Morris et al. v. Rayners Enterprises Inc. et al., (1997) 222 N.R. 352 (HL)

• Case Date: October 30, 1997
• Jurisdiction: Canada (Federal)
• Citations: (1997), 222 N.R. 352 (HL)

Morris v. Rayners Ent. Inc. (1997), 222 N.R. 352 (HL)

MLB headnote and full text

Morris and others (respondents) v. Rayners Enterprises Incorporated and another (appellants)

Morris and others (respondents) v. Agrichemicals Limited and others

(appellants)

Indexed As: Morris et al. v. Rayners Enterprises Inc. et al.

House of Lords

London, England

Lord Goff of Chieveley, Lord Nicholls of Birkenhead,

Lord Hoffmann, Lord Hope of Craighead and Lord Hutton

October 30, 1997.

Summary:

A bank lent money to companies on the security of deposits which had been made with the bank by third parties. The bank went into liquidation. The bank's liquidators applied for directions on whether they could claim repayment from the debtor companies without resorting to the security (third party deposits) or whether it had to set-off the loans against the deposits and treat the com­panies as pro tanto discharged. The trial judge held that the liquidators could claim full repayment without resort to the security.

The Court of Appeal, in a decision reported [1996] Ch. 245, dismissed the companies' appeals.

The House of Lords dismissed the com­panies' appeals.

Bankruptcy - Topic 6453

Administration of estate - Actions by trustee - Debtor's right of set-off against bankrupt - A bank lent money to com­panies on the security of deposits which had been made with the bank by third parties - The bank went into liquidation - The companies argued that the liquidators could not sue them for money lent without first giving credit for the full amount of the sums deposited as security - They relied, inter alia, upon Rule 4.90 of the Insolvency Rules 1986 which provided for the automatic set-off of mutual debts of a company and a creditor existing prior to a company's liquidation - The House of Lords held that the companies could not rely on Rule 4.90 - The depositors did not owe anything to the bank - The contract between them created no personal liability on the depositors' part to pay the com­panies' indebtedness.

Banks and Banking - Topic 5167

Loans - Payment of loans - Right of set-off by debtor - [See Bankruptcy - Topic 6453 ].

Equity - Topic 3023

Equitable rules affecting property - Marshalling - When applicable - A bank lent money to companies on the security of deposits which had been made with the bank by third parties - The bank went into liquidation - The companies argued that they could rely on the equitable doctrine of marshalling - The House of Lords rejected the argument - There was only one debt and that was owed to the bank by the principal borrowers (companies) - There was no basis upon which the depositors could assert an equity to require the bank to proceed against the deposits before claiming against the principal debtors - See paragraph 36.

Practice - Topic 1843

Pleadings - Counterclaim and set-off - Set-off - Circumstances when set-off can or cannot be claimed - [See Bankruptcy - Topic 6453 ].

Practice - Topic 1845

Pleadings - Counterclaim and set-off - Set-off - Requirement of mutuality - [See Bankruptcy - Topic 6453 ].

Cases Noticed:

China and South Seas Bank Ltd. v. Tan Soon Gin, George (alias George Tan), [1990] 1 A.C. 536 (P.C.), refd to. [para. 9].

Stein v. Blake, [1996] 1 A.C. 243, refd to. [para. 13].

Bank of Credit and Commerce Inter­national S.A. (No. 10), Re, [1997] W.L.R. 172, refd to. [para. 14].

British Eagle International Airlines Ltd. v. Compagnie Nationale Air France, [1975] 1 W.L.R. 758 (H.L.), refd to. [para. 14].

Chuen v. Bank of Credit & Commerce Hong Kong Ltd., [1996] B.C.C. 388 (P.C.), refd to. [para. 17].

M.S. Fashions Ltd. v. Bank of Credit and Commerce International S.A. (In liqui­dation)(No. 2) et al., [1993] Ch. 425 (C.A.), refd to. [para. 18].

Charge Card Services Ltd., Re, [1987] Ch. 150 (C.A.), refd to. [para. 22].

National Westminster Ltd. v. Halesowen Presswork & Assemblies Ltd., [1971] 1 Q.B. 1, revd. [1972] A.C. 785 (H.L.), refd to. [para. 22].

National Provincial and Union Bank of England v. Charnley, [1924] 1 K.B. 431, refd to. [para. 23].

Northern Bank Ltd. v. Ross, [1990] B.C.C. 883, refd to. [para. 26].

Rye v. Rye, [1962] A.C. 496 (H.L.), refd to. [para. 29].

Mersey Steel and Iron Co. v. Naylor, Benzon & Co. (1882), 9 Q.B.D. 648, refd to. [para. 30].

Gye v. McIntyre (1991), 171 C.L.R. 609, refd to. [para. 30].

Eberle's Hotels and Restaurant Co. v. Jonas (E.) & Brothers (1887), 18 Q.B.D. 459, refd to. [para. 30].

Hiley v. Peoples Prudential Assurance Co. (1938), 60 C.L.R. 468, refd to. [para. 30].

Chappell, Re; Ex parte Ford (1885), 16 Q.B.D. 305 (C.A.), refd to. [para. 32].

Debtor A., Re (No. 627 of 1936), [1937] Ch. 156, refd to. [para. 32].

Foley v. Hill (1848), 2 H.L. Cas. 28, refd to. [para. 33].

Ellis & Co.'s Trustee v. Dixon-Johnson, [1925] A.C. 489, refd to. [para. 35].

Counsel:

John McDonnell, Q.C., for the appellants Rayners;

Christopher Carr, Q.C., and Michael Todd, for the appellants Agrichemicals;

Michael Crystal, Q.C., and Robin Dicker, for the respondents.

Agents:

Haring Ross Gagrat & Gardi, for the ap­pellants Rayners;

Charles Russell, for the appellants Agri­chemicals;

Lovell White Durrent, for the respondents.

These appeals were heard on July 10, 14, 15, 16 and 17, 1997, before Lord Goff of Chieveley, Lord Nicholls of Birkenhead, Lord Hoffmann, Lord Hope of Craighead, and Lord Hutton, of the House of Lords. The decision of the House was given on October 30, 1997, when the following speeches were delivered:

Lord Goff of Chieveley - see paragraph 1;

Lord Nicholls of Birkenhead - see para­graph 2;

Lord Hoffmann - see paragraphs 3 to 37;

Lord Hope of Craighead - see paragraph 38;

Lord Hutton - see paragraph 39.