Mackenzie v Rees

The case of *Mackenzie v Rees* concerned an appeal to the High Court of Australia from a decision of the Supreme Court of Queensland exercising jurisdiction in bankruptcy. The dispute arose when a creditor, Thomas Brown & Sons Ltd., sought to prove for interest on an interest-bearing debt, for which they had accepted promissory notes free of interest, out of a surplus realised from the debtor's estate under a deed of arrangement. The debtor appealed the decision of Philp J., who had allowed the claim for interest as damages under section 62 of the *Bills of Exchange Act 1909-1936*.

The legal issues before the High Court were whether the original interest-bearing debt had revived despite the acceptance of interest-free promissory notes and the subsequent execution of a deed of arrangement, and if so, whether the creditor was entitled to claim interest on that debt from the surplus realised from the debtor's estate. A further issue was whether interest could be claimed as damages under section 62 of the *Bills of Exchange Act* in these circumstances.

The High Court was equally divided on the outcome. A majority, comprising Rich A.C.J. and Williams J., held that the original interest-bearing debt had revived and that the creditor was entitled to claim interest at the contract rate from the date of the deed of arrangement. They reasoned that the acceptance of a promissory note generally suspends the original debt but does not extinguish it, and that the original debt revives if the note is dishonoured or if the circumstances indicate an intention for it to do so. They found that the deed of arrangement, by referring to the law of bankruptcy for the application of proceeds, implicitly allowed for interest on interest-bearing debts from a surplus. However, Dixon and McTiernan JJ. dissented, holding that while creditors may claim interest on interest-bearing debts from a surplus in bankruptcy, such a claim could not be made as damages under section 62 of the *Bills of Exchange Act*. They also found that the original debt had not revived in the circumstances.

As the High Court was equally divided, the appeal was dismissed. However, the order appealed from was varied, as the court was unanimous that its original form was incorrect.