Estoppel - former adjudication and matters of record - whether issue estoppel from separate proceedings dismissing creditor's petition by applicant against respondent.

Note: Settlement and entry of orders is dealt with in Bankruptcy Rule 124.

These are applications made in compositions entered into under Part X of the Bankruptcy Act 1966 ("the Act") by the first applicant, Mr Gye, and by the second applicant, Mr Perkes. The applicants now seek that an account be taken of certain mutual dealings between themselves and the respondent, Mrs McIntyre.

2. In order to understand the issues which arise in the applications, it is necessary to refer to the background facts.

3. The early history of the dealings between the parties, and the litigation in the Supreme Court of New South Wales which resulted from those dealings, are described in the reasons of the High Court in Gye v McIntyre [1991] HCA 60; (1991) 171 CLR 609 at 613-616. The facts were summarised in the report as follows (see 171 CLR at 610-11).

4. Mr Gye and Mr Perkes were members of a syndicate of five members which, in October 1980, purchased a hotel, and other property, for $1,250,000.00. Mrs McIntyre was associated with the vendor. She induced Messrs Gye and Perkes to enter into the contract by fraudulent misrepresentations about the profitability of the hotel business. Mrs McIntyre lent the purchasers $200,000.00 to assist them to pay the purchase price. The syndicate failed. In June 1982, Mrs McIntyre obtained judgment against the purchasers in the Supreme Court for $224,000.00, being the amount of the loan, interest and costs. Execution was stayed pending determination of a cross-claim by Messrs Gye and Perkes against Mrs McIntyre and her husband for damages for fraudulent misrepresentation. In April 1985, a meeting of Mr Gye's creditors passed a special resolution accepting a composition proposed by him. In June 1985, the creditors of Mr Perkes accepted a composition proposed by him. In each composition, the creditors agreed to accept an assignment of designated property and an obligation to make specified payments of money to the trustee of the composition in full satisfaction of the debtor's debts. The claim against Mrs McIntyre was not included in the property assigned by either debtor. Mrs McIntyre did not seek to prove as a creditor in either composition. In June 1988, Messrs Gye and Perkes obtained judgment in the Supreme Court for damages for deceit in the sum of $214,600.89 and costs.

5. Messrs Gye and Perkes each applied to this Court for a declaration that Mrs McIntyre was not entitled to set off the amount payable to her under the 1982 judgment against the amount payable by her under the 1988 judgment. Hill J. made the declaration; but an appeal to a Full Court (Pincus, Gummow and von Doussa JJ.) was allowed (see [1990] FCA 100; (1990) 22 FCR 260). In the order of the Full Court, it was declared that -

"...pursuant to the (Act) (Mrs McIntyre) is entitled to

have set-off moneys due to her by (Messrs Gye and Perkes)

under (the 1982) judgment...against moneys due by her to

(Messrs Gye and Perkes) under (the 1988) judgment..."

6. Appeals to the High Court were dismissed in March 1991: see [1991] HCA 60; (1991) 171 CLR 609.

7. Earlier, in October 1989, Mr Perkes had presented a petition for the sequestration of the estate of Mrs McIntyre. On 28 August 1990, before the High Court gave its judgment, Einfeld J. dismissed the petition. An appeal to the Full Court (Davies, Beaumont and Burchett JJ.) was dismissed on 31 July 1991 (unreported).

8. Davies J. said (of s.86)

"The section requires the taking of an account. That

account will ordinarily, in the first instance, be taken by

a trustee, or in the event of a dispute, by the Court in its

bankruptcy jurisdiction. The issue may also arise in other

proceedings.... The taking of the account may involve the

finding of facts which are in dispute, the apportionment of

sums which need to be apportioned, the appropriation of sums

to an account or heading, the valuation of goods received or

held or services provided as payment or consideration, the

assessment of liabilities which have not been fixed in

monetary terms, the adoption of appropriate rates of

interest and so on. The task is to quantify the balance

arising from the mutual credits, mutual debts and mutual

dealings, that is to say, to ascertain the bottom line.

The task may in some cases be complex,... (T)he principle

(has been) enunciated that, for the operation of s.86, it is

sufficient that there have been mutual dealings out of which

a debt arose and it is not necessary that, at the relevant

date, the date at which the balance is to be determined, the

liabilities have accrued into fixed liabilities. That

principle was also explained and applied in the Gye, Perkes,

McIntyre litigation, for at the relevant dates for the

set-offs, the respective dates of the special resolutions

accepting the Gye and Perkes' compositions, as to which see

s.243 and the High Court at 401 and 404, the claims made by

Messrs Gye and Perkes against Mrs McIntyre were merely

claims for unliquidated damages, not provable liquidated

debts.

For this reason, at 22 FCR 274, the Full Court made a

declaration 'as to the availability of set-off', a

declaration which was not disturbed by the High Court. An

earlier order to like effect may be seen in Mersey Steel and

Iron Company v. Naylor, Benzon and Co.....where the Court

ordered, inter alia:-

'Declare that the defendants are entitled to

set-off against the 1713 (pounds) admitted to be

due to the plaintiffs such damages as they the

defendants may have sustained by reason of the

failure or refusal of the plaintiffs to deliver

to the defendants the remainder of the blooms

deliverable under the contract. Reference to

ascertain the amount of such damages.'

Accordingly, once the issues of law had been established by

the judgment of the High Court, the proper course for any of

Messrs Gye or Perkes or Mrs McIntyre as wished to pursue in

bankruptcy a claim, the subject of the mutual dealings,

would have been to have an account taken by the Court of the

mutual dealings and of the result of the set-off. Such an

account would have established whether any sum was payable

by one party to another, and if so, how much was payable.

However, no proceeding for an account was instituted."

"(At first instance) counsel for Mrs McIntyre tendered a

schedule, to the mathematical accuracy of which Mr Perkes

attested in cross-examination, which on the face of it

showed that the judgment entered by Mrs McIntyre against Mr

Gye and Mr Perkes exceeded the total of the judgments which

Mr Gye and Mr Perkes had against Mrs McIntyre.

In these appeals, counsel for Mr Perkes submitted several

different calculations, all purporting to show that a taking

of accounts would disclose that Mrs McIntyre owed a balance

to Mr Perkes. But such calculations merely serve to

emphasise the point that, when the matter came before the

trial Judge, having regard to the operation of s.86(1) of

the Act, it had not been established that any sum was

payable by Mrs McIntyre to Mr Perkes. Counsel's

calculations, for example, adopted the lesser interest rate

under the now repealed s.112 of the Bankruptcy Act for the

amount due on Mrs McIntyre's judgment while adopting the

interest rate specified by s.94 of the Supreme Court Act

1970 (NSW) for the liabilities the subject of the Gye and

Perkes' judgments. That was not an equitable way of

accounting for liabilities arising out of mutual dealings.

Indeed, s.112 would not seem to apply in the set-off.

Moreover, counsel's calculations took into account an

alleged amount of $44,505.46 said to have been paid to Mrs

McIntyre in cash or in kind in respect of her judgment. As

to that sum, there was no evidence before the trial Judge."

Referring to the declaration made by the previous Full Court decision, Davies J. said:

"This order did not have the effect of setting-off the raw

sums of each judgment. The declaration was of an

entitlement to have set-off 'moneys due to them ... under a

judgment ... against moneys due by her ... under a

judgment'. Thus, amounts in respect of interest and moneys

paid were matters to be taken into account in the

ascertainment of the result of the set-off. The respective

liabilities had to be adjusted on a proper and fair basis as

at the date on which the set-off effected by s.86 took

effect."

9. The other members of the Court were also of the opinion that the appeal should be dismissed for somewhat different grounds.

10. On 24 December 1991, applications were filed on behalf of Mr Perkes and Mr Gye, seeking, inter alia, (1) orders that the Registrar inquire into and report on the amount which Mrs McIntyre was entitled to set-off under s.86 of the Act and (2) declarations as to the date at which such set-off took effect.

11. Counsel for the parties invited the Court to deal first with a number of questions of law which, they claimed, arose for decision before the matters were referred to the Registrar for the final taking of the accounts. I agree with this course, with the proviso that I will not make any declaratory order unless I am satisfied that the trustee under the compositions, Mr Andrew, has had an adequate opportunity to be heard. Although, since the matters have been fully argued on behalf of Messrs Gye and Perkes, I would expect that Mr Andrew would wish to submit to any order the Court may make (except as to costs), but he should be joined as a party to these proceedings at an appropriate stage so as to be bound by the outcome.

12. Before going to the merits, it is convenient to deal first with two preliminary points taken on behalf of Mrs McIntyre.

13. A foreshadowed submission on behalf of Mrs McIntyre that this Court lacked jurisdiction to entertain the present applications was not developed. In my opinion, s.30(1) and (2) of the Act confer the necessary jurisdiction to entertain the present applications.

14. This is a more substantial point. On behalf of Mrs McIntyre, it is contended that there is a relevant issue estoppel, as between Mr Perkes and Mrs McIntyre, arising out of the decision of Einfeld J. dismissing the creditor's petition of Mr Perkes.

15. By virtue of the provisions of s.52(1)(c) of the Act, at the hearing of the petition, one matter for decision by Einfeld J. was whether the debt on which Mr Perkes relied was still owing; and by s.44(1) of the Act, a creditor's petition shall not be presented unless, inter alia, the debt (of $1,500.00) is "a liquidated sum due at law or in equity...and...is payable either immediately or at a certain future time".

16. Both Einfeld J. and, on appeal, the Full Court, held that until accounts of the mutual dealings between the parties were taken, the petitioning creditor had not established the existence of the requisite debt for the purpose of the making of a sequestration order.

"Each of these parties is in debt to the other. The Full

Court has said that one debt may be set off against the

other. The substantive issue here is whether there is a

remaining debt upon which a sequestration order can properly

be pronounced as between the creditor and the debtors and,

if so, what the debt is. These questions depend upon the

date at which the respective judgment debts of the creditor

and debtors are set off against each other."

18. Referring to a statement in the reasons of Gummow and von Doussa JJ. (see 22 FCR at 273), Einfeld J. said:

...(O)ne would ascertain in this case what was due from one

party to the other at the time of the taking of the account

by the trustee of each composition, and not have regard

simply to the state of affairs at the time of the

commencement of the compositions in 1985.

...(T)he consequence of the Full Court's judgment is either

that only those debts can be set off which exist at the time

accounts were taken, or another date will have to be fixed

in the case of later debts which do not.

...(T)here should either be no set off in these particular

circumstances or the set off must be calculated from the

date the Perkes judgment took effect. As the Full Court has

determined that there must be a set off in this case, I am

constrained to fix the date of set off as 24 June 1988,

despite the difficulties this seems to pose to the Part X

trustee.

The creditor further submits that the related judgment debt

to be paid by Mr and Mrs McIntyre to Mr Gye is to be offset

against the judgment in favour of Mrs McIntyre. I reject

that submission. In my view, this is a different case and

in that sense a different debt. The Full Court only ordered

that the debts applicable to the individual

creditors/debtors are to be set off.

It is not necessary for me to calculate the accrued interest

on the McIntyre judgment because the consequence of my

findings is that if a set off is to take place, there is a

balance owing to the debtors in any event. Accordingly

there is no debt to found a sequestration order and the

petition should be dismissed."

19. On the appeal, Davies J. concluded his reasons as follows:

"On the material before him and as no account had been taken

of the result of the mutual dealings, the trial Judge was

well justified in holding that he was not satisfied that any

sum was payable by Mrs McIntyre or Mr McIntyre to Mr Perkes.

Section 52(1) of the Act requires that, at the hearing of

the creditor's petition, there shall be proof of '(c) the

fact that the debt or debts on which the petitioning

creditor relied is or are still owing'. In the light of the

judgments of the Full Court and High court, that proof was

not provided."

"...it was known at the time of the hearing of the petition,

that there was an entitlement to set-off arising out of the

1982 Supreme Court judgment. The actual balance of the

account had not then been the subject of adjudication. But

in the case at least of Mrs McIntyre, the set-off

approximated the amount of the 1988 Supreme Court judgment.

It was at least possible, on the taking of accounts between

all interested parties, including Mr McIntyre, that no

balance would be found to be owing to Mr Perkes. In my

opinion, even if an act of bankruptcy had been committed,

Mr Perkes did not establish the existence of the debt

required by s.44(1)(a)."

20. I also expressed the view, as Davies J. had done in passing, that the bankruptcy notice was bad, for similar reasons.

21. Burchett J. was of the opinion that the bankruptcy notice was bad because of s.41(3) of the Act, which provides that a bankruptcy notice shall not be issued if, at the time, "execution of the judgment or order to which it relates has been stayed". Burchett J. said:

"At the time of the issue of the bankruptcy notices, the

court, if applied to, would have prevented the issue of

execution on the ground that the judgment debtors were

entitled to a set off in respect of the sum owed under the

prior judgment. Until the question was clarified whether

any outstanding balance at all was owing, and if any

outstanding balance was owing how much the amount of it was,

it would have been unthinkable to permit execution to

proceed."

22. On behalf of Mrs McIntyre, it is now submitted that Einfeld J. finally determined, as between Mr Perkes and Mrs McIntyre, the question of fact whether any amount was owed by Mrs McIntyre to Mr Perkes; and that Mr Perkes is now estopped from asserting the existence of any debt by Mrs McIntyre to himself. The argument is put in two ways: (1) The case falls within the general rule (see, e.g. Blair v. Curran [1939] HCA 23; (1939) 62 CLR 464 per Dixon J. at 531-3); (2) the matter is within the extended principle expressed in Henderson's case (see now Port of Melbourne Authority v Anshun Proprietary Limited [1981] HCA 45; (1981) 147 CLR 589 per Gibbs C.J., Mason and Aickin JJ. at 598-9).

23. I have difficulty in accepting the argument. The material issue before Einfeld J., and before the Full Court on appeal from Einfeld J., was whether, at the time of presentation of the petition, and at its hearing, the creditor had established that a debt of the kind described in s.44(1) then existed. Einfeld J. and the Full Court both held that, in accordance with the declaratory orders of the previous Full Court (later affirmed by the High Court), it was then premature and thus impossible, to decide what, if any, would be owed between the parties by way of a net balance on the taking of accounts pursuant to s.86 of the Act. Under the terms of that provision, an account shall be taken in a case such as the present and only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be.

24. That is, although it was held by Einfeld J. that the creditor's petition should be dismissed, it was not finally decided by his Honour, or by the appellate court, how much, if any, was actually owed by one party to the other on a final balance of account. This question was left for other proceedings and this, necessarily a different question, is the ultimate issue in the present proceedings.

25. Moreover, the dismissal of a creditor's petition in bankruptcy does not, in any final or conclusive sense, create an estoppel on the issue whether the petitioner's claim is a good debt (see In Re Vitoria Ex parte Vitoria (1894) 2 QB 387; King v Henderson (1898) AC 720 at 729-30; Dowling v Colonial Mutual Life Assurance Society Ltd. (1915) 20 CLR 509 per Isaacs J. at 518-9). As Isaacs J. pointed out in Dowling, whatever be the position at common law, a bankruptcy court, as a court of equity, has a discretion to look behind a judgment in a proper case "even if the existence of the debt as a matter of law may be undoubted and unchallengeable" (see also Wren v Mahoney [1972] HCA 5; (1972) 126 CLR 212 per Barwick C.J. at 224-5).

26. Put differently, there is no issue estoppel here because the present question is not the same question as that before Einfeld J. (see O'Donel v The Commissioner for Road Transport and Tramways (NSW) [1938] HCA 15; (1938) 59 CLR 744; Lizzio v Ryde Municipal Council [1983] HCA 22; (1983) 155 CLR 211 per Deane J. at 232; Marr (Contracting) Pty. Limited v White Constructions (ACT) Pty. Limited, Neaves, Beaumont and Burchett JJ., 15 November 1991, unreported). Nor, in my view, can it be appropriate here to apply any Henderson extension of the issue estoppel principles. In the Bankruptcy Court, the question for determination, depending on a finding of insolvency, actually inferred or assumed, is whether the Court, in its discretion, will make a sequestration order. If the Bankruptcy Court declines to exercise that discretion, it does not follow that the Court has finally determined that no debt actually exists. That is a different question.

27. It follows, in my opinion, that the dismissal of his creditor's petition did not raise an estoppel preventing Mr Perkes from now seeking that an account be taken.

28. Having found jurisdiction and having found that there was no relevant issue estoppel, I propose to order that the proceedings stand over to a date to be fixed and that costs be reserved. I will hear submissions on the possible joinder of the trustee and then fix a date for the hearing of further argument on the merits.