Bank of New South Wales v. Brown [1983] HCA 1; (1982-83) 151 CLR 514 considered

Gye v. McIntyre [1991] HCA 60; (1991) 171 CLR 609

Counsel and Solicitors Mr V.R.W. Gray instructed by

Counsel and Solicitors Mr K. Garling instructed by

That the following issues be determined separately, as follows:

Question One: For the purpose of calculating the set-off, do the

provisions of clauses 4 and 6 of Mr Gye's and Mr Perkes'

respective compositions apply to interest due under the judgment

of 29 June 1982 obtained by Mrs McIntyre?

Answer: No.

Question Two: At what dates are the respective amounts payable by

Mr Gye and Mr Perkes to Mrs McIntyre to be set off against

their claims against her?

Answer: In the case of Mr Gye, 3 April 1985 and in the case of

Mr Perkes, 28 June 1985.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BEAUMONT J. In these matters, I have already dealt with certain preliminary points and made orders and given reasons in that connection. A number of further matters have been foreshadowed by the legal representatives of the parties and in order to reduce the whole matter to manageable proportions, I have suggested, with their agreement, that I should proceed to deal with the questions that arise separately.

2. A number of possible questions have been discussed. For the present, however, I propose to make an order for the determination of what is logically the first question to arise on the further matters argued.

3. That question is whether, for the purpose of calculating the amount which Mrs McIntyre is entitled to have set off against Mr Gye or Mr Perkes (or the trustee under their respective compositions), the provisions of cl 4 of Mr Gye's composition and cl 6 of Mr Perkes' composition apply to interest due under the judgment obtained by Mrs McIntyre on 29 June 1982. I order that that question be determined as a separate question.

4. Having now heard argument on that question, I (for reasons which I will give shortly) answer the question in the negative.

5. The background to the present question is described in the reasons for judgment of the full High Court in Gye v McIntyre [1991] HCA 60; (1991) 171 CLR 609. The specific question which now arises turns in the first place upon the interpretation of the provisions of cl 4 of Mr Gye's composition (cl 6 of Mr Perkes' composition is in the same form). Clause 4 is as follows:

"The Trustee shall distribute the amounts received by him as

follows: -

Firstly in payment of the expenses and official fees incurred

under the Composition and the remuneration of the Trustee.

Secondly in payment in full of any amount due to the Deputy

Commissioner of Taxation for tax instalment deductions not

remitted by the said Clement Anthony Gye.

Thirdly in payment of pro rata dividends to the creditors who may

subsequently prove their debts to the satisfaction of the Trustee.

The provisions of Section

88, 89 and 112 of the Bankruptcy Act, 1966, shall apply to

such proved debts."

(My emphasis)

6. Section 243 of the Bankruptcy Act 1966 (all references to the Bankruptcy Act are to the provisions of that Act as it stood at the relevant time, viz. April and May of 1985) applies certain general provisions of the statute to compositions.

7. By sub-s.243(1), ss. 82 to 107 (inclusive) and 140 to 147 (inclusive) apply, with the prescribed modifications (if any) in relation to a composition under Part X as if: (a) a sequestration order had been made against the debtor on the day on which the special resolution accepting the composition was passed; and (b) the trustee of the composition were the trustee in his bankruptcy. By sub-s.243(2), in the application of the provisions of the Act specified in sub-s.(1) in relation to a composition, a reference to a provable debt shall be read as a reference to a provable debt within the meaning of Part X. By sub-s.243(4), if after taking into account the prescribed modifications and the provisions of sub-s.(2), a provision specified in sub-s.(1) is incapable of application in relation to a composition, or the trustee of a composition (as the case requires) or is inconsistent with Part X, that provision does not have such application.

8. It will be noted that the provisions of s.86 of the Act are picked up by sub-s.243(1). Section 86 is, of course, the set-off provision dealt with by the High Court and held applicable in that instance.

9. It will be noted that in its terms cl 4 of Mr Gye's composition is directed to the trustee. It addresses the obligation of the trustee to distribute amounts received by him in a certain order of priority. In the third order of priority there is to be paid a pro rata dividend to creditors who may subsequently prove their debts to the satisfaction of the trustee. It is only in that context that it is provided that the provisions of s.112 apply, and cl 4 makes s.112 applicable only "to such proved debts". As has already been seen, the provisions of s.112 were not picked up by sub-s.243(1).

10. There does not appear to be any authority on the present question, although the general operation of s.112 was considered by the High Court in Bank of New South Wales v Brown [1983] HCA 1; (1982-83) 151 CLR 514. Section 112 provides, in essence, that where a creditor had proved a debt that was for or included interest, or was founded on a claim that was for or included interest, the interest or claim should, for the purposes of dividend, be allowed at a specified rate only.

11. In my opinion, the provisions of cl 4 of the composition do not apply in the present case once it is accepted (as is now common ground) that there was in accordance with the reasoning of the full High Court in Gye an entitlement to set off. The provisions of cl 4 do not apply in their literal terms to the present situation. This is not a case of a creditor simply proving a debt and receiving a pro rata dividend on that account. Rather it is a case, as the High Court held, of the application of s.86 to the circumstances of the respective dealings between these parties, with the result that in accordance with the provisions of s.86(1)(c), only the balance of the account may be claimed or is payable, as the case may be.

12. What has occurred is that by reason of the mutuality of the dealings between the parties, the initial debt arising under the judgment recovered by Mrs McIntyre in June 1982 has become merged into a different debt in the operation of the provisions of s.86 (cf. Bank of New South Wales v Brown at p 519). As I have already said, cl 4 does not apply in any literal sense in the present circumstances. I would add that there is nothing in its provisions which, as a matter of substance, would suggest that the literal meaning of its terms should be interpreted in any different way. That is, as a matter of substance as well as form, the provisions of cl 4 has no application here. Once any operation of s.86 supervened, the debt that was previously owing under the 1982 judgment was changed into a different debt as a result of the operation of s.86. All that was thereafter owing as between the parties was the balance of the account after the set-off had been effected. For those reasons I answer the question in the negative.

13. The second question is at what day is the amount payable by Messrs Gye and Perkes to Mrs McIntyre, under the judgment dated 29 June 1982, to be set-off against the claims made by Messrs Gye and Perkes against Mrs McIntyre, the subject of the proceedings tried by Brownie J in the Supreme Court of New South Wales. I order that that question be determined as a separate question.

14. In my opinion, the answer to that question is the respective dates of the resolutions accepting the compositions. That is, in the case of Mr Gye - 3 April 1985, and in the case of Mr Perkes - 28 June 1985.

15. My reasons for that conclusion are that s.86(1)(a), read literally, states that an account is to be taken of sums due from one party to the other. It is true that in the Full Court in earlier proceedings between these parties, McIntyre v Gye and Perkes and McIntyre v Gye [1990] FCA 100; (1990) 22 FCR 260 at 272-3, Gummow and Von Doussa JJ. said:

"But by the time of the institution of the present

proceedings in this Court, the compositions still being on

foot, the claim of Mr Perkes and the claim of Mr Gye had

merged in a present judgment debt. If an account were to be

taken, then, consistently with the reasoning of the High

Court in the Day and Dent Constructions case, one would

ascertain in this case what was due from the 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. From this it would follow that the

appellant was entitled to declaratory relief, confirming the

right of set-off, rather than (as happened) each respondent

obtaining declaratory relief denying the right of set-off.

16. In my view, their Honours were there addressing the issue that by the time the matter had been commenced, the Court had had the benefit of hindsight. In the language of Dixon J., as he then was, in Willis v The Commonwealth [1946] HCA 22; (1946) 73 CLR 105 at 116, "where facts are available, they are to be preferred to prophecy". The Court was in a position to take judicial notice of the circumstances that a judgment had been entered by Brownie J in a specific sum, and this eliminated the perhaps difficult exercise of evaluating the claim which would otherwise have to be undertaken as at the relevant time (the date of the passing of the resolutions accepting the compositions).