Gye v McIntyre; Perkes v McIntyre

These appeals concerned the application of set-off provisions in bankruptcy. The appellants, Gye and Perkes, sought to set off damages they claimed against the respondent, Itala Belinda McIntyre, against debts they owed to her. The dispute arose from a composition agreement entered into by McIntyre's creditors, which excluded the claim for damages for fraud from the assets to be vested in the trustee.

The High Court was required to determine whether the set-off provisions of section 86 of the *Bankruptcy Act 1966* (Cth) applied to the appellants' claim for damages for fraud, given that this claim had been expressly excluded from the composition agreement by the creditors. The central legal issue was whether the exclusion of the fraud claim from the composition meant it could not be considered for set-off under section 86, or if the broader provisions of the section still permitted such a set-off.

The Court reasoned that while section 86 of the *Bankruptcy Act* provides for a wider form of set-off than that available at general law, its application is predicated on the existence of "mutual credits, mutual debts or other mutual dealings" between the bankrupt and a person claiming to prove a debt. Crucially, the Court found that the claim for damages for fraud was not an asset that passed to the trustee for the benefit of creditors, as it had been specifically excluded from the composition by agreement. This exclusion meant that the claim was not a "mutual credit" or "mutual debt" in the context of the bankruptcy proceedings or the composition, and therefore section 86 could not be invoked to allow the set-off. The Court distinguished this case from others dealing with section 86 by highlighting the express exclusion of the claim from the composition.