Day & Dent Constructions Pty Ltd (In Liq) v North Australian Properties Pty Ltd

Day & Dent Constructions Pty Ltd (In Liq) v North Australian Properties Pty Ltd - [1982] HCA 20 - HCA 1976 case summary — Zoe

[11]

The effect of this section was considered by this Court in Hiley v. Peoples Prudential Assurance Co. Ltd. [3] . 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 [4] . 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" [5] . Rich J. said [6] : 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. [7] cited Eberle's Hotels and Restaurant Co. v. Jonas [8] , 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 [9] : 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 [10] : 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. 1. (1938) 60 C.L.R. 468. 2. (1938) 60 C.L.R., at pp. 480-481, 487, 490, 495-496. 3. (1938) 60 C.L.R., at p. 483. 4. (1938) 60 C.L.R., at p. 487. 5. (1938) 60 C.L.R., at p. 490. 6. (1887) 18 Q.B.D. 459, at p. 465. 7. (1938) 60 C.L.R., at p. 491. 8. (1938) 60 C.L.R., at pp. 496-497.

[17]

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 [23] : 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 [24] 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 [25] , 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 [26] . 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 [27] . All the members of the Court distinguished In re Daintrey; Ex parte Mant [28] on the ground that in that case there was an obligation already incurred which remained only to be quantified [29] , 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. [30] , 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. 1. [1956] 3 All E.R. 225. 2. [1956] 2 All E.R. 94, at p. 97. 3. [1956] 2 All E.R., at p. 100. 4. (1844) 3 Hare 568 [67 E.R. 506]. 5. [1956] 3 All E.R., at p. 228. 6. [1956] 3 All E.R., at pp. 229-230, 235. 7. [1956] 3 All E.R., at p. 229. 8. [1900] 1 Q.B. 546. 9. [1956] 3 All E.R., at pp. 227, 233. 10. [1931] 1 Ch. 85.

[42]

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. [44] ; In re Fenton; Ex parte Fenton Textile Association [No. 1] [45] ; In re Daintrey; Ex parte Mant [46] . 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. [47] , Barwick C.J. [48] favoured the former and Kitto J. [49] the latter. In Stein v. Saywell [50] , their Honours reaffirmed their conflicting views [51] . Subsequently, in In re Northside Properties Pty. Ltd. [52] , 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 [53] . See also Re H. & S. Credits Ltd. [54] . 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.

[89]

Such attitudes were appropriate to the colonial era (see Trimble v. Hill [7] ). Perhaps the most extreme expression of this attitude occurred in this Court in Waghorn v. Waghorn [8] . In an earlier case, Crown Solicitor (S.A.) v. Gilbert [9] , 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 [10] ) and the English Court of Appeal without referring to Crown Solicitor (S.A.) v. Gilbert did likewise (see Earnshaw v. Earnshaw [11] ). 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" [12] . He concluded that in the circumstances " it is better that we should give up our own view" [13] ). 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" [14] . Williams J. [15] , 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.

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