Matthews v Qasemy - [2020] SADC 175

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Minor Civil Review)
MATTHEWS v QASEMY
[2020] SADC 175
Judgment of His Honour Judge Burnett
18 December 2020
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS - PREFERENCES
The applicant sought the review of the judgment of a Magistrate in a Minor Civil Action in which the Magistrate dismissed the claim of the applicant.
The applicant is the liquidator of Softec Homes Pty Ltd (the Company). The respondent carried on business in the building industry as a sole trader trading under the name Hazara Building Services. The Company engaged the respondent to perform some bricklaying work at a house that it was constructing, as contractor, at Murray Bridge. The respondent rendered an invoice on 1 September 2016 in the sum of $8800 (inc of gst) and a subsequent invoice dated 23 September 2016 in the sum of $18,579 (inc of gst), which latter invoice incorporated the amount owed under the earlier invoice. Under the terms of the contract, the respondent agreed that it would not invoice the Company until the work was completed, which did not occur until about 23 September 2016.
The respondent subsequently received the following payments from the Company: $4000 on 14 October 2016; $1500 on 23 October 2016; $3000 on 19 December 2016 and $3000 on 20 December 2016.
The Company went into liquidation on 15 February 2017. The winding up was deemed to have commenced on 26 October 2016 (when the application to wind up the Company was lodged) and the relation back period deemed to commence on 27 April 2016. It was accepted by the parties that the Company was insolvent at all relevant times.
The applicant claimed the sum of $11,500 from the respondent on the basis that the payment of this sum in full in four instalments in the period from October to December 2016 constituted an unfair preference pursuant to s 588FA of the Corporations Act. The respondent relied upon the statutory defence provided for in s 588FG of the Corporations Act that he received the payments in good faith and had no reasonable grounds for suspecting that the Company was insolvent. The respondent also submitted that the ultimate effect of the transaction was to benefit the Company. The respondent still further submitted that even if an unfair preference had been made out, the court retained a discretion not to order repayment.
Held:
1. The Magistrate’s decision is affirmed and the review dismissed.
2. There is no basis to overturn the finding of the Magistrate that the respondent had acted in good faith for the purpose of s 588FG(2)(a) of the Corporations Act.
3. The respondent had established that he had no reasonable grounds for suspecting that the Company was insolvent pursuant to s 588FG(2)(b). On this review, this Court was in as good a position as the Magistrate to determine the proper inferences to be drawn from the undisputed facts.
4. The whole of the circumstances that existed between the Company and the respondent had to be considered in determining whether there were objective grounds to find that there was no reasonable suspicion of insolvency. In the context of evidence relating to late payment of invoices in the building industry and the relatively small amounts owing to the respondent, the fact that the first invoice was rendered prior to the amount becoming due and payable under the contract, the lack of any of the normal indicia of insolvency, the respondent had established that he had no reasonable grounds to suspect the insolvency of the Company.
5. If an unfair preference had been made out, s 588FF did not provide a discretion in the Court to decline to make an order for repayment of the amount due.
6. If the defence under s 588FG had not been made out, the respondent would not have been able to rely upon the ultimate effect doctrine. In the circumstances, the sole purpose of the payment was to discharge an existing debt and was not to induce the respondent to provide further goods or services. The doctrine therefore had no application.
Magistrates Court Act 1991 (SA) s 38(1), 38(6), 38 (7), 38(8), 38(9); Corporations Act 2001 (Cth) s 588FA, 588FC, 588FE, 588FF, 588FG, referred to.
Harradine v District Court of South Australia [2012] SASC 96; Gillet v District Court of South Australia [2019] SASC 132; Trittenheim Pty Ltd v H & H Gill Nominees Pty Ltd (1994) 63 SASR 434; Griggs v Norris Group of Companies (2006) 94 SASR 126; Duncan as liquidator of WDR Iron Ore Pty Ltd (in liq) v SMA Industries Pty Ltd [2020] SAFC 88; The matter of Alsafe Securities Pty Ltd as trustee for the Alsafe Trust (in liq) [2016] NSWSC 428; Chicago Boot Co Pty Ltd v Davies & McIntosh as Joint & Several Liquidators of Harris Scarfe Ltd [2011] SASCFC 92; Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; Sydney Appliances Pty Ltd (in liq) v Eurolinx Pty Ltd (2001) 37 ACSR 477; [2001] NSWSC 230; Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266; Cashflow Finance Pty Ltd v Westpac Banking Corporation [1999] NSWSC 671; Cusson v Sultan [2009] NSWSC 1114; In the matter of D Pty Ltd (in liq; D Pty Ltd (in liq) v Calas (Trustee)) [2016] FCA 1409; Cussen v Commissioner of Taxation [2009] NSWSC 1114; Devries v Australian National Railways Commission (1993) 177 CLR 472; Fox v Percy (2003) 214 CLR 118; Mann v Sangria Pty Ltd [2001] NSWSC 172; White v ACN 153 152 731 Pty Ltd [2018] WASCA 119; (2018) 53 WAR 234; Bryant, in the matters of Gunns Limited (in liq) (receivers and managers appointed) v Edenborn Pty Ltd [2020] FCA 715; Re Frontier Architects Pty Ltd (in liq) [2010] FCA 1381; Air Services Australia v Ferrier (1996) 185 CLR 403, considered.

MATTHEWS v QASEMY
[2020] SADC 175
Introduction

This is a review pursuant to s 38(6) of the Magistrates Court Act 1991 of a minor civil action in which the Magistrate dismissed the claim of the applicant, Anthony Matthews, as liquidator of Softec Homes Pty Ltd (the Company), against the respondent Mohammad Nasim Qasemy trading as Hazara Building Services.
The applicant is dissatisfied with the judgment of the Magistrate and has made an application for a review of the matter.
The applicant claims the sum of $11,500 from the respondent on the basis that the payment by the Company to the respondent of that sum from October to December 2016 was an unfair preference pursuant to s 588FA of the Corporations Act 2001. If the transaction was an unfair preference, then it is a voidable transaction pursuant to s 588FE of the Corporations Act and the court can make orders for repayment to the Company pursuant to s 588FF of the Corporations Act.
The respondent, in his defence, relied upon the statutory defence provided for in s 588FG of the Corporations Act that he received the payments in good faith and had no reasonable grounds for suspecting that the Company was insolvent. The respondent also raised the defence that the ultimate effect of the transaction was to benefit the Company.
The Magistrate found that the payment was an unfair preference, but upheld the defence of the respondent pursuant to s 588FG that the respondent received the payment in good faith and had no reasonable grounds at that time to suspect the Company was insolvent.
Application for Review
The review is conducted pursuant to s 38(6) to 38(9) of the Magistrates Court Act 1991. On this review, the court may inform itself as it thinks fit and in doing so is not bound by the rules of evidence. The court may, if it thinks fit, rehear the evidence taken before the Magistrates Court. In hearing and determining this review, the court must act according to equity, good conscience and the substantial merits of the case, without regard to technicalities and legal form. It is important to note that this review is a review of the matter and not a review of the judgment.
Section 38(1) of the Magistrates Court Act sets out the provisions which are applicable to the conduct of the minor civil action. These provisions provide as follows:
(a)     the trial will take the form of an inquiry by the Court into the matters in dispute between the parties, rather than an adversarial contest between the parties;
(b)    the Court will itself elicit by inquiry from the parties and the witnesses, and by examination of evidentiary material produced to the Court, the issues in dispute and the facts necessary to decide those issues;
(c)     the Court may itself call and examine witnesses;
(d)    the parties are not bound by written pleadings;
(e)     the Court is not bound by the rules of evidence;
(f)     the Court must act according to equity, good conscience and the substantial merits of the case, without regard to technicalities and legal forms.
Sections 38(6) and 38(7) of the Magistrates Court Act require an examination of the inquisitorial process undertaken by the Magistrate to determine whether there has been a trial by the Magistrate in accordance with these provisions. The conduct of a minor civil action must be considered in the context of the comments by Blue J in Harradine v District Court of South Australia.[1] Blue J explained that the role of the Magistrates Court in such an action is that of an enquiry by the Magistrate, rather than managing an adversarial contest between the parties.
[1] [2012] SASC 96 at [40].
In Gillott v District Court of South Australia,[2] Peek J discussed the meaning of the phrase ‘equity, good conscience and substantial merits of the case’ and quoted from the decision of Olsson J in Trittenheim Pty Ltd v H & H Gill Nominees Pty Ltd,[3] in which His Honour noted that the meaning of that phrase must arise from the consideration of the nature of the issues involved and where appropriate the clear purpose of the relevant statute. Olsson J went on to hold that in certain cases the phrase required that the court should adopt a broad approach of common sense and common fairness, eschewing all legal or other technicality. In Griggs v Norris Group of Companies,[4] White J referred to the phrase in the context of meaning good sense and natural justice of the matter. At times, he held the expression meant the decision maker was empowered to do whatever he might think necessary to achieve fairness between the parties.
[2] [2019] SASC 132 at [44] – [46].
[3] (1994) 63 SASR 434.
[4] (2006) 94 SASR 126; [2006] SASC 23 at [31].
Given the nature of the minor civil review and their purpose to achieve an economical and efficient disposition of the matter I consider that the phrase ‘equity, good conscience and substantial merits of the case’ is used in the context described above, namely requiring the Magistrate to act according to good sense and the natural justice of the matter and to do whatever was necessary to achieve fairness between the parties in relation to their legal rights, eschewing legal or other technicalities.
A decision of this Court on a review is final and not subject to appeal pursuant to s 38(8) of the Magistrates Court Act.
In the present case, apart from the question of good faith, which I will address below, there was no dispute relating to the facts and circumstances that gave rise to the claim for the unfair preference or the matters that underpinned the defences pleaded by the respondent. Based on these facts and circumstances, the Magistrate found that the defence under s 588FG(2) was made out and that the respondent had no reasonable grounds to suspect the insolvency of the Company at the relevant times that the payments were made and received. If that conclusion was wrong, then it would follow there would not have been a disposition of the matter according to its substantial merits and the review would be allowed.
Conduct of the Trial in the Magistrates Court
The Magistrate conducted the trial in an inquisitorial style as required by s 38(1)(a) of the Magistrates Court Act. The applicant was an experienced liquidator and appeared in person at the trial. By leave of the Court, the respondent was represented at the initial trial before the Magistrate, but was not represented on this review.
The Company went into liquidation on 15 February 2017. The winding up of the Company was deemed to have commenced on 26 October 2016 (when the application to wind up the Company was lodged) and the relation back period deemed to commence on 27 April 2016. It was accepted by the parties that the Company was insolvent at all relevant times.
Relevantly, there was no dispute that the Company was insolvent when it made payments to the respondent on:
·14 October 2016 in the sum of $4,000.
·23 November 2016 in the sum of $1,500.
·19 December 2016 in the sum of $3,000.
·20 December 2016 in the sum of $3,000.
The Magistrate found that the respondent carried on business as a sole trader in the building industry and advertised his services as a renderer and bricklayer, although this particular job involved brick laying. In fact, it was the only bricklaying job that he undertook. The work involved brick laying the four walls of a house at a site in Murray Bridge. The respondent said that he had been a sole trader in the building business for approximately three years.
At the time that the respondent undertook this work he was told by a representative of the Company that the estimated cost of the job was $20,000 and it was agreed that he would render an invoice for payment once the job had been fully completed.
It was initially the case that the Company would supply all materials, but as it turned out the Company supplied only the bricks and the respondent was required to purchase some of the materials himself such as white cement, sand, damp course, expanding foam for the joints, tiles etc. The respondent engaged three sub-contractors to undertake the brick laying. He, himself, supervised the work. The respondent gave evidence, which the Magistrate accepted, that he understood the Company was a large company and he hoped to get further work from it in the future.
On 1 September 2016, the respondent rendered an invoice to the Company in the sum of $8,800 inclusive of GST. The Magistrate found that he rendered the invoice at that time because, although the agreement with the Company was that he would seek payment once the job had been completed, he had incurred personal expenses to purchase the materials and was under increasing pressure from the sub-contractors to pay them. The respondent gave evidence that the Company’s representative said they would pay the invoice within seven days.
The respondent sent a text message to the Company’s representative on 20 September 2016 stating ‘The last invoices were overdue, please pay immediately, Nasim’. This message was also sent to another officer of the Company. The messages (to each of the Company officers) were again sent on 21 September 2016. The respondent gave evidence that he sent the messages because he was under pressure to pay the other sub-contractors as they were asking him to be paid and he felt obliged to do so.
The respondent sent a further and final invoice on 23 September 2016 for the sum of $18,579 (which included the $8,800 which was the subject of the earlier invoice). This second invoice was rendered on the completion of the contract.
The respondent also gave evidence that he communicated with the Company’s representative and told him the sub-contractors were asking him to pay and the Company’s representative said ‘OK, don’t worry I’ll tell the office to pay you”. He further said that the Company officer called him on 27 September 2016 and told him that the office was pretty busy at the moment. The respondent went to visit the Company offices shortly afterwards and asked them when they were going to pay. He said he was told by a person, who he could not identify, ‘don’t worry we will pay you’. The respondent then received the payments on the dates specified.
The respondent gave evidence that at no stage did he check the credentials of the Company or make enquiries about its financial circumstances and he did not have any reason to do so. He did not know anyone at the Company before he was approached and accepted the job and that all he knew was that it was a large company.
The Magistrate accepted the respondent’s evidence about the text messages and in particular that they were not the result of a particular concern or suspicion he had that the Company could not pay the invoice. The Magistrate also accepted the respondent’s other evidence about the reasons why he did not hold any suspicion that the company was not able to pay. The respondent said that in his experience 90% of those for whom he had worked did not pay on time and sometimes it took months. The respondent said that it was normal that he was not paid on time.
The respondent also gave evidence that his visit to the Company’s office to seek payment was not because he was suspicious that the Company could not pay, but that he was motivated, at least in part, to attend because he was hoping he might obtain further jobs in the future. He said that he had no reason to suspect that the Company was unable to pay because it was a big company with a lot of staff.
The respondent gave evidence that the Company making payments in four separate instalments did not indicate to him that the company might be having difficulty paying him.
The Magistrate accepted that the matters that I have referred to above, as well as the respondent’s personal circumstances, namely that he was a refugee from Afghanistan, had studied only to year 10, had not undertaken any business course and only been in the building business for about three years as a sole trader, caused him to believe that he would be paid or at least he was not suspicious that he would not be paid. The Magistrate also found that in the circumstances that I have outlined above, a reasonable person would not have suspected the company was insolvent when the $4,000 was paid within about 21 days from the 23 September 2020 invoice.
As I said, the Magistrate accepted the evidence of the respondent that it was not uncommon in the building industry that payment was not made immediately and that it was common that payment was not made for many months. The Magistrate also found that in respect of the latter payments, the time period involved was not so extended so as to cause the respondent, or a reasonable person in his circumstances, to suspect the company was insolvent.
The Review
Neither party gave further oral evidence on the review.
The applicant tendered two further documents on review; first a historical company record which showed that the respondent registered a business name in 2005 and operated under the business name Hazara Building Services from 2009. This showed, the applicant submitted, that the respondent had been in business for a considerable period of time and not merely the three years found by the Magistrate. I accept that the document tendered does show that the respondent may have been in business for this period, but nothing turns on this fact and no other evidence was led or submissions made about the consequence of this matter. It does not cause me to conclude that the Magistrate erred in finding that the respondent was not suspicious that he would not be paid.
The second document tendered by the applicant on the review was an updated account of the respondent with the Company.
On the review, the applicant submitted that the respondent had not proven on the balance of probabilities the defence pursuant to s 588FG(2) of the Corporations Act. The applicant submitted that a reasonable person in the circumstances of the respondent would have had grounds for suspecting that the Company was insolvent at the time that it made the payments to the respondent. The applicant submitted that the Magistrate wrongly brought into account subjective considerations when reaching a conclusion in relation to the objective test required under s 588FG.

The respondent submitted, on the review, that the Magistrate had correctly applied the objective test. The respondent further submitted that, insofar as the applicant was contending that the respondent actually suspected the Company was insolvent, this was an error of fact and could not be reviewed in circumstances where the inference was reasonably open and the Magistrate had come to the conclusion without making any error of law. The respondent also submitted that even if an unfair preference had been established and the transaction was voidable, s 588FF(1) gave the court a discretion to make a repayment order and in the circumstances of this case it ought not do so.
Legal principles
Under s 588FA of the Corporations Act a transaction is an unfair preference if the transaction (made during the relevant time) results in the creditor receiving from the company in respect of an unsecured debt owed by the company to the creditor, more than the creditor would receive if the transaction were set aside and the creditor were to prove in the winding up of the company. An unfair preference is an insolvent transaction if at the time that the payment is made, the company was insolvent: s 588FC of the Corporations Act.
Under s 588FE an insolvent transaction is voidable. Where a court is satisfied that the transaction is voidable, the court may, under s 588FF make various orders including an order directing a person to pay to the company the amount that the company has paid under the transaction.
Sub-section 588FG(2) of the Corporations Act provides:
(2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director‑related transaction of the company, and it is proved that:
(a) the person became a party to the transaction in good faith; and
(b) at the time when the person became such a party:
(i)the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and
(ii)a reasonable person in the person’s circumstances would have had no such grounds for so suspecting; and
(c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.
There are six elements to this defence.[5] They are:
a.That the order would otherwise materially prejudice a right or interest of a person. This is not in issue in the present case as a right of the respondent will be affected if the claim for an unfair preference is upheld in that he will be ordered to repay the monies received;
b.The transaction is not an unfair loan or an unreasonable director-related transaction. An unfair preference claim is not such a transaction;
c.The person has provided valuable consideration in reliance on the transaction. This is satisfied in the present case. The respondent has provided services;
d.The person became a party to the transaction in good faith;
e.When the person became a party to the transaction, the person had no reasonable grounds for suspecting the company was insolvent at the time or would become insolvent as a result of the transaction;
f.When the person became a party to the transaction, a reasonable person in the person's circumstances would have had no reasonable grounds for suspecting that the company was insolvent at the time or would become insolvent as a result of the transaction.
[5] Duncan as liquidator of WDR Iron Ore Pty Ltd (in liq) v SMA Industries Pty Ltd (WDR Iron Ore) [2020] SASC 88 at [260].
It is the last three elements that are the subject of this review.
The respondent bears the onus of establishing the defence under s 588FG(2) and in order to do so must establish this defence at the time that he received each payment the subject of the claim.[6] The respondent must establish in respect of each transaction, all of the elements referred to above.
[6] The matter of Alsafe Securities Pty Ltd as trustee for the Alsafe Trust (in liq) [2016] NSWSC 428 at [32].
One of the grounds of appeal of the applicant was that the Magistrate erred in finding that the respondent did not suspect that the Company was insolvent. This put in issue whether the respondent became a party to the transaction in good faith.
On the review, the applicant conceded it was difficult for him to persuade this Court that it should review the finding of the Magistrate that the respondent acted in good faith. The test for good faith is subjective: WDR Iron Ore.[7] Good faith connotes honesty or propriety and a lack of good faith connotes dishonesty or impropriety. Therefore, if the respondent had an actual suspicion on reasonable grounds that the Company was insolvent, it could not be said to have been acting in good faith in receiving the payment.[8] For this purpose, suspicion of insolvency would not be sufficient.[9] Nicholas J in Cussen v Commissioner of Taxation[10] held that it was necessary for the payee [the respondent in this case] to prove that his motive and intention in becoming a party to the transaction was founded on a genuine belief or knowledge that the transaction was of an ordinary business kind and was not uncommercial.
[7]    WDR Iron Ore, above at [295].
[8]    Sydney Appliances Pty Ltd (in liq) v Eurolinx Pty Ltd (2001) 37 ACSR 477; [2001] NSWSC 230 at [38].
[9]    WDR Iron Ore, above at [298].
[10] [2009] NSWSC 1114 at [37].
In the present case, the Magistrate found, on an analysis of the evidence, that the respondent was in fact not suspicious that the company was insolvent.[11] The Magistrate accepted the evidence of the respondent in relation to this issue. That was a finding that was open to the Magistrate. The evidence of the respondent about his experience with payments being late in the building industry, his lack of wider business or educational experience, his position as a refugee from Afghanistan all provide support for this position. It could not be said that this finding was not open to the Magistrate or was implausible or contrary to other facts. In Devries v Australian National Railways Commission,[12] the Court held that a finding of fact based on the credibility of a witness may only be set aside on appeal where the decision is either manifestly wrong by reason of error indicated by incontrovertible facts or uncontested testimony or is glaringly improbable or is contrary to compelling inferences to the contrary. There are no such grounds in the present case for overturning this finding of the Magistrate. In fact, the finding on good faith was consistent with the evidence.
[11] Judgment at [41].
[12] (1993) 177 CLR 472.
I find therefore for the purposes of the review that the respondent acted in good faith.
There is not the same restriction in reviewing a matter in relation to the requirements of s 588FG(2)(b). Whether a person has no reasonable grounds for suspecting insolvency is dependent on what inferences can be drawn from the undisputed facts. As was observed in Fox v Percy:[13]
…an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge but, once having reached its own conclusion, will not shrink from giving effect to it.
[13] (2003) 214 CLR 118 at 127.
The test under s 588FG(2)(b)(i) is hybrid in character since it contains both a subjective and objective element. The subjective element is whether a particular creditor, with their perspicacity, the information available to them and with any analysis of that information that they had made, had no reasonable grounds for suspecting insolvency at the relevant time. In considering whether the first element has been satisfied, regard would normally be had to the training, skills and experience of the person in question in determining whether the person had no reasonable grounds for suspecting insolvency. The objective element is whether there were no reasonable grounds to suspect insolvency.[14]
[14] Alsafe (above) at [33] citing Chicago Boot Co Pty Ltd v Davies & McIntosh as Joint & Several Liquidators of Harris Scarfe Ltd [2011] SASCFC 92 at [21].
The test under s 588FG(2)(b)(ii) is objective in character. It is directed to whether a reasonable person in the creditor’s circumstances, using the information available in those circumstances and making an analysis of that information which a reasonable person would make, would have reasonable grounds to suspect the debtor’s insolvency.[15] The matter will be determined by reference to a person who has the knowledge and experience of an average business person. The reference to ‘a reasonable person in the person’s circumstances’ is a reference to a reasonable person’s assessment of the information in fact in possession of the creditor.[16] The test is an objective test and the standard measurement is that of a hypothetical person who is assumed to have knowledge and experience of the average business person. It does not require the examination of whether the particular creditor with their particular skills, training and expertise had no reasonable grounds to suspect insolvency.[17]
[15] Alsafe above at [34] citing Chicago Boot (above) at [21]-[22]; Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651.
[16] WDR at [269].
[17] Ibid.
As Blue J pointed out in WDR Iron Ore[18] the difference between the two limbs in s 588FG(2) is that under the first limb it is the creditor who received the payment whose state of mind is relevant, whereas in the second limb it is a reasonable person in the creditor’s circumstances. Under both limbs the question is not whether the relevant person would subjectively suspect insolvency, but whether they objectively had reasonable grounds to suspect insolvency. As Bryson J held in Mann v Sangria Pty Ltd,[19] it would seldom be the case that the two tests would produce different results, although it was conceivable that a person might be afflicted by some personal difficulty in forming a suspicion.
[18] Ibid at [264].
[19] [2001] NSWSC 172 at [46].
The defence is only made out if both limbs are satisfied.
Both limbs refer to a suspicion as a state of mind. Whether a state of mind amounts to a suspicion involves a holistic judgment based on all the facts and circumstances.[20]
[20] WDR Iron Ore at [271].
In Queensland Bacon Pty Ltd v Rees[21] Kitto J said that the word ‘suspicion’
is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to ‘a slight opinion, but without sufficient evidence’, as Chambers Dictionary expresses it.
[21] [1966] HCA 21; (1966) 115 CLR 266.
In White v ACN 153 152 731 Pty Ltd,[22] Murphy and Mitchell JA and Allison J said the reference to a suspicion is the suspicion of actual insolvency and not a suspicion or even a belief that a debtor may be insolvent. It is a suspicion of actual and existing insolvency as distinct from impending or potential insolvency.
[22] [2018] WASCA 119; (2018) 53 WAR 234 at [112]-[113].
In Sydney Appliances Pty Ltd (in liq) v Eurolinx Pty Ltd[23] Santow J held:
The case law illustrates that there is no single factor whose presence invariably establishes that there was, or should have been, the requisite suspicion. Rather it is a question of looking not in hindsight but through the contemporary eyes of the parties, at the commercial circumstances then prevailing between them. This is to identify in that context those factors pointing towards insolvency of the debtor. This in turn is in order to ascertain which of those factors were apparent to the payee, and then the cumulative impact that knowledge of them should have had, or did have, upon the payee. There will also be potentially countervailing factors and circumstances to be weighed in the balance which could have tended to dispel suspicion at the time.
[23] [2001] NSWSC 230; (2001) 37 ASCR 477 at [43].
In this review, the applicant relies on the following matters to establish that objective suspicion (both in relation to the respondent himself and a reasonable person in the respondent’s circumstances):
a.The failure of the Company to pay the debts at the time that they fell due and the delay in payment;
b.The payment of the debts by the Company in a round sum rather than by reference to the amount owed under the invoices;
c.The text messages sent on 20 and 21 September 2016 requesting payment;
d.The various communications between the respondent and the Company regarding payment and the statements from the officers of the company that the debt would be paid within 7 days or would be paid soon or would be paid in the future;
e.The attendance at the offices of the Company by the respondent on or about 27 September 2016;
f.The request by the Company that the respondent pay for the materials for the job when that had not been a term of the original contract;
g.The payment by the Company to the third-party contractor, Mr Joya, through the respondent.
In my view, these matters have to be considered in the context of various countervailing matters and the whole of the circumstances that existed between the Company and the respondent. These other matters included the following. First, the invoice dated 1 September 2016 issued by the respondent to the Company was sent prior to the agreed date under the contract and therefore was not due and payable until late September 2016. The amounts claimed in it were incorporated in the second invoice. Secondly, the evidence from the respondent, and accepted by the Magistrate, was that it was common in the building industry that payment would not be made promptly and would indeed take months in some cases. Thirdly, the respondent was pressing for payment because his sub-contractors were seeking payment. Fourthly, the respondent was a sub-contractor and the Company was a contractor in relation to work being undertaken on a house. Fifthly, to the knowledge of the respondent, the Company was a large company. Sixthly, the amounts owed by the Company to the respondent were relatively modest.
In these circumstances, I do not consider that the failure to pay the invoices in a timely way was of itself a ground for suspicion of insolvency. The first invoice was not due at the time that it was sent or the time that the respondent sent the text messages on 20 and 21 September 2016. As I said, both the first invoice and the second invoice became due, under the terms of the contract in late September 2016. Delays in payment in the building industry were, on the evidence, common. The delay of payment in the present case from the end of September 2016 to December 2016 (when the last payment was made) do not, in my view, provide for a reasonable suspicion of insolvency, particularly in circumstances where the amount owing was relatively modest.
In White v ACN 153 152 731 Pty Ltd,[24] Murphy and Mitchell JA and Allison J held:
A failure to pay a debt, or to pay it in a timely way, may of itself not ground a suspicion of insolvency. It may, instead indicate no more than a temporary shortage of liquidity, or perhaps raise as a possibility that the debtor is insolvent, but without providing sufficient foundation for the formation or an actual suspicion that the debtor is in fact insolvent. A failure to pay a debt, or its late payment, must be considered in the context of the history of the dealings between the parties and all the commercial circumstances. The size of the debt and whether it has remained unpaid or unpaid in part, over a substantial period of time, are generally important considerations in determining whether there were grounds for suspecting insolvency.
[24] 2018] WASCA 119; (2018) 53 WAR 234 at [112]-[113].
The promises to pay invoices within a week or so or to pay soon and the subsequent failure to pay within that time do not, in my opinion, provide any reasonable suspicion of insolvency. As I have said, the statements were initially made before the amounts claimed in the invoice had become due and payable. The later promises to pay were not made in the context of a formal payment plan, but in the context of an oral request for payment and an instantaneous response to the oral request of the respondent.
The visit to the Company premises falls into the same category. At that stage work had only just been completed and the first and second invoices were, at most, only just due and payable at that time.
Payment to the sub-contractor of the respondent in the sum of $3,000 also does not to my mind raise a reasonable suspicion of insolvency. The payment was made at the request of that sub-contractor as he required the money urgently. Making payment through the respondent says nothing about the insolvency of the Company and more a matter of administrative convenience. In my opinion, the transaction cannot be considered highly irregular and I am not prepared to draw the inference that the respondent was thereby aware that the Company could not pay its debts.
I do not consider that the inclusion of a further sum of $5,000 for materials to be paid in the first instance by the respondent is an indicium of insolvency. In effect, the contract was varied for the respondent to pay for those materials. This variation was made prior to any invoice being sent or any amount becoming due and payable. There was nothing to suggest that at the time that it was sent that the request had anything to do with the financial position of the Company. It was a matter that was evidently agreed to by the respondent.
A lump sum payment that was not referrable to an amount claimed in a specified invoice can, in particular circumstances, be an indicium of insolvency. However, in the present case, I do not consider that it is. As I have said, the amounts outstanding were modest in the context of a building company. It was a job where the Company was the contractor and may well have been awaiting payment from the owner of the house.
I have also considered the effect of all of the above matters collectively. I do not consider that, collectively, they cause a reasonable person to have a suspicion of insolvency. When all the circumstances of the case are considered, including the practice in the building industry of payments often being delayed, the modest amount of these payments, the respondent’s position as a sub-contractor, the lack of any of the usual indicators of insolvency such as formal letters of demand or statutory demands, post- dated cheques, known other creditors, the entering into of payment plans, the failure to pay tax on time or the conducting of an investigation into the financial position of the Company, I consider that the respondent has established that there were no reasonable grounds to suspect the insolvency of the Company.
I find that the respondent did not have reasonable grounds to suspect that the Company would not be able to pay its debts as they fall due. I am also satisfied that a reasonable person in the circumstances of the respondent did not have reasonable grounds to suspect the insolvency of the company.
Other arguments of the respondent
As a result of my conclusion in the previous paragraph, I do not have to strictly consider the other submissions put forward by the respondent. However, I will briefly set out my conclusions in relation to these matters.
I do not consider that, if the requirements for unfair preference are made out and no defence is available to the respondent, that it would be an appropriate exercise of the discretion under s 588FF not to order repayment by the respondent to the Company.[25] In Cashflow Finance Pty Ltd v Westpac Banking Corporation[26] Einstein J held
The presence of the word ‘may’ in section 588FF does not mean that there is a discretion in the Court concerning whether to make an order in the circumstances of the present case.
[25] Bryant, in the matters of Gunns Limited (in liq) (receivers and managers appointed) v Edenborn Pty Ltd [2020] FCA 715 at [207].
[26] [1999] NSWSC 671 at [569].

To similar effect are the decisions in Cusson v Sultan[27] and Re Frontier Architects Pty Ltd (in liq).[28] While there may be a discretion as to whether or not to make a declaration,[29] there appears to be no good reason to find that the Court has a discretion as to whether not to make an order for repayment.
[27] [2009] NSWSC 1114 at [25]-[30].
[28] [2010] FCA 1381 at [26]-[28].
[29] In the matter of D Pty Ltd (in liq; D Pty Ltd (in liq) v Calas (Trustee)) [2016] FCA 1409 at [68].
The respondent also raised the ultimate effect doctrine. In my opinion, that doctrine has no application in the present case as the respondent had already completed the work prior to any payment being received. The ultimate effect doctrine requires the court to have regard to the ultimate effect of a transaction on other creditors in assessing whether the particular transaction constitutes a preference,
In Air Services Australia v Ferrier,[30] Dawson, Gaudron and McHugh JJ held:
If the sole purpose of the payment is to discharge an existing debt, the effect of the payment is to give the creditor a preference over other creditors unless the debtor is able to pay all of his or her debts as they fall due. But if the purpose of the payment is to induce the creditor to provide further goods or services as well as to discharge an existing indebtedness, the payment will not be a preference unless the payment exceeds the value of the goods or services acquired.
[30] (1996) 185 CLR 403 at 502.
In the present case, at the time of payment, the services had already been delivered and no further services were to be delivered in the future. The sole purpose of the payment was therefore to discharge an existing debt and not to induce the creditor to provide further goods or services. As such, the ultimate effect doctrine has no application in the present case.
Conclusion
For the above reasons, the decision of the Magistrate is affirmed. The application for the review is dismissed.