntyre

These applications concerned the application of section 86 of the *Bankruptcy Act 1966* (Cth) to a situation where a debt did not pass to a trustee in bankruptcy. The applicants, Gye and Perkes, sought special leave to appeal from a decision of the Full Federal Court. The respondent was Itala Belinda McIntyre.

The primary legal issue before the High Court was whether section 86 of the *Bankruptcy Act*, which deals with mutual credits and set-off in bankruptcy, applied to a claim that had not passed to the trustee under the terms of a composition. A secondary issue was whether section 86 applied to an unliquidated claim in tort by the bankrupt, which could not be proved in the bankruptcy.

The applicants argued that section 86 did not apply for two main reasons. Firstly, they contended that the debt in question did not pass to the trustee under the terms of the composition, and therefore the normal State law of set-off should apply. They submitted that the wording of section 86, particularly its reference to "a person claiming to prove a debt in the bankruptcy," indicated it was intended for situations where the trustee sues a creditor or a creditor claims in the bankruptcy, not where the claim itself did not pass to the trustee. Secondly, they argued that there is no right of set-off under section 86 where the bankrupt's claim is an unliquidated claim in tort that could not be proved in the bankruptcy, and that the case relied upon by the lower court, *Jack v Kipping*, was distinguishable as it involved a liquidated contractual claim.